                       T.C. Memo. 2011-185



                      UNITED STATES TAX COURT



                   MARK DEVRIES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                 CAROLEEN DEVRIES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 16178-06, 16201-06.     Filed August 4, 2011.



     Mark DeVries and Caroleen DeVries, pro se.

     Donna F. Herbert, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     KROUPA, Judge:   Respondent determined deficiencies in and

additions to tax in petitioners’ Federal income taxes for 1996

through and including 1998 (years at issue) as follows:
                                    - 2 -

                              Mark DeVries

                                                Additions to Tax
     Year           Deficiency              Sec. 6651(f)   Sec. 6654

     1996            $8,676                   $6,356           $449
     1997            21,778                   16,333          1,165
     1998            41,057                   30,792          1,878


                           Caroleen DeVries

                                       Additions to Tax
     Year    Deficiency   Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654

     1996      $6,459            $1,408            $1,564          $331
     1997      13,003             2,925             3,250           695
     1998      31,720             7,137             7,930         1,451

     Respondent determined that petitioner Mark DeVries (Mr.

DeVries) was liable for additions to tax under section 6651(f)1

for fraudulent failure to file a timely income tax return

(fraudulent failure to file) and alternatively under section

6651(a)(1) for failure to file a return timely (late filing) and

section 6651(a)(2) for failure to pay tax (late payment).

Respondent further determined that petitioner Caroleen DeVries

(Mrs. DeVries) was liable for late-filing and late-payment

additions to tax.    Respondent also determined that petitioners

were liable for the years at issue for additions to tax under

section 6654 for failure to pay estimated taxes (estimated tax

addition).


     1
      All section references are to the Internal Revenue Code
(Code) in effect for the years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
                                - 3 -

       After concessions, the issues to be decided include whether

Mr. DeVries is liable for the fraudulent failure to file

additions to tax under section 6651(f).      We hold that he is

liable.    We therefore do not need to decide alternatively whether

he is liable for the late-filing and late-payment additions to

tax.    We are also asked to decide whether Mrs. DeVries is liable

for the late-filing and late-payment additions.      We hold that she

is liable.    Finally, we are asked to decide whether petitioners

are liable for the estimated tax additions under section 6654.

We hold that petitioners are liable.

                          FINDINGS OF FACT

       Some of the facts have been stipulated.    The stipulated

facts and accompanying exhibits are incorporated by this

reference, and the facts are so found.    The Court admitted

additional facts and exhibits into evidence from petitioners and

respondent, which are incorporated by this reference.

Petitioners resided in Bakersfield, California when they filed

the petition.

General Background of Petitioners

       Petitioners were teenagers when they met in a church and

have been married for over 35 years.    They have four children,

two of whom still lived with them during the years at issue.

       Mr. DeVries, the brother of two older sisters and son of a

general contractor, started as a plumber after graduating from
                                - 4 -

high school.   He continued working as a plumber and developed a

profitable business.   Mr. DeVries considered himself self-

employed during the years at issue.     He had the title of

President and agent for service of process of DeVries Mechanical,

Inc. (the company).2   He controlled the operations of his

business.   He bid the plumbing jobs for his business.    The bids

consisted primarily of small commercial plumbing installations.

Mr. DeVries was paid for his plumbing jobs directly.     He was paid

mostly with checks that he personally deposited with a bank.    Mr.

DeVries continued his plumbing work after he dissolved the

company sometime after May 1998.

     Mr. DeVries gave money to Mrs. DeVries for her to pay her

personal expenses as well as the family expenses, including food,

gasoline, utilities and property taxes.     Mrs. DeVries paid these

expenses through a personal banking account.     Mr. DeVries funded

the family’s personal banking account from a business account.

     Petitioners and their family lived a comfortable lifestyle.

They owned a home at Meacham Road in Bakersfield, California

(Meacham Road house) for a decade before selling it in 1997 for

$325,000.   Petitioners received a net amount of $123,164 from the

house sale.    The next year, petitioners purchased a house on 21st


     2
      Mr. DeVries could not recall if he owned 100 percent of the
company. The company’s Federal income tax returns for 1996 and
1997 show that Mr. DeVries and Mrs. DeVries each owned 50 percent
of the company. Mr. DeVries’ brother-in-law indicated at trial
that Mrs. DeVries was also a director of the company.
                               - 5 -

Street (21st Street house), also in Bakersfield, through a trust

called Sunset Investment Trust (Sunset Trust).    Petitioners

provided some or all of the approximately $200,000 Sunset Trust

used to purchase the 21st Street house.

     Mr. DeVries supervised and performed parts of an extensive

remodeling of the 21st Street house.    His remodeling efforts

included expanding the garage and kitchen and adding a second

floor.3   Mrs. DeVries participated in the remodeling too.   She

selected the colors and chose the tile and flooring.    Petitioners

provided some or all of the funds Sunset Trust used to remodel

the 21st Street house.   The building permit showed that the

estimated improvements cost $97,290.    The property tax assessor

increased the value of the 21st Street house by $100,000 as a

result of the remodeling.   Petitioners and their family resided

in the 21st Street house after the remodeling.

     Mrs. DeVries’ sister, Sharon, married Ted Pierce (Mr.

Pierce) sometime after petitioners were married.    Mr. Pierce

attended college as an accounting major, worked for an accountant

and then went into business on his own.    Mr. Pierce started

working with Mr. DeVries after he was on his own.

     During the years at issue Mr. DeVries and Mr. Pierce owned

and rented small apartment buildings.    Through a partnership,


     3
      A local Bakersfield newspaper described the remodeling as a
massive undertaking that nearly doubled the size of the home,
adding 1,800 square feet to the 2,200-square-foot home.
                                - 6 -

they evenly split the income and expenses from the properties.

The income and expenses of the joint rentals are reflected in

Schedules E Mr. Pierce filed with tax returns for 1997 and 1998.4

Tax Returns and Payments

     Petitioners filed Federal income tax returns and paid taxes

for approximately 20 years.    Mr. Pierce prepared petitioners’ tax

returns for years up to and including 1995 but stopped when Mr.

DeVries asked him to stop.    Mr. DeVries stopped filing tax

returns for at least six years after getting in touch with other

people who had advocated not filing returns.    Petitioners did not

report income and made no estimated tax payments for the years at

issue.5

     Years after he stopped filing tax returns in approximately

1996, Mr. DeVries told a local newspaper in 2001 that, after

studying the Code, he learned that all withholding is voluntary.

He further stated that he had stopped withholding income taxes

from his employees’ paychecks about two or three years

previously.



     4
      Mr. DeVries received Schedules K-1 issued from HYS
Investments, also showing rental income for 1997 and 1998. The
Court has not received information about the operations, partners
or finances of HYS Investments beyond the Schedules K-1.
     5
      Respondent has established and we find that Mr. DeVries’
taxable income for the years at issue was $31,095, $50,738 and
$104,191, respectively. Respondent has established and we find
that Mrs. DeVries’ taxable income for the years at issue was
$32,387, $55,865 and $110,167, respectively.
                                 - 7 -

     In 2010 Mr. DeVries filed a purported income tax return for

the taxable year 1999 showing zero income.    Mr. DeVries included

an explanation listing various arguments deemed frivolous by this

Court and other courts.   He did so despite having been recently

convicted of the crime of tax evasion, as we discuss below.    Mr.

DeVries maintained this meritless position at trial, stating that

he had no self-employment income and was not engaged in a trade

or business.

     The company filed income tax returns for the years ending

May 31, 1997 and 1998.    Its returns reflect $22,000 of wages paid

to Mrs. DeVries in 1996 for her duties as director and

shareholder and zero wages paid to Mr. DeVries in those years.

Trusts and Planning Activities

     Mr. DeVries continued his plumbing work after dissolving the

company, and he began certain planning activities with his

personal and professional assets.    An entity called DMI

Mechanical, Inc. was formed but never used, as Mr. DeVries

decided to use trusts for his planning activities.

     Through word of mouth, Mr. DeVries found a “guy out of

Fresno” to form his trusts.   Mr. DeVries paid him “a couple

grand,” even though he was not an attorney, because “everybody”
                                   - 8 -

had trusts and “[t]rusts were formed all day.”       Mr. DeVries

formed at least two trusts.6

     As mentioned previously, Sunset Trust purchased and

remodeled the 21st Street house with funds Mr. DeVries provided.

At Mr. DeVries’ request, Mr. Pierce agreed to be trustee of the

Sunset Trust.       Mr. Pierce did not know the terms of the trust,

never saw any trust documents and was trustee in name only.

Sunset Trust did not file tax returns.       Mr. Pierce testified that

Mr. DeVries was the Sunset Trust even though petitioners’

children were the beneficiaries.

     Mr. Pierce also served as trustee for the Magnum Trust,

which held Mr. DeVries’ commercial building on R Street in

Bakersfield, California R Street property).       The R Street

property had the address of the company as well as other tenants.

As with the Sunset Trust, Mr. Pierce did not know the terms of

the trust, never saw trust documents and was trustee in name

only.       Mr. Pierce testified that Mr. DeVries paid for the R

Street property and was the true owner of that property.




        6
      Mr. DeVries seems to have formed more than two trusts. Mr.
DeVries’ lawsuit in the California Superior Court, Kern County,
against Internal Revenue Service Revenue Officer Douglas G.
McDonald and Revenue Agent Fred Chynoweth includes as plaintiffs
DMI Mechanical, Magnum Property Management, Sunset Investment and
TIGE Equipment, each of which is described as an unincorporated
association.
                                - 9 -

Audit Examination

     Revenue Agent Fred Chynoweth (RA Chynoweth), a longtime

employee of the Internal Revenue Service (IRS) and experienced

revenue agent, conducted petitioners’ audit examinations after

learning that petitioners had not filed Federal income tax

returns for the years at issue.    RA Chynoweth was unable to

communicate directly with petitioners during the examination

despite repeated IRS efforts to contact petitioners.    At one

point, RA Chynoweth went to Mr. DeVries’ office and spoke through

the door to a man who refused to open the door but said that Mr.

DeVries was not present.    RA Chynoweth left a card for Mr.

DeVries but never received a call or a letter from Mr. DeVries in

response.   RA Chynoweth also issued a summons to Mr. DeVries, who

did not comply with the summons and never provided RA Chynoweth

any records.

     Beyond nonresponsiveness, petitioners also made efforts to

obstruct the IRS audit.    Petitioners’ representative and

attorney, Milton H. Baxley II (Mr. Baxley), sent letters to the

institutions to which RA Chynoweth issued summonses.7



     7
      A jury convicted Mr. Baxley of two counts of violating a
2003 District Court order enjoining him from promoting, selling
or advising individuals as to certain Federal tax matters and the
IRS. Mr. Baxley consequently was sentenced to 18 months in
prison and a $10,000 fine. He was connected with American Rights
Litigators, also known as Guiding Light of God Ministries, an
organization headed by Eddie Ray Kahn that promoted a tax fraud
scheme.
                             - 10 -

Petitioners authorized both Mr. Baxley and Mr. Bryan Malatesta,

on Forms 2848 attached to each of the letters, to represent them

for the years 1985 through 2004.   The letters stated that the

relevant IRS summons was unauthorized by statute, the Code has

not been enacted as positive law, the IRS is not an agency of the

United States government and the institution will be held liable

if the requested documents are released without court order.     Mr.

DeVries and the IRS were each sent a courtesy copy of each of the

letters.

     Later that year, Mr. Devries’ son Jason Henry DeVries sent

an invoice for $1 million to RA Chynoweth, billing the revenue

agent for the use of purportedly copyrighted property.   Attached

to the bill were the two alleged copyright violations.   The first

was an IRS summons to Mr. DeVries as president of the company

regarding tax years 1996 through 2000.   The second was a letter

from RA Chynoweth to Brandon Mojarro (Mr. Mojarro) reqesting

information about whether Mr. Mojarro rented a house to Mr.

DeVries.

     During the examination, Mr. DeVries also made a Freedom of

Information Act (FOIA) request for RA Chynoweth’s personnel file.

     Mr. DeVries filed a lawsuit in the California Superior

Court, Kern County, against IRS Revenue Officer Douglas McDonald
                              - 11 -

and RA Chynoweth in 2002.8   Mr. DeVries alleged interference with

contractual relations, libel, slander, nuisance, intentional and

negligent infliction of emotional distress, trespass, conspiracy

and imposition of a constructive trust.   Mr. DeVries sought over

$50 million in damages plus significant punitive damages and

injunctions.   He caused RA Chynoweth to be served with the

lawsuit by a process server at his personal residence.     Mr.

DeVries’ lawsuit was eventually dismissed.

     Ultimately, petitioners’ efforts to derail RA Chynoweth’s

investigation failed.   Petitioners produced no documentation to

RA Chynoweth during the course of his examination and, in the

absence of cooperation, RA Chynoweth gathered information to

complete his audit.   RA Chynoweth identified details of

petitioners’ finances by bank account summonses, record searches,

escrows, Information Returns Processing (IRP) transcripts and

other means.   RA Chynoweth calculated petitioners’ net taxable

deposits from petitioners’ accounts at San Joaquin Bank and Dean

Witter.   He calculated their community rental income, interest

income and dividend income for the years at issue.   RA Chynoweth

calculated petitioners’ community “other income” by reference to

bank deposits for 1996 and 1997 and by estimating how much

petitioners expended for the improvements on the 21st Street

house in 1998.   He further calculated their capital gain income,


     8
      See discussion of the lawsuit supra note 6.
                              - 12 -

identified their taxable IRA distributions and noted Mrs.

DeVries’ wages reported by the company in 1996.   RA Chynoweth

used the information he compiled to prepare a community property

allocation and substitutes for returns (SFRs) for petitioners for

the years at issue, including section 6020(b) certifications for

those SFRs.

Criminal Investigation and Conviction

     Mr. DeVries’ pattern of nonfiling eventually caused him to

be indicted by a Federal grand jury on three counts of income tax

evasion under section 7201 for taxable years 1999 through 2001,

the three years immediately after the three years at issue.   The

indictment alleged that Mr. DeVries had not filed a tax return

since 1995.   It cited affirmative acts of evasion including using

false employer identification numbers (EINs), using various

individuals and business entities (including trusts) to conceal

his income, running his income through trust entities, laundering

money through bank accounts and participating in various

avoidance measures.   The indictment specified that Mr. DeVries

controlled DMI Mechanical, Inc. and the company and was

compensated so as to avoid IRS detection.   The indictment also

addressed the purchase of the 21st Street house by the Sunset

Trust, which was paid for with cash, approximately 89 money

orders purchased at various United States Post Offices and

checks.   After a jury trial, Mr. DeVries was convicted on all
                                - 13 -

three felony charges.   He was awaiting sentencing at the time of

the trial in this case.

Deficiency Notices and Trial

     Respondent determined deficiencies in, and additions to,

each petitioner’s Federal income taxes.     Petitioners timely filed

petitions with this Court for redetermination.9

                                OPINION

     In these consolidated cases, petitioners challenge

respondent’s determinations that two married individuals

inappropriately or fraudulently failed to file returns or pay

taxes.   Mr. DeVries started his plumbing work after high school

and ran a successful operation for many years, including the

years at issue.   Nevertheless, he and Mrs. DeVries stopped filing

tax returns and paying taxes for a number of years.    Even now,

after his criminal conviction, Mr. DeVries has filed a return

based on frivolous positions.

     At trial, Mr. DeVries called no witnesses and offered no

evidence.   He repeatedly asserted that he could not remember

information about the years at issue.     His elusive, self-serving

testimony fell in sharp contrast to RA Chynoweth’s helpful

description of his audit process and creation of the SFRs.




     9
      Respondent has since conceded some of the dividend and
capital gain income set forth in the deficiency notices.
                              - 14 -

      We begin by considering whether Mr. DeVries’ failure to file

Federal income tax returns was fraudulent under section 6651(f).

We then decide whether Mrs. DeVries is liable for the additions

to tax for late filing and late payment.      Finally, we decide

whether petitioners are liable for the estimated tax additions.

Ultimately, we decide all issues in favor of respondent.

A.   Fraudulent Failure To File Returns

      Petitioners did not file timely Federal income tax returns

for the years at issue.   In fact, the record reflects that

petitioners, as of the trial date, have yet to file their returns

for the years at issue.   Individuals whose gross income exceeds

certain levels for a taxable year, however, are required to file

an income tax return.   Sec. 6012(a).     If an individual

fraudulently fails to file an income tax return, the Commissioner

may impose an addition to tax of up to 75 percent.      Sec. 6651(f).

We must determine whether Mr. DeVries’ failure to file timely was

fraudulent within the meaning of section 6651(f).

      Fraud is an intentional wrongdoing designed to evade tax

known or believed to be owing.   Bradford v. Commissioner, 796

F.2d 303, 307 (9th Cir. 1986), affg. T.C. Memo. 1984-601; Profl.

Servs. v. Commissioner, 79 T.C. 888, 930 (1982).      In determining

whether a taxpayer’s failure to file is fraudulent, we consider

the same elements that are considered in imposing the fraud

penalty under section 6663.   Clayton v. Commissioner, 102 T.C.
                              - 15 -

632, 653 (1994).   Those two elements of fraud are (1) the

existence of an underpayment and (2) fraudulent intent with

respect to some portion of the underpayment.    See Parks v.

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

the burden of proving fraud by clear and convincing evidence.

Sec. 7454(a); Rule 142(b); Clayton v. Commissioner, supra at 646.

     The existence of fraud is a question of fact to be resolved

upon consideration of the entire record.     DiLeo v. Commissioner,

96 T.C. 858, 874 (1991), affd. 959 F.2d 16 (2d Cir. 1992); Estate

of Pittard v. Commissioner, 69 T.C. 391, 400 (1977).     Fraud is

never presumed and must be established by independent evidence

that establishes fraudulent intent.    Beaver v. Commissioner, 55

T.C. 85, 92 (1970); Otsuki v. Commissioner, 53 T.C. 96, 106, 112

(1969).   Fraud may be proven by circumstantial evidence because

direct evidence of the taxpayer’s fraudulent intent is seldom

available.   Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983);

Gajewski v. Commissioner, 67 T.C. 181, 199-200 (1976), affd.

without published opinion 578 F.2d 1383 (8th Cir. 1978).     The

taxpayer’s entire course of conduct may establish the requisite

fraudulent intent.   Niedringhaus v. Commissioner, 99 T.C. 202,

210-211 (1992); Stone v. Commissioner, 56 T.C. 213, 223-224

(1971); Otsuki v. Commissioner, supra at 105-106.

     We review Mr. DeVries’ course of conduct in considering the

second element, fraudulent intent, before focusing on the
                                - 16 -

underpayment.   Courts have developed several indicia, or “badges

of fraud,” from which the requisite fraudulent intent can be

inferred.    They include:   (1) failing to file income tax returns,

(2) understating income, (3) failing to maintain adequate

records, (4) concealing income or assets, (5) failing to

cooperate with tax authorities, (6) asserting frivolous arguments

and objections to the tax laws, (7) lack of credibility in

testimony, and (8) failing to make estimated tax payments.10      See

Bradford v. Commissioner, supra at 307; Recklitis v.

Commissioner, 91 T.C. 874, 910 (1988); Kotmair v. Commissioner,

86 T.C. 1253 (1986).    This list is nonexclusive.   Niedringhaus v.

Commissioner, supra at 211.     No single factor is necessarily

sufficient to establish fraud.    The existence of several indicia,

however, may constitute persuasive circumstantial evidence of

fraud.    See Petzoldt v. Commissioner, 92 T.C. 661, 700 (1989).

We now address which badges of fraud are present here.

     1.     Failing To File Income Tax Returns

     A taxpayer’s filing of income tax returns in prior years is

evidence that the taxpayer was aware of his or her obligation to

file returns.     Id. at 701; see also Stalker v. Commissioner, T.C.

Memo. 1981-544.    Petitioners filed Federal income tax returns and

paid taxes for almost 20 years.    After 1995, petitioners embarked



     10
      We address petitioners’ failure to pay estimated tax
payments infra under the subheading “Estimated Tax Additions.”
                               - 17 -

on a course to avoid disclosing and paying their Federal tax

liability.   They did not file a timely Federal income tax return

for at least six years.

     Failure to file income tax returns, even over an extended

period of time, does not per se establish fraud.     Grosshandler v.

Commissioner, 75 T.C. 1, 19 (1980); Coulter v. Commissioner, T.C.

Memo. 1992-224.   An extended pattern of failing to file income

tax returns, however, may be persuasive circumstantial evidence

of fraud.    Marsellus v. Commissioner, 544 F.2d 883, 885 (5th Cir.

1977), affg. T.C. Memo. 1975-368; Grosshandler v. Commissioner,

supra at 19; Coulter v. Commissioner, supra.     Further, when a

taxpayer’s failure to file for several years is viewed in light

of his or her previous filing of income tax returns for prior

years, the taxpayer’s nonfiling weighs heavily against him or her

because the taxpayer is aware of the requirement.     Castillo v.

Commissioner, 84 T.C. 405, 409 (1985).

     Mr. DeVries claimed that he forgot whether he filed income

tax returns for the years at issue.     This response is implausible

and unacceptable.   Petitioners had a history of filing returns

and paying taxes yet they failed to file a timely income tax

return for each of the years at issue and the three subsequent

years.   Indeed, Mr. DeVries specifically asked Mr. Pierce to stop

preparing his individual returns, even though Mr. Pierce prepared
                                   - 18 -

corporate income tax returns for the company for 1996 and 1997.11

Mr. DeVries was indicted by a Federal grand jury on three counts

of violations of section 7201 (income tax evasion) for the three

years after the three years at issue.       Respondent contends and we

are persuaded that Mr. DeVries’ pattern of failing to file is

indicative of Mr. DeVries’ fraudulent intent to evade tax

liability.

     2.      Understating Income

     Consistent failure to report substantial amounts of income

over a number of years is, standing alone, highly persuasive

evidence of fraudulent intent.       See Temple v. Commissioner, T.C.

Memo. 2000-337, affd. 62 Fed. Appx. 605 (6th Cir. 2003); see also

Holland v. United States, 348 U.S. 121 (1954).       Mr. DeVries

failed to report taxable income over a 3-year period exceeding

$170,000.     Respondent argues, and we agree, that his failure to

report such substantial income is an indication of fraud.

     3.      Failing To Maintain Adequate Records

     A taxpayer’s destruction of books and records of his or her

income-producing activity further demonstrates a willful attempt

to defeat and evade taxes.     Spies v. United States, 317 U.S. 492,

499 (1943); Toushin v. Commissioner, 223 F.3d 642, 647 (7th Cir.

2000), affg. T.C. Memo. 1999-171.       Mr. DeVries failed to provide

books and records for any of his income-producing activities for


     11
          Mr. DeVries signed one of those two returns.
                                - 19 -

the years at issue.   When asked if he kept records, Mr. DeVries

testified “I would say yes during that time period.”    When asked

if he provided those records to his return preparer he testified

“I would have if I kept it.”    At the time of trial, however, Mr.

DeVries had no records of his income during the years at issue.

Furthermore, he had no recollection of his income, his employees,

payments by others into his trusts or other financial matters.

He simply stated that it was a long time ago and he could not

remember.   We find that Mr. DeVries’ failure to maintain existing

records, coupled with his alleged inability to recollect

significant information, suggests that he sought to conceal his

income and fraudulently evade his income tax liabilities for the

years at issue.

     4.     Concealing Assets

     Concealing assets or income is also an indicium of fraud.

Bradford v. Commissioner, 796 F.2d at 307-308; Recklitis v.

Commissioner, supra at 910.     Respondent contends, and we agree,

that petitioners took affirmative steps to conceal their income

and assets through the use of trusts as nominees.

     A nominee is an entity or individual who holds bare legal

title to assets owned by another entity or individual.12    See


     12
      Respondent is entitled to take collection action against a
nominee to collect the outstanding tax liabilities of the
taxpayer who transferred the assets to the nominee. See G.M.
Leasing Corp. v. United States, 429 U.S. 338, 350-351 (1977);
                                                   (continued...)
                              - 20 -

Oxford Capital Corp. v. United States, 211 F.3d 280, 284 (5th

Cir. 2000); Criner v. Commissioner, T.C. Memo. 2003-328; Beck v.

Commissioner, T.C. Memo. 2001-270.     Placing title to assets in

the name of nominees evidences a taxpayer’s fraudulent intent.

See Leggett v. Commissioner, T.C. Memo. 1999-100, affd. without

published opinion 221 F.3d 1357 (11th Cir. 2000).

     Mr. DeVries created the Sunset Trust when he and his wife

purchased the 21st Street house.   He also created the Magnum

Trust to hold his R Street property.    Mr. DeVries named his

brother-in-law, Mr. Pierce, as trustee of both trusts.    Mr.

Pierce testified credibly that petitioners owned the properties,

he was trustee in name only and he performed no duties as

trustee.   Petitioners maintained control of the properties and

used the trusts as their nominees to conceal their assets.      By

way of example, they substantially remodeled the 21st Street

house, allegedly owned by the Sunset Trust, before moving into

their new home.   Mr. DeVries’ use of the trusts as nominees

demonstrates his fraudulent intent to evade the assessment and

payment of his Federal tax liabilities for the years at issue.

     5.    Failing To Cooperate With Tax Authorities

     We next consider petitioners’ level of cooperation with

respondent.   Failure to cooperate with the IRS is an indicium of



     12
      (...continued)
Criner v. Commissioner, T.C. Memo. 2003-328.
                                - 21 -

fraud.    Bradford v. Commissioner, supra at 307; Recklitis v.

Commissioner, 91 T.C. 874 (1988).     Petitioners did not cooperate

with respondent’s investigations.     In fact, petitioners went to

great lengths to impede respondent’s investigations and to deter

RA Chynoweth.

     Petitioners did not meet with respondent, respond to his

summons or provide any documentation.     When respondent issued

summonses to various institutions with respect to petitioners’

records, petitioners’ authorized representative, Mr. Baxley, sent

intimidating letters to those institutions.     Petitioners’ son

also sent an invoice to RA Chynoweth for alleged copyright

infringement.     Mr. DeVries filed a FOIA request for RA

Chynoweth’s personnel file.     He filed a lawsuit against RA

Chynoweth and IRS Revenue Officer Douglas McDonald, making

outrageous claims and seeking injunctions and millions in

damages.     Mr. DeVries had RA Chynoweth served with process at his

home.     Respondent argues, and we agree, that Mr. DeVries’ actions

demonstrate an intent to impede respondent’s examination and

investigation.     We find that petitioners failed to cooperate with

respondent’s agents and their efforts to hamper his investigation

are further indicia of fraudulent intent.

     6.      Asserting Frivolous Arguments

     Petitioners relied on frivolous and meritless arguments to

impede respondent’s investigation, and they assert frivolous
                                - 22 -

arguments to support their position that they do not owe taxes.

During RA Chynoweth’s investigation, Mr. DeVries caused his agent

to send frivolous correspondence to witnesses and the revenue

agent.   Mr. DeVries told a local newspaper that, after studying

the Code, he learned that all withholding is voluntary.

Petitioners asserted, in their pretrial memorandum, that they

were not required to file because they had no self-employment

earnings.   Despite Mr. DeVries’ criminal conviction for tax

evasion, he filed a frivolous purported income tax return for the

taxable year 1999 with the IRS.    Mr. DeVries’ purported return

listed all “zeros” and included a disclosure statement with

frivolous arguments.   Mr. DeVries continued to argue these

frivolous positions at trial.

     Tax protester arguments may not be evidence of fraud in and

of themselves, but they may be indicative of fraud if made in

conjunction with affirmative acts designed to evade paying

Federal income tax.    See Kotmair v. Commissioner, 86 T.C. at

1260-1261; Fleischner v. Commissioner, T.C. Memo. 1995-389.

Petitioners took or made affirmative acts designed to evade their

tax liability.   These affirmative acts include failing to file

income tax returns, failing to maintain adequate records,

concealing assets, failing to make estimated tax payments for the

years at issue and failing to cooperate with tax authorities.
                                  - 23 -

Accordingly, we find that Mr. DeVries’ frivolous arguments

support a finding of fraud.

     7.     Lack of Credibility of Mr. DeVries’ Testimony

     A taxpayer’s lack of credibility, inconsistent testimony or

evasiveness is a factor in considering fraud.       Toussaint v.

Commissioner, 743 F.2d 309, 312 (5th Cir. 1984), affg. T.C. Memo.

1984-25.     Mr. DeVries’ extraordinary forgetfulness with respect

to relevant information, including significant life events,

suggests a lack of credibility and evasiveness.      Feigning that he

could not remember filing a tax return because it was so long ago

strains common sense.       His testimony and demeanor suggest fraud.

     8.      Underpayment

     Respondent has satisfied the second element of fraudulent

failure to file by demonstrating the many badges of fraud present

here.     We hold that respondent also has proven petitioners’

underpayments for the years at issue.

     Petitioners produced no records during the examination for

the years at issue.     Consequently, respondent resorted to

third-party information, including summoned bank records,

information from the Kern County Assessor’s office and other

sources.

     Congress authorized the Commissioner’s estimation of income

by any reasonable method, especially where a taxpayer fails to

file returns and refuses to cooperate.      See Giddio v.
                                - 24 -

Commissioner, 54 T.C. 1530, 1533 (1970) (citing United States v.

Johnson, 319 U.S. 503, 518 (1943)).

     If a taxpayer provides no records, the Commissioner may

reconstruct income on indirect evidence.      See Holland v. United

States, 348 U.S. at 130-133.    Respondent introduced into evidence

account records from San Joaquin Bank and Dean Witter.      Bank

deposits are prima facie evidence of taxable income.      See Parks

v. Commissioner, 94 T.C. at 658.    Respondent provided tax returns

of the company, copies of Schedules K-1 issued to Mr. DeVries by

HYS Investments and copies of various real estate documents.

Respondent also introduced into evidence a copy of the IRP

transcript for each year at issue, showing income to petitioners

from third-party information returns.      Mr. DeVries confirmed that

he was a self-employed plumber in the years at issue.      Respondent

has met his burden of proof.

     We reject Mr. DeVries’ reliance on Weimerskirch v.

Commissioner, 596 F.2d 358 (9th Cir. 1979), revg. 67 T.C. 672

(1977), to argue that respondent has failed to meet his burden.

Respondent connected Mr. DeVries with income-producing activities

and introduced evidence that petitioners received unreported

income.   See id. at 361–362.

     We further reject Mr. DeVries’ argument that respondent’s

deficiency notices are time barred.      Generally, tax imposed by

the Code must be assessed within three years after the return is
                                - 25 -

filed.13   Sec. 6501(a).   If no return is filed, the tax may be

assessed at any time, however.    Sec. 6501(c)(3).   The bar of the

limitations period is an affirmative defense and the party

raising the defense must specifically plead and prove it.    Rules

39, 142(a); Hoffman v. Commissioner, 119 T.C. 140, 146 (2002).

To prove this defense, petitioners must establish the filing date

of the returns and that respondent assessed the relevant amounts

after the 3-year period for assessment.    See Hoffman v.

Commissioner, supra at 146.    Petitioners have not proven that

they filed returns for the years at issue and Mr. DeVries even

testified that he did not recall whether he filed returns for

those years.   Petitioners have failed to prove their defense.

     We further reject petitioners’ argument that the deficiency

notice cannot contain adjustments for rental income unless

respondent first completes a partnership-level proceeding.    Even

if the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),

Pub. L. 97-248, 96 Stat. 324, procedures apply to HYS

Investments,14 respondent may still conform Mr. DeVries’ return

to the partnership return without conducting a partnership


     13
      References in the Code to tax generally include additions
to tax, additional amounts and penalties. See sec. 6665. We
therefore apply the limitations provisions of sec. 6501 to decide
whether the deficiencies and the additions to tax were timely
assessed.
     14
      The parties have not shown whether HYS Investments is
subject to the TEFRA partnership procedures or excepted as a
small partnership under sec. 6231(a)(1)(B).
                               - 26 -

proceeding.   See sec. 6222(c).   Respondent did not make

adjustments to any partnership items.

     We also reject petitioners’ argument that respondent’s

deficiency notice and additions to tax cannot stand because

respondent omitted evidence of the minimum filing amounts for the

years at issue.   We take judicial notice that individuals who

were married filing separately were required to file a tax return

for each of the years at issue if their gross income exceeded

$2,550, $2,650 and $2,700, respectively, for those years.     See

Wilson v. Commissioner, 77 T.C. 324, 326 (1981).    Respondent has

established and we find that each petitioner had gross income far

in excess of the filing requirements for each of the years at

issue.

     Finally, we note that petitioners made, but failed to argue

or support, a frivolous allegation that the person who issued the

deficiency notices lacked authority.    It is well established that

the Secretary or his delegate may issue deficiency notices.

Secs. 6212(a), 7701(a)(11)(B), (12)(A)(i); see Nestor v.

Commissioner, 118 T.C. 162, 165 (2002).

     Petitioners’ legal arguments all fail.   Petitioners also

claim that all income was in their trusts and that they had no

income during the years at issue, but offer us no factual or

legal support.    We sustain respondent’s income tax determination

for each petitioner for each year at issue.   We further find that
                               - 27 -

respondent has satisfied his burden of proof with respect to Mr.

DeVries’ underpayment of tax for the fraudulent failure to file

additions to tax.

     9.    Summary of Fraudulent Failure To File

      Many badges of fraud upon which this Court customarily

relies are present here.    Considering all of the facts and

circumstances, we find that respondent has proven by clear and

convincing evidence that Mr. DeVries’ failure to file income tax

returns for the years at issue was fraudulent.     Accordingly, Mr.

DeVries is liable for the section 6651(f) additions to tax for

the years at issue.   We therefore need not address whether he is

liable for the late-filing and late-payment additions.    We do,

however, consider whether Mrs. DeVries is liable for these

additions to tax.

B.   Failure To File and Failure To Pay

      Respondent determined that Mrs. DeVries is liable for the

late-filing and late-payment additions.    Petitioners failed to

assign error in the petition regarding these additions to tax, so

they are deemed conceded.    See Rule 34(b)(4).   Respondent has no

obligation to satisfy a burden of production with respect to a

penalty or addition if petitioners do not assign error to his

determination.   See Wheeler v. Commissioner, 127 T.C. 200, 206

(2006), affd. 521 F.3d 1289 (10th Cir. 2008); Swain v.
                                - 28 -

Commissioner, 118 T.C. 358, 363 (2002).     Although they are deemed

conceded, we briefly address these additions.

       The late-filing addition to tax is imposed for failure to

file a tax return on or before the specified filing date unless

it is shown that such failure is due to reasonable cause and not

due to willful neglect.     Sec. 6651(a)(1); United States v. Boyle,

469 U.S. 241, 245 (1985).     The Commissioner has the burden of

production with respect to additions to tax.     Sec. 7491(c);

Higbee v. Commissioner, 116 T.C. 438, 446 (2001).       To meet this

burden, the Commissioner must produce sufficient evidence

establishing that it is appropriate to impose the additions to

tax.    See id. at 446-447.   If the Commissioner meets his burden,

then the taxpayer bears the burden of proving that the late

filing or nonfiling was due to reasonable cause and not willful

neglect.    Id. at 446.

       Respondent satisfied his burden of production by introducing

evidence showing that petitioners did not file their income tax

returns for the three years at issue.     Mr. DeVries testified that

he did not recall whether he filed returns for the years at

issue.    He could not recall when he stopped filing.     Petitioners

have not demonstrated that they filed income tax returns or that

they failed to do so for good reason.     Mrs. DeVries has not

proven that her failure to file is due to reasonable cause and

not due to willful neglect.     We sustain respondent’s
                              - 29 -

determination that Mrs. DeVries is liable for the late-filing

additions to tax.

     We next consider whether Mrs. DeVries is liable for the

late-payment additions to tax.   See sec. 6651(a)(2).   Respondent

prepared SFRs under section 6020(b) for the years at issue.      SFRs

made by the Secretary under section 6020(b) are treated as the

returns filed by the taxpayer for purposes of determining whether

the section 6651(a)(2) addition to tax applies.    Sec. 6651(g)(2);

Wheeler v. Commissioner, supra at 208-209.

     The Commissioner must introduce evidence that an SFR

satisfying the requirements of section 6020(b) was made if he

relies on an SFR to assert the failure to pay addition.    See

Cabirac v. Commissioner, 120 T.C. 163, 170-171 (2003).

Respondent introduced into evidence section 6020(b)

certifications and RA Chynoweth credibily testified that he

properly prepared SFRs and the required documentation.    He

further testified that slightly modified versions of his reports

were attached to the deficiency notices issued to petitioners.

We find that RA Chynoweth properly prepared SFRs and that Mrs.

DeVries has not paid the tax due.15    She also has not established



     15
      Petitioners cite Wheeler v. Commissioner, 127 T.C. 200
(2006), affd. 521 F.3d 1289 (10th Cir. 2008), to support their
position that respondent may not assess penalties under sec.
6651(a)(2). The facts of this case are different from those in
Wheeler, where the Commissioner provided significantly less
evidence regarding the SFR.
                               - 30 -

that her failure to timely pay was due to reasonable cause and

not willful neglect.   Accordingly, she is liable for the late-

payment additions.

C.   Estimated Tax Additions

      Finally, we consider respondent’s determination that each

petitioner was liable for an estimated tax addition under section

6654(a) for each year at issue.   A taxpayer generally has an

obligation to pay estimated income tax for a particular year only

if he or she has a required annual payment for that year.    Sec.

6654(d).   The required annual payment is equal to the lesser of

(1) 90 percent of the tax shown on the individual’s return for

that year (or if no return is filed, 90 percent of the tax for

such year) or (2) 100 percent of the tax shown on the return if

the taxpayer filed a return for the immediately preceding tax

year.   Sec. 6654(d)(1)(B); Wheeler v. Commissioner, supra at

210–211.

      Petitioners failed to file individual Federal income tax

returns for any of the years at issue.    Respondent provided

petitioners’ Federal income tax return for 1995, the year

immediately preceding the years at issue.    Petitioners had a

required annual payment for each of the years at issue but did

not make any estimated tax payments.    Petitioners failed to

present any evidence to contradict respondent’s determination,

and none of the statutory exceptions under section 6654(e)
                              - 31 -

applies.   Petitioners are therefore liable for the estimated tax

addition under section 6654(a) for each of the years at issue.16

D.   Conclusion

      We have considered petitioners’ other arguments, and to the

extent they are not addressed, we find them to be irrelevant,

moot, or meritless.

      To reflect the foregoing and the concessions of the parties,


                                         Decisions will be entered

                                    under Rule 155.




      16
      The failure to make estimated tax payments is also a badge
of fraud evidencing the taxpayer’s fraudulent intent. Bradford
v. Commissioner, 796 F.2d 303, 308 (9th Cir. 1986), affg. T.C.
Memo. 1984-601; Clayton v. Commissioner, 102 T.C. 632, 647
(1994).
