                        T.C. Memo. 2001-314



                     UNITED STATES TAX COURT



                GREGORY DEAN OWENS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10823-99.                Filed December 20, 2001.


     Gregory Dean Owens, pro se.

     Rebecca Dance Harris, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     THORNTON, Judge:   Respondent determined the following

deficiencies in and additions to petitioner’s Federal income

taxes:
                               - 2 -

                                              Addition to Tax
         Year             Deficiency           Sec. 6651(f)
         1990              $18,735                $17,351
         1991               15,722                 17,194
         1992               20,987                 22,989
         1993               19,183                 19,981
         1994               34,675                 31,387

     The issues for decision are:   (1) Whether petitioner

underreported gross receipts from his dental practice for taxable

years 1990 through 1994 as determined by respondent; (2) whether

for taxable years 1990, 1991, 1993, and 1994, petitioner

substantiated his claimed wage expense deductions; and (3)

whether for each year in issue, petitioner is liable for the

section 6651(f) addition to tax for fraudulent failure to file an

income tax return.1

                         FINDINGS OF FACT

     The parties have stipulated some of the facts, which we

incorporate herein by this reference.   When he petitioned the

Court, petitioner resided in Abingdon, Virginia.

Petitioner’s Dental Practice

     From 1985 through the years in issue, petitioner was sole

proprietor of his general dental practice in Abingdon, Virginia

(the dental practice).   The town of Abingdon, Virginia

(Abingdon), required petitioner to file, on or before January 31

each year, a business license application (the application)


     1
       All section references are to the Internal Revenue Code in
effect for the relevant taxable years. All Rule references are
to the Tax Court Rules of Practice and Procedure.
                               - 3 -

reporting, among other things, gross receipts from the dental

practice for the previous calendar year.   Abingdon used this

information to calculate petitioner’s business license tax.

     Petitioner timely filed applications reporting gross

receipts from the dental practice as follows:

               Year            Gross Receipts
               1990               $117,342
               1991                132,300
               1992                174,072
               1993                150,000
               1994                190,000

On each application, petitioner affirmed under penalty of perjury

that the amount reported as gross receipts was “true and

correct”.

The Criminal Investigation

     Petitioner initially failed to file Federal income tax

returns for the years 1983 through 1994.   On June 15, 1996,

following an investigation by respondent’s Criminal Investigation

Division, petitioner executed a plea agreement wherein he agreed

to plead guilty to five counts of violating section 7203 for

willful failure to file Federal income tax returns--one count for

each of the subject years.2   On January 31, 1997, judgment was

entered by the United States District Court for the Western

District of Virginia, accepting petitioner’s guilty plea.



     2
       Pursuant to the terms of his plea agreement, petitioner
stipulated that “this plea agreement does not settle, compromise
or otherwise affect in any way any federal tax, interest, civil
penalty or other obligation for which I may now be, or in the
future become, liable under Title 26, United States Code.”
                                 - 4 -

Petitioner’s Federal Income Tax Returns

     Pursuant to the terms of the plea agreement, petitioner

agreed to file a “true, complete and correct” Federal income tax

return for each of the subject years.    On August 19, 1996,

petitioner filed these Federal income tax returns.    Attached to

each return is a Schedule C, Profit or Loss From Business (Sole

Proprietorship) (Schedule C), showing, among other things, gross

income from the dental practice and wage expense deductions in

the following amounts:

      Year               Gross Income            Wage Expenses
      1990                  $77,524                $21,862
      1991                  103,826                 28,864
      1992                  113,651                 29,323
      1993                   99,809                 26,849
      1994                  100,640                 27,575

     Petitioner maintained no books or records of his income and

expenses.    He does not know how he arrived at either the gross

receipts or wage expense deductions shown on the Schedules C.

Respondent’s Determinations

     In the notice of deficiency, respondent determined that

petitioner’s dental practice gross income and allowable wage

expense deductions were as follows:

      Year               Gross Income            Wage Expense
      1990                 $117,342                $11,036
      1991                  132,300                 14,214
      1992                  174,072                 29,524
      1993                  150,000                 24,332
      1994                  190,000                 20,002
                                 - 5 -

                                OPINION

Unreported Gross Income

     Respondent determined that petitioner had unreported gross

income from his dental practice, based on the excess of the

amounts petitioner reported on his applications for the subject

years over the amounts he reported on his delinquent Federal

income tax returns.   Petitioner’s admissions on the applications

provide at least a minimal evidentiary foundation, if any be

required, supporting respondent’s determinations of unreported

income.   Cf. Williams v. Commissioner, 999 F.2d 760, 764 (4th

Cir. 1993), affg. T.C. Memo. 1992-153.    The burden of proof is on

petitioner to show that respondent’s determinations are

incorrect.   See Rule 142(a);   Welch v. Helvering, 290 U.S. 111,

115 (1933); Williams v. Commissioner, supra.3

     In his petition, petitioner states that respondent’s

determinations are in error because the “Gross receipts reported

to Town of Abingdon have been determined to be incorrect.”

Petitioner has offered no testimony or other evidence to support


     3
       In certain circumstances, if the taxpayer introduces
credible evidence with respect to any factual issue relevant to
ascertaining the proper tax liability, sec. 7491 places the
burden of proof on respondent. See sec. 7491(a); Rule 142(a)(2).
Sec. 7491 is effective with respect to court proceedings arising
in connection with examinations commencing after July 22, 1998.
See Internal Revenue Service Restructuring and Reform Act of
1998, Pub. L. 105-206, sec. 3001(c)(2), 112 Stat. 726.
Petitioner does not contend, nor is there evidence, that his
examination commenced after July 22, 1998, or that sec. 7491
applies in this case.
                               - 6 -

this contention.   Petitioner has not attempted to controvert the

admissions he made, under penalties of perjury, on each

application that he filed shortly after the end of each year in

issue.   Indeed, these contemporaneous applications seem more

reliable than petitioner’s Federal income tax returns (which were

filed years after the fact), especially given that petitioner has

admitted that he kept no books or records and has stipulated that

he does not know how he arrived at the gross receipts reported on

his tax returns.   Therefore, we sustain respondent’s

determination of the amount of petitioner’s unreported income.

Wage Expense Deductions

     Petitioner offered no evidence to substantiate the wage

expense deductions he claimed on his Federal income tax returns.

Accordingly, petitioner has not established that he is entitled

to wage expense deductions greater than those allowed by

respondent.4

Additions to Tax Pursuant to Section 6651(f)

     Respondent has determined that petitioner is liable for

section 6651(f) additions to tax for fraudulently failing to file

his tax returns for each of the subject years.   Respondent must

establish by clear and convincing evidence that petitioner’s



     4
       For 1992, respondent determined that petitioner is
entitled to wage expense deductions greater than petitioner
claimed on his 1992 Federal income tax return. This
determination is not in issue.
                                - 7 -

failure to file was an intentional attempt to evade tax believed

to be owing.   See sec. 7454(a); Rule 142(b); Clayton v.

Commissioner, 102 T.C. 632, 653 (1994); Gajewski v. Commissioner,

67 T.C. 181, 199 (1976), affd. without published opinion 578 F.2d

1383 (8th Cir. 1978).    The existence of fraud is a question of

fact to be resolved upon consideration of the entire record.

Gajewski v. Commissioner, supra at 199-200.     Because fraudulent

intent can seldom be established by direct proof, it may be

proved by circumstantial evidence.      Clayton v. Commissioner,

supra at 647; Petzoldt v. Commissioner, 92 T.C. 661, 700 (1989).

     Petitioner pleaded guilty to five counts of violating

section 7203 for willful failure to file Federal income tax

returns, one count for each taxable year 1990, 1991, 1992, 1993,

and 1994.   Willful failure to file, even over an extended time,

does not conclusively establish the fraudulent intent required

under section 6651(f).    See Grosshandler v. Commissioner, 75 T.C.

1, 19 (1980); Wilkinson v. Commissioner, T.C. Memo. 1997-410.

Petitioner’s guilty plea, however, is evidence of fraud that,

coupled with other affirmative indications of the requisite

fraudulent intent, warrants imposition of the addition to tax for

fraud.   See Grosshandler v. Commissioner, supra.

     As evidenced by his admissions in the plea agreement,

petitioner knew that he was required to file a Federal income tax

return for each year in issue, and he willfully failed to do so
                               - 8 -

until faced with the prospect of criminal prosecution.    As

evidenced by the applications he filed with Abingdon, petitioner

was aware that he had substantial gross income from his dental

practice.   When petitioner finally did file tax returns for the

years in issue, he understated his aggregate gross income by

approximately $268,264.   Petitioner maintained no books and

records of his income and expenses.    According to undisputed

testimony of respondent’s special agent, petitioner indicated

during the criminal investigation that he had avoided investing

in assets such as real estate that he believed the Internal

Revenue Service (IRS) could seize in collection of back taxes.

Instead, he invested in assets such as gold and silver bars and a

Swiss annuity that he believed the IRS could not seize.    Such

statements are inconsistent with any good-faith misunderstanding

of the tax laws that could negate fraud.    Cf. Niedringhaus v.

Commissioner, 99 T.C. 202, 217 (1992).

     Although petitioner attended trial, he declined the

opportunity to testify and failed to introduce any evidence.      We

draw an adverse inference from petitioner’s silence and take it

into account as a factor to be considered in combination with all

the other evidence in the record.   See Sherrer v. Commissioner,

T.C. Memo. 1999-122.

     On the basis of all the evidence, we conclude that

petitioner is liable for the section 6651(f) addition to tax for
                                 - 9 -

each year in issue.5   Accordingly, we need not address

respondent’s alternative arguments that petitioner is liable for

section 6651(a)(1) additions to tax or section 6662 accuracy-

related penalties.

     To reflect the foregoing,


                                              Decision will be entered

                                         under Rule 155.




     5
       Schedules attached to the notice of deficiency indicate
that for each year in issue, respondent determined the sec.
6651(f) additions to tax based on petitioner’s total corrected
tax liability, calculated as the sum of the total tax shown on
petitioner’s return plus the amount determined to be a deficiency
for each year, with adjustments for additions to tax previously
assessed under sec. 6651(a)(2). Our jurisdiction over
respondent’s determination under sec. 6651(f) extends only to so
much of the addition to tax as is attributable to the deficiency.
Cf. Estate of Forgey v. Commissioner, 115 T.C. 142, 146 (2000);
Estate of Nemerov v. Commissioner, T.C. Memo. 1998-186. In the
Rule 155 computations, we expect the amount of the deficiency for
each year in issue to be calculated by including only those
amounts of the sec. 6651(f) additions to tax that are
attributable to the deficiencies for the years in issue.
