                        T.C. Memo. 1998-102



                      UNITED STATES TAX COURT



                  ALTON C. BINGHAM, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2300-96.                      Filed March 12, 1998.



     Alton C. Bingham, pro se.

     Fred E. Green, Jr., for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined that petitioner had an

income tax deficiency of $397,590 for 1984 and additions to tax

of $198,795 under section 6653(b)(1) and $99,398 under section

6661(a).   Respondent also determined that petitioner was liable
                                 -2-

for the addition to tax under section 6653(b)(2) of 50 percent of

the interest payable on the entire deficiency.

     Petitioner was a certified public accountant in 1984.       He

was convicted of forgery and filing a false tax return relating

to four Federal income tax refund checks totaling $195,489 issued

to clients.   He was acquitted of embezzling $676,721 from a

client trust fund.    The issues for decision are:

     1.   Whether petitioner is collaterally estopped from

denying that he received but failed to report a substantial

amount of income on his 1984 return from Federal income tax

refund checks payable to his clients.      We hold that he is, and

that he is liable for income tax on $195,489 from those checks.

     2.   Whether petitioner is liable for income tax on $676,721

that he received in 1984 as a trustee for clients.      We hold that

he is.

     3.   Whether petitioner is liable for the addition to tax

for fraud under section 6653(b) for 1984.      We hold that he

committed fraud as to the amount attributable to his handling of

the refund checks, but that he did not commit fraud for the

amount of clients' land sale proceeds he received as a trustee.

     4.   Whether petitioner is liable for the addition to tax

for substantial understatement of income tax under section

6661(a) for 1984.    We hold that he is.
                                    -3-

     Unless otherwise indicated, section references are to the

Internal Revenue Code.    Unless otherwise indicated, Rule

references are to the Tax Court Rules of Practice and Procedure.

                         I.    FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

A.   Petitioner

     Petitioner lived in Las Vegas, Nevada, when he filed his

petition.

     Petitioner was a certified public accountant from 1964

through the year at issue.       In 1984, he operated a bookkeeping

business, A.C. Bingham & Associates, C.P.A.       Petitioner had a

bank account for A.C. Bingham & Associates at Valley Bank of

Nevada (Valley Bank) in 1984.

B.   Petitioner's Handling of the Lopps' Land Sale Proceeds

     Two of petitioner's clients were Eva and Odell Lopp (the

Lopps).   Petitioner was Mr. Lopp's trustee for a land sale in

Laughlin, Nevada, in 1984.       Petitioner received a $676,720.68

check from the Nevada Title Co. as trustee for Mr. Lopp around

May 7, 1984.

     On May 10, 1984, petitioner used the $676,720.68 check to

buy time deposit certificates at Valley Bank for $10,000 and

$666,720.68.   Petitioner bought both time deposits in his name.

     Petitioner's Social Security number (tax identification

number) is XXX-XX-XXXX.       Petitioner used an incorrect Social
                                -4-

Security number (XXX-XX-XXXX) on both of the time deposit

certificates.

     The $10,000 time deposit certificate had a maturity date of

May 24, 1984.   Petitioner renewed it for an additional 14 days.

     On May 17, 1984, petitioner applied for a $140,000 loan with

Valley Bank in his own name.   He used the $666,720.68 time

deposit as collateral.   He used the same incorrect Social

Security number (XXX-XX-XXXX) on the loan application that he

used on the time deposit certificates.

     Petitioner wrote to Valley Bank to tell it to use the

proceeds of the $666,720.68 time deposit to repay the $140,000

loan on a date not specified in the record.

     On May 21, 1984, petitioner applied for a $500,000 loan from

Valley Bank in his own name.   He used the $666,720.68 time

deposit as collateral.   On the loan application, he used the same

incorrect Social Security number (XXX-XX-XXXX) that he had used

before.   On May 21, 1984, petitioner received a $500,000

cashier's check as the loan proceeds.

     Petitioner wrote to Valley Bank and told it to use the

proceeds of the $666,720.68 time deposit to repay the $500,000

loan on a date not specified in the record.   Petitioner asked

Valley Bank to deposit the remaining proceeds in the account of

A.C. Bingham & Associates.

     On May 24, 1984, petitioner used the proceeds of the

$140,000 loan to buy real property in Yreka, Siskiyou County,
                                 -5-

California (the Yreka property).   Petitioner bought the Yreka

property in his own name for $113,292.79.

     Petitioner invested the $500,000 cashier's check in a

venture known as the CFA Notes in May 1984.

C.   Petitioner's Deposit of the Lopps' Federal Income Tax
     Refunds in the Oro-Tech Industries, Inc., Account

     Petitioner was the bookkeeper for Oro-Tech Industries, Inc.

(Oro-Tech), in 1984.   Petitioner had signature authority on the

Oro-Tech account at Valley Bank (the Oro-Tech account).

     In September 1984, petitioner received, endorsed, and

deposited in the Oro-Tech account Federal tax refund checks

issued to the Lopps in the amounts of $4.13, $73,419.21, $983.41,

and $121,082.39 (a total of $195,489).

D.   Petitioner's 1984 Return

     Petitioner prepared his 1984 Federal income tax return and

filed it on April 18, 1988.   He used his correct Social Security

number on the 1984 return.    He did not report on his 1984 return

that he received $676,720.68 from the land sale or $195,489 from

the Lopps' four Federal tax refund checks.

     Petitioner reported on Schedule D of his 1984 return that he

had invested $500,000 in the CFA Notes.   He reported that he had

sold his interest in the CFA Notes for $350,000 in December 1984

and claimed a $150,000 short-term capital loss on Schedule D of

his 1984 return.
                                  -6-

     Petitioner claimed a $13,015 loss on Schedule E of his 1984

Federal income tax return as a result of his purchase of the

Yreka property.

E.   Petitioner's Indictment and Conviction

     In February 1990, petitioner was indicted under section

7206(1) for filing a false income tax return for 1984 and for

forging the Lopps' signatures on four Federal tax refund checks

totaling $195,489.   The indictment alleged that petitioner

received but failed to report the proceeds of the refund checks.

Petitioner was also indicted for delivering U.S. obligations

bearing forged endorsements and uttering, passing, and publishing

U.S. obligations regarding the four refund checks.    On January

17, 1991, petitioner was convicted of those charges.

     Petitioner was also indicted for embezzling and failing to

report as income $676,720.68 from the Lopps' escrow account.    He

was acquitted of those charges.

     The U.S. Court of Appeals for the Ninth Circuit affirmed

petitioner's conviction, without published opinion.    United

States v. Bingham, 958 F.2d 378 (9th Cir. 1992).

F.   Trial and Petitioner's Assertion of the Fifth Amendment
     Privilege Against Self-Incrimination

     Before trial, petitioner asserted that he had a Fifth

Amendment right not to testify on the grounds that his testimony

could be used against him in further criminal proceedings.

Respondent did not call petitioner or any other witnesses to
                                -7-

testify except the special agent who criminally investigated the

case and the revenue agent who examined petitioner's 1984 return.

Petitioner did not testify or call any witnesses to testify.

                          II.   OPINION

A.   Procedural Issues

     1.   Petitioner's Continuance Request

     One month before the trial in this case, petitioner

requested a continuance to amend his petition to assert that the

time to assess tax for 1984 had expired.    Petitioner did not move

to amend his petition or lodge an amended petition.    We denied

petitioner's motion because he did not need a continuance to

raise the statute of limitations issue.    As a result of our

finding of fraud (see paragraph II-C, below), the statute of

limitations does not bar assessment of the deficiency for 1984,

even though the notice of deficiency was sent more than 3 years

after petitioner filed his return.    Sec. 6501(c).

     2.   Whether Petitioner Had a Right Not To Testify Because
          of the Fifth Amendment Privilege Against Self-
          Incrimination

     Petitioner contends that he could not testify at trial

because to do so would have required him to waive his Fifth

Amendment privilege against self-incrimination.    Petitioner

argues that he may not be forced to choose between defending his

case and losing his privilege against self-incrimination.    He

contends that the danger of self-incrimination is real and not
                                  -8-

conjectural or fanciful.     McCoy v. Commissioner, 696 F.2d 1234

(9th Cir. 1983), affg. 76 T.C. 1027 (1981).

     Petitioner bears the burden of proof on all issues in

dispute except the addition to tax for fraud.     We need not decide

whether petitioner had a right, based on the Fifth Amendment

privilege against self-incrimination, not to testify at trial

because, even if he had such a right, the burden of proof would

not change.    A claim based on the Fifth Amendment privilege is

not a substitute for relevant evidence.     United States v.

Rylander, 460 U.S. 752, 758 (1983); Petzoldt v. Commissioner, 92

T.C. 661, 684-685 (1989).    As discussed below, he did not carry

his burden of proving that he did not receive $872,210 of

unreported income in 1984.    See Petzoldt v. Commissioner, supra.

     3.     Failure of Both Parties To Call Mr. Lopp To Testify

     Neither party called Mr. Lopp to testify.1    Respondent's

counsel stated at trial that he had been unable to find Mr. Lopp,

and that he had outstanding a subpoena issued to counsel for Mr.

Lopp to obtain documents from a prior civil proceeding between

petitioner and Mr. Lopp.    Petitioner argues that if Mr. Lopp had

testified, petitioner could have proven that he did not

underreport his income in 1984.

     If a witness is equally available to both parties and

neither party calls that witness at trial, then no adverse


     1
         Eva Lopp died before the trial.
                                 -9-

inference is warranted.   Kean v. Commissioner, 469 F.2d 1183,

1187-1188 (9th Cir. 1972), affg. on this issue and revg. on

another issue 51 T.C. 337, 343-344 (1968).   It appears that

either petitioner or respondent could have subpoenaed Mr. Lopp.

We draw no inference from the fact that neither party did so.

B.   Whether Petitioner Is Liable for the Deficiency as
     Determined by Respondent

     1.   Collateral Estoppel

     Petitioner was convicted under section 7206(1) of filing a

false return for 1984 by failing to report in his income the four

tax refund checks totaling $195,489.   His conviction estops him

from contesting that he received but failed to report in 1984 a

substantial amount of income attributable to the tax refund

checks and that his return was willfully false.   Considine v.

United States, 683 F.2d 1285, 1287 (9th Cir. 1982).    However,

petitioner is not estopped from contesting that he received but

failed to report the $676,720.68 (the land sale proceeds) because

he was acquitted of all charges relating to the Lopps' land sale.

     Petitioner points out that he was acquitted of both charges

relating to the land sale (embezzlement and failure to report the

land sale proceeds as income).   However, acquittal in a criminal

case where the Government has the burden of proving beyond a

reasonable doubt that a crime was committed does not resolve the

issue in this proceeding, where petitioner bears the burden of

proving that he did not underreport income for 1984.   E.g.,
                                 -10-

Neaderland v. Commissioner, 424 F.2d 639, 643 (2d Cir. 1970),

affg. 52 T.C. 532 (1969); Traficant v. Commissioner, 89 T.C. 501,

510 n.9 (1987), affd. 884 F.2d 258 (6th Cir. 1989).

     As stated in paragraph II-A-2, above, petitioner may not

avoid meeting his burden of proof by asserting that he has a

Fifth Amendment right not to testify.        United States v. Rylander,

supra at 761; Traficant v. Commissioner, supra at 504; see

Steinbrecher v. Commissioner, 712 F.2d 195, 198 (5th Cir. 1983),

affg. T.C. Memo. 1983-12.

     2.      Petitioner's Lack of Evidence

     Petitioner contends in his posttrial brief that he was an

"accommodator" for the Lopps; that is, that Mr. Lopp was the

beneficial owner of the Yreka property and the Double L Ranch (a

tract of real property in Clark County, Nevada), and that

petitioner invested the land sale proceeds and income tax refunds

at Mr. Lopp's direction.    He also contends in his brief that Mr.

Lopp knew he invested in the CFA Notes and used the proceeds of

the Lopps' tax refund checks to pay for the Double L Ranch.

Petitioner contends that he incurred a loss as a result of a

failed factoring operation in which he invested at Mr. Lopp's

direction.

     Petitioner did not testify and called no witnesses.       There

is no evidence to support the factual assertions he made in his

brief.    Respondent's determination is presumed to be correct, and

petitioner bears the burden of proving otherwise.       Rule 142(a);
                               -11-

Welch v. Helvering, 290 U.S. 111, 115 (1933).    Petitioner must

overcome the presumption as to each item of unreported income as

determined by respondent.   Foster v. Commissioner, 391 F.2d 727,

735 (4th Cir. 1968), affg. in part and revg. in part on other

grounds T.C. Memo. 1965-246.   Petitioner has not proven that he

did not receive $872,210 in 1984 as determined by respondent or

that the funds were not income to him in 1984.

     Petitioner points out that respondent did not produce the

Lopps' income tax returns, and he argues that the Lopps' returns

would prove that they, and not petitioner, received the funds in

dispute.   Petitioner's argument misses the mark.   We have found

that petitioner received the funds from the land sale and used

them to buy certificates of deposit in his own name.

     Respondent's special agent and revenue agent testified that

petitioner repaid $200,000 to the Lopps in January 1985.    The

record does not show what led petitioner to do that.   The return

of funds to the Lopps in 1985 does not establish that the funds

were nontaxable to petitioner in 1984.   See Commissioner v.

Glenshaw Glass Co., 348 U.S. 426, 431 (1955) (taxpayer is taxable

on accessions to wealth over which he or she has complete

dominion).   Thus, petitioner is liable for income tax on $676,721

of the land sale proceeds and on $195,489 from the refund checks

(a total of $872,210).
                               -12-

C.   Whether Petitioner Is Liable for the Addition to Tax for
     Fraud

     1.   Background

     Respondent determined that petitioner is liable for the

addition to tax for fraud under section 6653(b) for 1984.     For

1984, if any part of a tax underpayment is due to fraud, the

addition to tax for fraud under section 6653(b)(1) is 50 percent

of the total underpayment of tax, and the addition to tax under

section 6653(b)(2) is 50 percent of the interest payable under

section 6601, but only with respect to that part of the

underpayment that is due to fraud.    Respondent has the burden of

proving by clear and convincing evidence that petitioner

fraudulently underpaid tax.   Sec. 7454(a); Rule 142(b); Stoltzfus

v. United States, 398 F.2d 1002, 1004-1005 (3d Cir. 1968).        To

meet the burden of proof, respondent must show that:     (1) An

underpayment exists; and (2) the taxpayer intended to evade taxes

known to be owing by conduct intended to conceal, mislead, or

otherwise prevent the collection of taxes.    Parks v.

Commissioner, 94 T.C. 654, 660-661 (1990).

     2.   Underpayment

     As discussed above at paragraph II-B-1, petitioner is

collaterally estopped by his conviction under section 7206(1)

from denying that he failed to report a substantial amount of
                                 -13-

income in 1984 attributable to the refund checks.     This

establishes for purposes of this case that petitioner underpaid

his income tax for 1984.

     3.    Fraudulent Intent

     For purposes of section 6653(b), fraud is actual,

intentional wrongdoing, Mitchell v. Commissioner, 118 F.2d 308,

310 (5th Cir. 1941), revg. 40 B.T.A. 424 (1939), or intentionally

committing an act to evade a tax believed to be owing, Webb v.

Commissioner, 394 F.2d 366, 377 (5th Cir. 1968), affg. T.C. Memo.

1966-81.   The Commissioner may prove fraud by circumstantial

evidence because direct evidence of the taxpayer's intent is

rarely available.     Stephenson v. Commissioner, 79 T.C. 995,

1005-1006 (1982), affd. 748 F.2d 331 (6th Cir. 1984).

     The courts have developed a number of objective indicators

or "badges" of fraud.     Recklitis v. Commissioner, 91 T.C. 874,

910 (1988).     Badges of fraud present in this case are:    (a)

Engaging in illegal activities, and (b) understatement of income.

See Spies v. United States, 317 U.S. 492, 499 (1943); Douge v.

Commissioner, 899 F.2d 164, 168 (2d Cir. 1990); Bradford v.

Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.

Memo. 1984-601; Recklitis v. Commissioner, supra.

           a.     Illegal Activities

     Petitioner was convicted under section 7206(1) of willfully

filing an income tax return for 1984 that was false in that it
                                 -14-

failed to report $195,489 of income; forging the Lopps'

signatures on four income tax refund checks; delivering U.S.

obligations bearing forged endorsements; and uttering, passing,

and publishing of U.S. obligations regarding the forged refund

checks.

     A taxpayer who has been convicted of willfully and knowingly

subscribing to a false income tax return under section 7206(1) is

not collaterally estopped from contesting that he or she is

liable for the addition to tax for fraud because a conviction

under section 7206(1) does not require a showing that the

taxpayer willfully attempted to evade tax.       Wright v.

Commissioner, 84 T.C. 636, 643 (1985); Goodwin v. Commissioner,

73 T.C. 215, 235-239, 241-244 (1979).    However, we may consider a

conviction under section 7206(1) in deciding whether a taxpayer

is liable for fraud.     Wright v. Commissioner, supra at 643-644.

Engaging in illegal activities, such as filing a false return and

committing forgery, is a badge of fraud.       Bradford v.

Commissioner, supra.

          b.      Understatement of Income

     As discussed above at paragraph II-B-1, petitioner is

collaterally estopped by his conviction under section 7206(1)

from denying that he failed to report a substantial amount of

income in 1984.    This is a badge of fraud.     Id. at 307.
                                 -15-

             c.   Conclusion

     Petitioner is a longtime C.P.A. who operated a bookkeeping

and accounting business in 1984.     Petitioner's knowledge of

accounting, together with the other facts and circumstances,

including his forging his name on the Lopps' refund checks,

persuades us that a portion of the understatement of income tax

on his 1984 return was due to fraud.       Laurins v. Commissioner,

889 F.2d 910, 913 (9th Cir. 1989), affg. Norman v. Commissioner,

T.C. Memo. 1987-265; Considine v. United States, 683 F.2d at

1288.     We conclude that respondent has proven by clear and

convincing evidence that part of the underpayment of tax for 1984

was due to petitioner's fraudulent failure to report income for

1984.     Thus, we sustain the addition to tax under section

6653(b)(1).

     4.      Items Attributable to Fraud

     For purposes of the addition to tax under section

6653(b)(2), respondent must prove the amount of the underpayment

that is due to fraud.     Sec. 6653(b)(2)(A).   We found that

petitioner had unreported income of $872,210 ($195,489 from four

refund checks and $676,721 of the land sale proceeds).      However,

petitioner's failure to meet the burden of proof with respect to

this amount does not relieve respondent of the burden of proving

by clear and convincing evidence the amount of the underpayment

that is due to fraud for purposes of section 6653(b)(2).
                                 -16-

Habersham-Bey v. Commissioner, 78 T.C. 304, 312 (1982); Otsuki v.

Commissioner, 53 T.C. 96, 106 (1969).

     Petitioner was convicted under section 7206(1) of filing a

false return for 1984.   Petitioner was also indicted for and

convicted of failing to report in income for 1984 the proceeds of

four income tax refund checks totaling $195,489.    Petitioner is

estopped by his conviction from arguing that he received no

income from the refund checks.    We may consider his conviction

for failing to report the proceeds of the refund checks in

deciding whether he received but did not report $195,489 in

income in 1984.   On the basis of the evidence presented,

respondent has shown by clear and convincing evidence that

petitioner intended to evade tax with respect to the income from

the Lopps' income tax refund checks ($195,489).    Thus, petitioner

is liable for the addition to tax under section 6653(b)(2) with

respect to the underpayment for 1984 attributable to the Lopps'

tax refund checks.

     Respondent contends that petitioner fraudulently underpaid

tax relating to the $676,720.68 he received as trustee for the

Lopps.   We disagree.

     Respondent points out that petitioner:    (a) Received as

trustee for Mr. Lopp a $676,720.68 check dated May 7, 1984, from

the Nevada Title Co.; (b) bought two time deposits in his own

name in the amounts of $10,000 and $666,720.68 with the proceeds

of the check; (c) listed the account numbers of the two time
                                 -17-

deposits when he endorsed the $676,720.68 check; (d) used the

$666,720.68 time deposit as collateral for two loans in his own

name in the amounts of $140,000 and $500,000; (e) used the

$500,000 loan to invest in the CFA Notes, from which he claimed a

$150,000 short-term capital loss on his 1984 return; (f) bought

the Yreka property in his own name with the $140,000 loan and

claimed a loss from the property on his 1984 return; (g) used the

$666,720.68 time deposit to repay both loans and had the

remaining proceeds deposited in the account of A.C. Bingham &

Associates; and (h) did not report the $676,720.68 on his 1984

return.

     Respondent further contends that petitioner did not give any

of the land sale proceeds to the Lopps in 1984 and that

petitioner knew that he was required to report as income any of

the funds he did not give to the Lopps.    However, we disagree

that respondent has so proven.    The special agent and revenue

agent testified that petitioner did not return any of the money

to the Lopps in 1984, but they said that he returned $200,000 to

them in 1985.   However, neither agent said how he or she learned

whether or when petitioner returned funds to the Lopps; e.g.,

from written documents or interviews with witnesses with personal

knowledge.   Respondent did not offer any such documents or call

any witnesses who had personal knowledge.    Also, respondent did

not seek to offer a report containing this information into

evidence under the hearsay exception for public records.    Fed. R.
                               -18-

Evid. 803(8); see Little v. Commissioner, T.C. Memo. 1996-270.

Respondent has not proven fraud regarding petitioner's receipt of

the land sale proceeds ($676,721) because respondent did not

prove by clear and convincing evidence that petitioner did not

return any of those proceeds to the Lopps in 1984 or hold the

funds for them in 1984 (i.e., that the proceeds were income to

petitioner in 1984), or that petitioner's underpayment of tax on

that income was due to fraudulent intent.

     Respondent points out that petitioner used an incorrect

Social Security number on the time deposits and the loan

applications (i.e., he used XXX-XX-XXXX instead of XXX-XX-XXXX).

Respondent contends that petitioner did this intentionally to try

to make the transactions untraceable to him.   However, respondent

did not prove that petitioner intentionally used an incorrect

Social Security number.   Reversing two digits in a Social

Security number may cause suspicions, but absent evidence that

petitioner purposely altered his Social Security number at the

time of these transactions, it does not in itself prove fraud.

We will not find fraud under circumstances which at most create

suspicion.   Davis v. Commissioner, 184 F.2d 86, 87 (10th Cir.

1950); Katz v. Commissioner, 90 T.C. 1130, 1144 (1988); Green v.

Commissioner, 66 T.C. 538, 550 (1976).   Petitioner was acquitted

of embezzlement and failure to report as income $676,721 from the

Lopps' sale of land.   Respondent has not shown by clear and

convincing evidence that petitioner's underpayment of tax
                                 -19-

attributable to the land sale proceeds was due to fraud.       Thus,

petitioner is not liable for the addition to tax under section

6653(b)(2) for 1984 for that underpayment.

D.   Substantial Understatement of Income Tax

     The next issue for decision is whether petitioner is liable

for the addition to tax under section 6661(a) for 1984 for

substantial understatement of income tax.    Section 6661(a)

imposes an addition to tax equal to 10 percent of the amount of

any underpayment attributable to a substantial understatement of

income tax.

     An understatement is the amount by which the correct tax

exceeds the tax reported on the return.    Sec. 6661(b)(2)(A).    An

understatement is substantial if it exceeds the greater of 10

percent of the tax required to be shown on the return or $5,000.

Sec. 6661(b)(1)(A).    Petitioner bears the burden of proving that

he is not liable for the addition to tax under section 6661(a).

Rule 142(a); Tweeddale v. Commissioner, 92 T.C. 501, 506 (1989).

     If a taxpayer has substantial authority for the

tax treatment of any item on the return, the understatement

is reduced by the amount attributable to it.     Sec.

6661(b)(2)(B)(i).     The amount of the understatement is reduced

for any item adequately disclosed on the taxpayer's return or in

a statement attached to the return.     Sec. 6661(b)(2)(B)(ii).

Petitioner does not contend that these exceptions apply here.

Petitioner has offered no evidence or argument that he is not
                                 -20-

liable for the addition to tax under section 6661(a).      See

paragraph II-A-2, above, where we addressed petitioner's self-

incrimination claim. We conclude that petitioner is liable for

the section 6661(a) addition to tax for 1984.

     To reflect the foregoing,


                                             Decision will be entered

                                        under Rule 155.
