                               T.C. Memo. 2017-92



                         UNITED STATES TAX COURT



          HENRY LANGER AND PATRICIA LANGER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 22719-15.                          Filed May 30, 2017.



      Thomas Edward Brever, for petitioners.

      Christina L. Cook and John Schmittdiel, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      NEGA, Judge: Respondent issued a notice of deficiency to petitioners

determining deficiencies in income tax and fraud penalties as follows:1


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the taxable years at issue, and all Rule references are to
                                                                       (continued...)
                                         -2-

[*2]

                                                      Penalty
                                                1
                         Year       Deficiency      sec. 6663(a)
                         2011         $36,595        $27,446.25
                         2012          27,386         20,539.50
                         2013          33,689         25,266.75

       1
       The amounts referred to herein reflect an agreement by the parties to
revised deficiencies in Federal income tax as reflected on Form 5278, Statement--
Income Tax Changes, and are less than respondent’s initial determinations in the
notice of deficiency.

Petitioners conceded in full the deficiencies for tax years 2011-13. The only issue

for decision is whether petitioners are liable for fraud penalties under section 6663

for tax years 2011-13.

                                FINDINGS OF FACT

       Some of the facts are stipulated and are so found. The stipulation of facts

and the attached exhibits are incorporated herein by this reference. Petitioners

resided in Minnesota when the petition was timely filed.

       Henry Langer was an Internal Revenue Service revenue agent for over 29

years and received training in determining allowable business expense deductions;

he was also a certified forensic examiner. Petitioners have a history of claiming

       1
       (...continued)
the Tax Court Rules of Practice and Procedure.
                                         -3-

[*3] business expense deductions for obvious personal expenses and expenses

they could not substantiate. See, e.g., Langer v. Commissioner (Langer I), T.C.

Memo. 2008-255, 96 T.C.M. (CCH) 334, 339 (2008) (“[P]etitioners claimed as

business expense deductions many obviously personal items. A former Internal

Revenue Service agent should have known better.” (Emphasis added.)), aff’d

without published opinion, 378 F. App’x 598 (8th Cir. 2010); Langer v.

Commissioner (Langer II), T.C. Memo. 1992-46, 63 T.C.M. (CCH) 1900 (1992),

aff’d, 989 F.2d 294 (8th Cir. 1993); Langer v. Commissioner (Langer III), T.C.

Memo. 1990-268, 59 T.C.M. (CCH) 740, 746 (1990) (holding petitioners liable

for an addition to tax under section 6653(a) for negligence because petitioners’

conduct suggested a “pattern of carelessness” and because petitioners used

methods for determining deductions that had “no basis in the law”), aff’d, 980

F.2d 1198 (8th Cir. 1992).

      Respondent disallowed $113,194, $67,186, and $84,087 of petitioners’

claimed deductions on Schedules C, Profit or Loss From Business, for 2011-13,

respectively, as personal expenses; many of petitioners’ claimed and disallowed

expense deductions were identical to those disallowed as personal expenses in

Langer I and Langer II, including expenses for parties, gifts, flowers, vases, and

holiday decorations, to name a few.
                                         -4-

[*4]                                 OPINION

       The Commissioner must establish by clear and convincing evidence that, for

each year at issue, an underpayment of tax exists and that some portion of the

underpayment is due to fraud. Secs. 6663(a), 7454(a); Rule 142(b). The

Commissioner must show that the taxpayer intended to conceal, mislead, or

otherwise prevent the collection of taxes. Katz v. Commissioner, 90 T.C. 1130,

1143 (1988). The taxpayer’s entire course of conduct may establish the requisite

fraudulent intent. Stone v. Commissioner, 56 T.C. 213, 223-224 (1971).

       Petitioners conceded in full the deficiencies for 2011-13, and therefore

respondent satisfied his burden of proving an underpayment of tax for each year at

issue. Respondent established that, for each year at issue, petitioners’

underpayment of tax was fraudulent and that they intended to conceal taxable

income and prevent the collection of tax by overstating deductions and claiming

nondeductible and obvious personal expenditures as business expenses. See

Rahall v. Commissioner, T.C. Memo. 2011-101, 101 T.C.M. (CCH) 1486, 1492

(2011) (“An additional badge of fraud includes a taxpayer disguising

nondeductible personal expenditures as business expenses.”). Mr. Langer’s nearly

30 years of experience as a revenue agent and petitioners’ history before this Court

for identical issues are relevant considerations in determining whether they had
                                         -5-

[*5] fraudulent intent. See Beaver v. Commissioner, 55 T.C. 85, 93-94 (1970)

(stating that petitioner’s business experience is a relevant consideration in

determining whether he had fraudulent intent). Petitioners’ repeated concealment

of income by overstating deductions exemplifies a pattern of fraudulent behavior,

and their explanations are implausible and unpersuasive. See McGraw v.

Commissioner, 384 F.3d 965, 971 (8th Cir. 2004) (“[A] consistent pattern of

sizeable underreporting of income * * * and unsatisfactory explanations for such

underreporting also can establish fraud.”), aff’g Butler v. Commissioner, T.C.

Memo. 2002-314; Sanchez v. Commissioner, T.C. Memo. 2014-174, at *17

(stating that “a pattern of conduct that evidences an intent to mislead” is one of the

“badges of fraud” from which fraudulent intent can be inferred), aff’d, ___ F.

App’x ___, 2016 WL 7336626 (9th Cir. Dec. 19, 2016); Bruce Goldberg, Inc. v.

Commissioner, T.C. Memo. 1989-582, 58 T.C.M. (CCH) 519, 529 (1989)

(“[F]raud may sometimes be inferred from a pattern of overstating deductions.”).

Accordingly, petitioners are liable for the fraud penalties under section 6663 for

all years at issue.
                                  -6-

[*6] To reflect the foregoing,


                                        Decision will be entered

                                 under Rule 155.
