                         T.C. Memo. 2011-9



                      UNITED STATES TAX COURT



                 DAVID W. GOLDSTON, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 21681-07, 16037-08.      Filed January 11, 2011.



     David W. Goldston, pro se.

     Lauren B. Epstein, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   In separate notices of deficiency, respondent

determined deficiencies and additions to tax as follows:
                                  - 2 -

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

1992       $108,993       $81,744.75              ---         $4,753.78
1993         26,993        20,244.75              ---          1,130.99
1994         21,531        15,609.98           $5,382.75       1,117.32
1995         51,236        37,146.10           12,809.00       2,778.13
1996         67,931        49,249.98           16,982.75       3,615.65
1997         70,330        50,989.25           17,582.50       3,762.68
1998         36,645        26,567.63             9,161.25      1,676.82
1999         83,261        60,364.23           20,815.25       4,029.48
2000         95,074        68,928.65           23.768.50       5,078.36
2001        102,138        74,050.05           25,534.50       4,081.80
2002         87,135        63,172.88           21,783.75       2,911.83
                                              1
2003        117,729        85,353.53            27,077.67      3,080.97
                                              1
2004         99,240        71,949.00            16,870.80      2,880.65
                                              1
2005         96,829        70,201.02            10,651.19      3,883.95
       1
      The addition to tax will continue to accrue from the due
date of the return at a rate of 0.5 percent for each month, or
fraction thereof, of nonpayment, not exceeding 25 percent.

The cases were consolidated for trial, briefing, and opinion.

After concessions, the issue for decision is whether petitioner

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

fraudulent failure to file returns.        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.

                            FINDINGS OF FACT

       Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in Florida at the time the petitions were

filed.      At all material times, he was married to Nancy Sharp

Goldston.
                               - 3 -

     Petitioner received a degree in dentistry in 1964 and was a

practicing dentist during the years in issue.      Before 1990, he

operated his dental practice in corporate form.      In 1990, he sold

his practice.   Thereafter he worked for various persons and

entities.   His gross receipts from dentistry for the years in

issue were as follows:

                     Year        Gross Receipts

                     1992               $86,557
                     1993                63,558
                     1994               165,363
                     1995               368,711
                     1996               473,557
                     1997               489,331
                     1998               274,353
                     1999               572,016
                     2000               645,580
                     2001               699,487
                     2002               575,487
                     2003               830,812
                     2004               701,565
                     2005               684,633

     Petitioner also received taxable income from various sources

during the years in issue, including taxable retirement

distributions of $174,871 in 1992; sales of property; rentals;

interest; and, beginning in 2002, Social Security benefits.

Petitioner’s total taxable income for the years in issue was as

follows:

                     Year              Taxable Income

                     1992               $276,657
                     1993                 70,543
                     1994                 53,081
                     1995                131,391
                     1996                171,239
                               - 4 -

                     1997             176,916
                     1998              93,179
                     1999             206,633
                     2000             234,059
                     2001             253,941
                     2002             221,100
                     2003             316,680
                     2004             268,118
                     2005             261,811
                       Total        2,735,348

     Beginning in or about 1991, petitioner began a course of

conduct intended to conceal the sources and amount of income that

he received.   That conduct and concealment continued through the

years in issue, although the sources of income and the names of

the entities used varied from year to year.     Petitioner placed

funds and property in the names of nominees and trusts and used

cashier’s checks, money orders, and currency to conduct

transactions, all with the intent and for the purpose of

concealing his income and assets from the Internal Revenue

Service (IRS).

     Petitioner opened bank accounts, operated a dentistry

practice, engaged in various real estate transactions, and

purchased residential real property and personal vehicles in the

names of various trusts.   The trust names so employed included

Sharp Management Trust, Sharpstone Irrevocable Trust, Cool Stream

Holding Trust, Old Times Holding Trust, High Mountain Holding

Trust, Old Oak Holding Trust, Comfort Holding Trust, Rainy Day

Management Trust, Work Holding Trust, Carriage Holding Trust,

Blue Lake Holding Trust, Patio Holding Trust, and Sun Stroke
                                - 5 -

Management Trust.    Petitioner was the grantor of the trusts,

managed the assets purportedly held by the trusts, deposited

income from his dental practice in trust accounts and paid

personal expenses from those accounts, and otherwise treated as

his own the assets held in the names of the trusts.

     Petitioner failed to file Federal income tax returns for

1992 through 2005.    He espoused frivolous tax arguments and

advised others, including patients and an employee, that he was

not required to pay taxes.    He did not make any estimated tax

payments.

     On June 23, 2005, petitioner was convicted of violation of

section 7201 on an indictment charging that

     from on or about the 15th day of April, 1991, and
     continuing through in or about September, 2003, * * *
     [petitioner] * * *, did willfully attempt to evade and
     defeat the payment of a substantial amount of federal
     income tax due and owing by him to the United States of
     America for the calendar years 1990 and 1991, by
     concealing and attempting to conceal from the Internal
     Revenue Service the nature and extent of his assets and
     the location thereof, by placing funds and property in
     the names of nominees and trusts, and by utilizing
     cashier’s checks, money orders, and currency to conduct
     transactions * * *

     On December 16, 2005, petitioner was sentenced to a prison

term of 48 months and ordered to be on supervised release for 36

months upon release from prison.    As a condition of his

supervised release, petitioner was required to “cooperate with

the Internal Revenue Service regarding all outstanding taxes,

interest, and penalties * * * [and] provide the Probation Officer
                                 - 6 -

with verification that the income tax obligations are being met

to the fullest extent possible.”

     Since his release, petitioner has not cooperated with the

IRS and has not met his income tax obligations.

                                OPINION

     Notwithstanding his recent incarceration, petitioner’s

denials and defiance of his tax obligations continued through the

time of trial of these cases.    He admitted that he did not file

returns for any of the years in issue.       He did not dispute any of

the facts establishing his receipt of substantial taxable income

during the years in issue, and his receipt of specific items of

income was deemed admitted pursuant to Rule 90 by his failure to

respond to requests for admissions.       No adjustments to the

deficiencies determined by respondent are required on this

record.   The deemed admissions also establish petitioner’s

liability for additions to tax under sections 6651(a)(2) and

6654.   Petitioner failed to file the answering brief ordered by

the Court, and thus he has not raised any objections to the

extensive and detailed findings of fact proposed in respondent’s

opening brief.   In view of the absence of dispute as to the

underlying facts, our findings summarize the material facts

without describing the evidentiary detail.

     The addition to tax in cases of fraud is a civil sanction

provided primarily as a safeguard for the protection of the
                               - 7 -

revenue and to reimburse the Government for the heavy expense of

investigation and the loss resulting from the taxpayer’s fraud.

Helvering v. Mitchell, 303 U.S. 391, 401 (1938).    To sustain the

75-percent addition to tax provided by section 6651(f),

respondent has the burden of proving that petitioner’s failure to

file returns was fraudulent.   See sec. 7454(a); Rule 142(b).

(Respondent has pleaded and argued, in the alternative,

applicability of the addition to tax under section 6651(a)(1).

In view of our conclusion that petitioner’s failure to file was

fraudulent, we do not consider that alternative.)

     In applying the addition to tax under section 6651(f), we

consider the same elements, or long-recognized “badges of fraud”,

discussed in cases applying section 6663 or former section

6653(b)(1).   Clayton v. Commissioner, 102 T.C. 632, 647-653

(1994); see Niedringhaus v. Commissioner, 99 T.C. 202, 211-213

(1992).   Fraud may be proved by circumstantial evidence, and the

taxpayer’s entire course of conduct may establish the requisite

fraudulent intent.   Rowlee v. Commissioner, 80 T.C. 1111, 1123

(1983).   Circumstantial evidence of fraud present here includes

the pattern of failure to file returns, failure to report

substantial amounts of income, concealing assets, dealing in

cash, failing to maintain records, giving implausible or

inconsistent explanations of behavior, and failure to cooperate

with taxing authorities in determining petitioner’s correct
                                - 8 -

liability.    See, e.g., Bradford v. Commissioner, 796 F.2d 303,

307-308 (9th Cir. 1986), affg. T.C. Memo. 1984-601; Powell v.

Granquist, 252 F.2d 56, 60-61 (9th Cir. 1958); Clayton v.

Commissioner, supra at 647; Grosshandler v. Commissioner, 75 T.C.

1, 20 (1980); Gajewski v. Commissioner, 67 T.C. 181, 199-202

(1976), affd. without published opinion 578 F.2d 1383 (8th Cir.

1978).

       Petitioner argues that he had no intention of breaking the

law and that his admitted failure to file returns was not

fraudulent.    His filings and his testimony are replete with

implausible and inconsistent explanations of his behavior.      He

claims that he acted in accordance with the directions of the

“trustees”, but there is no evidence that anyone other than

petitioner and his wife controlled any of the transactions or

earned any of the income attributed to him.    He admits that the

trusts were funded by “gifts” from him, that his personal

expenses were paid from trust bank accounts, and that properties

purchased in the names of various trusts were used by him for

professional and personal purposes.     According to his testimony,

the beneficiaries of the trusts were his children and

grandchildren.    He claims that his accountant made mistakes

reporting pension plan distributions, and he asserts that his

criminal conviction resulted from false testimony.    He asserts

that
                               - 9 -

     My decision to quit paying the tax was made in 1992,
     not before, and was the result of a letter sent, asking
     for the basis for their taxing me which received a
     reply after about 3 months, which was no answer to my
     question, but simply stated to ignore any
     correspondence received from them until I received an
     answer.

In a statement at the conclusion of the trial, he alleged that he

was a “victim” of tax shelter promoters at some unidentified

time, that thereafter he was repeatedly audited, that he was

convicted because of misconduct by his accountant, and that his

object was “civil disobedience”.

     Petitioner engaged in a complex scheme to conceal his income

and assets during the years in issue.   His taxable income for

those years exceeded $2.7 million, and his unreported tax

liabilities, before additions to tax, exceeded $1 million.     He

was convicted of engaging in that conduct in order to defeat the

payment of taxes due for 1990 and 1991, and the obvious purpose

of continuing the scheme was to evade taxes for the subsequent

years as well.   The objective facts are clear and convincing

evidence of fraud sufficient to satisfy respondent’s burden of

proof.   The additions to tax for fraud have frequently been

imposed on taxpayers like petitioner “who were knowledgeable

about their taxpaying responsibilities * * * [and] consciously

decided to unilaterally opt out of our system of taxation.”

Miller v. Commissioner, 94 T.C. 316, 335 (1990) (citing numerous
                               - 10 -

relevant cases); see Niedringhaus v. Commissioner, supra at 212-

213.

       Petitioner’s excuses are unpersuasive, and we do not believe

that he acted as he did for nonfraudulent reasons.     He has not

presented evidence of any consultations with competent tax

professionals or reliance on any legal authority for his

positions.    He incorporated boilerplate frivolous arguments about

the Paperwork Reduction Act in his petition and alleged in his

pretrial memorandum that the IRS lacks delegated authority to

collect tax.    Perhaps he believes that feigning lack of

understanding or sincere beliefs will help him avoid the

consequences of his deliberate choices.    In view of his

education, sophistication and success in conducting his

profession and business transactions, persistence after his

criminal conviction, and acknowledged “civil disobedience”, we

reject any suggestion of good faith.    See Chase v. Commissioner,

T.C. Memo. 2004-142.

       We have considered the other arguments of the parties.   They

are irrelevant, moot, or otherwise lack merit.    For the reasons

explained above,


                                          Decisions will be entered

                                     for respondent.
