                         T.C. Memo. 2006-23



                       UNITED STATES TAX COURT



   168 GARMENT, INC., ET AL.,1 Petitioners v. COMMISSIONER OF
                  INTERNAL REVENUE, Respondent



     Docket Nos.    9243-04, 17152-04,   Filed February 14, 2006.
                   17153-04.



     Lang Thi Ngo, pro se.

     Michael W. Berwind, for respondent.



                         MEMORANDUM OPINION


     FOLEY, Judge:    The issues for decision are whether 168

Garment, Inc. (168 Garment), and Lang Thi Ngo (Ms. Ngo) failed to




     1
        Cases of the following petitioners are consolidated
herewith: Lang Thi Ngo, docket No. 17152-04; and 168 Garment,
Inc., docket No. 17153-04.
                                 -2-

report income and are liable for the section 66632 fraud or the

section 6662 accuracy-related penalty.

                              Background

     In 1997, pursuant to California law, Ms. Ngo incorporated

168 Garment, which performed sewing services for various garment

manufacturers.   Ms. Ngo was the company’s sole shareholder, and

Tho Cong Huynh (Mr. Huynh), her son, was the office assistant.

     In 2000 and 2001, 168 Garment maintained a business checking

account at Citizens Business Bank (Citizens account).   Ms. Ngo

and Mr. Huynh were the only individuals with signature authority

over the Citizens account.    During 2000 and 2001, respectively,

petitioners deposited $511,376, and $417,761 into the Citizens

account, and 168 Garment reported these amounts on its Federal

income tax returns related to those years.   During this period,

Ms. Ngo and Mr. Huynh visited Matt’s Liquor at least 60 times to

cash checks payable to 168 Garment (i.e., totaling $120,610 in

2000 and $219,394 in 2001).    The proceeds from these checks were

not reported on Ms. Ngo’s or 168 Garment’s Federal income tax

returns.   In 2001, Ms. Ngo endorsed 45 of the 60 checks (i.e.,

totaling $173,022) cashed at Matt’s Liquor, and Mr. Huynh

endorsed the remaining 15 checks (i.e., totaling $46,372).



     2
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 -3-

     Revenue Agent Vivek Gupta (Agent Gupta) was in charge of the

Internal Revenue Service (IRS) audit of 168 Garment’s and Ms.

Ngo’s tax returns.   Agent Gupta repeatedly attempted to contact

Ms. Ngo, but she did not respond.      Agent Gupta was subsequently

contacted, however, by petitioners’ tax attorney, Bob Appert, who

provided Agent Gupta with bank statements, canceled checks, and a

disbursement journal relating to 168 Garment.     Upon review of

this information, Agent Gupta concluded that 168 Garment’s

records did not account for the checks cashed at Matt’s Liquor

and petitioners failed to report as income the proceeds of these

checks.

     On March 5, 2004, respondent issued 168 Garment a notice of

deficiency relating to its 2000 taxes.     In the notice, respondent

determined that 168 Garment failed to report income, failed to

substantiate various expenses, and was liable for the section

6662 accuracy-related penalty.   On June 4, 2004, 168 Garment

filed its petition, and on July 13, 2004, respondent filed his

answer.

     On June 14, 2004, respondent issued 168 Garment a notice of

deficiency determining that 168 Garment understated its 2001

gross receipts and was liable for the section 6663 fraud penalty.

Respondent also issued Ms. Ngo a notice of deficiency determining

that in 2001 she failed to report constructive dividends and was

liable for the section 6663 fraud penalty.     Respondent further
                                -4-

determined that if no portion of the underpayment of each

petitioner’s tax for 2001 was due to fraud, petitioners were

each, pursuant to section 6662, liable for an accuracy-related

penalty.

     On September 15, 2004, Ms. Ngo, while residing in Temple

City, California, and 168 Garment, whose principal place of

business was in South El Monte, California, filed their

respective petitions.   On March 10, 2005, respondent filed

separate answers with respect to Ms. Ngo’s and 168 Garment’s

petitions.   On August 9, 2005, this Court, pursuant to Rule

91(f), granted respondent’s motion to show cause why proposed

facts should not be accepted as established and made that order

absolute after petitioners failed to file a response as ordered.

On September 8, 2005, the Court granted respondent’s motion to

consolidate docket Nos. 9243-04, 17152-04, and 17153-04 for

purposes of trial, briefing, and opinion.

                            Discussion

     At calendar call on September 19, 2005, respondent filed

three motions to dismiss for lack of prosecution relating to

docket Nos. 9243-04, 17152-04, and 17153-04, yet petitioners did

not appear at trial or submit a response.    Thus, we will grant

all three motions.   See Rules 53, 123(b).   Accordingly, we

sustain respondent’s determinations that 168 Garment, for 2000

and 2001, understated its income; in 2000 and 2001, failed to
                                -5-

substantiate various expenses; and, in 2000, was liable for the

section 6662 accuracy-related penalty.3   Similarly, we sustain

respondent’s determination that Ms. Ngo understated her 2001

income.

     At trial and by facts deemed stipulated, pursuant to Rule

91(f), respondent established by clear and convincing evidence

that 168 Garment and Ms. Ngo understated their respective 2001

taxes with the intent to commit fraud.    See secs. 6663(a),

7454(a); Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989).

Petitioners failed to maintain adequate records, cooperate with

respondent, and report a substantial amount of income on their

respective tax returns.   See Bradford v. Commissioner, 796 F.2d

303, 307 (9th Cir. 1986) (stating that the failure to report

income, maintain adequate records, and cooperate with the

Commissioner are “badges of fraud” from which fraudulent intent

may be inferred), affg. T.C. Memo. 1984-601.   In 2001, Ms. Ngo

repeatedly and consistently cashed 168 Garment’s checks but

failed to report the proceeds as income to either 168 Garment or

herself.   This scheme was designed to conceal income, mislead


     3
        The penalty applies to the portion of 168 Garment’s
underpayment that is attributable to a substantial understatement
of income tax. Sec. 6662(b)(2). 168 Garment, on its 2000
return, reported a tax due of $1,961, yet 168 Garment owed
$66,900 (i.e. a difference of $64,939). Respondent has met his
burden of production pursuant to sec. 7491(c) and established
that 168 Garment understated its income tax liability. Sec.
6662(d)(1)(A)(i) and (ii).
                                  -6-

respondent, and prevent the collection of tax.       Akland v.

Commissioner, 767 F.2d 618, 621 (9th Cir. 1985), affg. T.C. Memo.

1983-249; DiLeo v. Commissioner, 96 T.C. 858, 875 (1991) (holding

that a corporation may be liable for fraud if its officer has the

fraudulent intent to evade its taxes), affd. 959 F.2d 16 (2d Cir.

1992).   In addition, Ms. Ngo did not cooperate with respondent

(i.e., she did not return phone calls, answer letters, or attend

scheduled meetings).   Accordingly, petitioners are each liable

for the section 6663 penalty.

     To reflect the foregoing,


                                        Appropriate orders of

                                 dismissal and decisions will be

                                 entered for respondent.
