                        T.C. Memo. 2005-18



                      UNITED STATES TAX COURT



         SAM F. FORD AND INGRID D. FORD, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4691-99.             Filed February 1, 2005.


     Kenneth G. Gordon and Mortimer L. Laski,1 for petitioners.

     Shirley M. Francis, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioners petitioned the Court to

redetermine a $998,754 deficiency in their 1986 Federal income

tax, a related $749,066 addition to tax under section



     1
       Mr. Gordon and Mr. Laski entered the case on Oct. 2, 2002.
Joseph M. Wetzel, Russel A. Sandor, Michael C. Wetzel, and Darin
Christensen entered the case on Apr. 30, 1999, on petitioners’
behalf, but withdrew on Oct. 4, 2002.
                                - 2 -

6653(b)(1)(A), and a related time-sensitive addition to tax under

section 6653(b)(1)(B).2   In an amended answer, respondent

asserted an increase in the deficiency of $560,000, a related

$420,000 addition to tax under section 6653(b)(1)(A), and a

related time-sensitive addition to tax under section

6653(b)(1)(B).

     We must decide the following five issues as to 1986:

     1.   Whether respondent arbitrarily or erroneously determined

that petitioners failed to report net capital gains of

$2,341,878.   We hold that he did not;

     2.   whether petitioners failed to report other income of

$2.8 million from the sale of securities.    We hold that they did;

     3.   whether petitioners are liable for additions to tax

under section 6653(b)(1)(A) and (B), and, if so, whether section

6501(c)(1) applies to annul the 3-year period of limitations

under section 6501(a)(1).    We hold that they are and that section

6501(c)(1) annuls the 3-year period of limitations;

     4.   whether respondent’s determination is barred by judicial

or equitable estoppel.    We hold that it is not; and

     5.   whether petitioner Ingrid Doorn Ford (Ms. Ford) is

entitled under section 6015(b) to full or apportioned relief from




     2
       Unless otherwise indicated, section references are to the
Internal Revenue Code applicable to the relevant years, and Rule
references are to the Tax Court Rules of Practice and Procedure.
                                 - 3 -

joint and several Federal income tax liability.      We hold that she

is not.

                           FINDINGS OF FACT

I.   Overview

     Some facts are stipulated.     We incorporate herein by this

reference the parties’ stipulations of fact and the exhibits

submitted therewith.     We find the stipulated facts accordingly.

     Petitioners resided in Eugene, Oregon, when their petition

was filed in this Court.     They timely filed a 1986 joint Federal

income tax return (1986 return).       Sam F. Ford (Mr. Ford) has one

child, Marc J. Ford (Marc Ford), who lives in Chicago, Illinois.

Ms. Ford was born in Indonesia but has lived in the United States

since 1960.     She has no children.

     In 1983, Ms. Ford worked as a secretary and bookkeeper at

International Tillex in New York, New York, a business owned by

her cousin, Robert Doorn (Mr. Doorn).      While there, she exercised

a stock option for $32,500 of International Tillex shares, which

she sold at a profit.     She also had a brokerage account with

Yorkton Securities, Inc.     She met Mr. Ford during 1983, and they

married on February 7, 1986.     During the early months of their

marriage, petitioners rented a house in Beverly Hills,

California.     In 1986, Mr. Ford was self-employed.
                                 - 4 -

II.   Mr. Ford’s Background

      Mr. Ford was convicted of securities fraud in 1968, and he

was convicted of mail fraud in 1978.     He served 3 years in prison

for the second conviction and was released from Allenwood Federal

Prison in September 1981.     Approximately 8 months before his

release, on February 21, 1981, Mr. Ford was ordered to disgorge

$250,000 to the Securities and Exchange Commission (SEC).     The

court directed that the $250,000 be paid in installments as Mr.

Ford was financially able.

      In 1986, while trying to renegotiate his payments to the

SEC, Mr. Ford concealed assets and income from the SEC by placing

assets in the names of his wife and son.     Mr. Ford represented to

the SEC that he owned no stocks or bonds, that he had gross

income of $16,000 in 1985, that he had a net worth of negative

$560,000 throughout 1985 and 1986, and that he was unemployed and

trying to avoid filing for bankruptcy.     Each of these statements

was false.

      Subsequently, Mr. Ford was charged with two felonies.

First, Mr. Ford was charged under 18 U.S.C. section 1001 (2000)

with making false statements to the SEC.     Second, Mr. Ford was

charged under section 7206(1) with filing a false tax return for

1986.   He pled guilty on November 15, 1990, to both of these

felonies.    In an allocution incident to this plea that he made

under oath and while represented by counsel, Mr. Ford stated:
                                - 5 -

       In * * * [petitioners’] 1986 federal personal income
       tax return, I failed to include income in excess of
       $2.8 million I had received from the sale of securities
       belonging to me which I had secreted in accounts in the
       name of my son and others. The income, however, was
       reported on my son’s 1986 personal tax return and the
       tax was fully paid through him. I had arranged for the
       income to be reported on his income tax return
       specifically to conceal my earnings * * * In short,
       when I filed my 1986 federal personal income tax
       return, I willfully made a return * * * knowing that
       the return was not true and correct as to material
       matters.

III.    Canadian Stock Transactions

       Mr. Ford’s criminal conviction had its genesis in the early

1980s, when Mr. Ford purchased and sold International Tillex

stock through Canadian brokerage accounts which were owned by at

least seven nominee corporations, namely:      (1) For Door

Investments, Ltd.; (2) Pooh Bear Investments, Ltd.; (3) Bear &

Pebbles Investments, Ltd.; (4) Canadian American Aquafarms

International, Ltd.; (5) Solar Aquafarms, Ltd.; (6) Toronado

Resources; and (7) Blackbird Investments.      Ostensibly, these

nominee corporations were owned by either Ms. Ford or Marc Ford,

but in reality, they were controlled by Mr. Ford.      Each of these

nominee corporations traded in shares of International Tillex

and, later, Beverly Development.      These nominee corporations

received income totaling more than Can$ 8 million from trading in
                               - 6 -

International Tillex stock.3   No taxes were paid by anyone on

this income.

      Mr. Ford initially owned 69,111 shares of International

Tillex stock, which he held in a brokerage account in the name of

Marc Ford.   Mr. Ford sold those shares at a profit.

Subsequently, but prior to his marriage, Mr. Ford invested

another $26,000 in shares of International Tillex.     Mr. Ford

owned these shares through accounts in the name of Marc Ford and

Ms. Ford (using her maiden name of Doorn).

IV.   Petitioners’ Control of the Nominee Brokerage Accounts

      Mr. Ford, through his assistant Linda Hazlett, who acted

under his direction and control, set up and controlled Blackbird

Investments and its corporate trading account.   Ms. Ford

purchased a house in Montecito, California, in 1986, and funds

from a Blackbird Investments account were pledged as security for

the purchase loan.   Approximately $25,000 was also taken from a

Toronado Resources account for a downpayment.    At the time of the

purchase, Blackbird Investments had a brokerage account in Canada

which traded in International Tillex stock.   On June 12, 1986, an

additional $250,000 was wired into Ms. Ford’s bank account in




      3
       Blackbird Investments, for example, received more than $2
million (Canadian) from trading in International Tillex stock,
and Toronado Resources received income of approximately $1.2
million (Canadian) from trading in International Tillex.
                                - 7 -

California for the purpose of making home improvements and buying

home furnishings.

     Mr. Ford received $1,750,000 from the Maryland Bank in

Luxembourg, secured by a Blackbird Investments trading account,

and from a Toronado Resources account.   These funds were used for

Ms. Ford’s purchase of the Montecito home and to pay taxes which

Mr. Ford owed from the 1970s.   In March 1986, Mr. Ford also

authorized a withdrawal from a Solar Aquafarms, Ltd., account,

which Ms. Ford used to buy fur coats at the Pappas Fur Co. in

Canada.   Mr. Ford also transferred money from various Canadian

corporate accounts, derived from International Tillex stock

transactions, into his own bank accounts.   Further, in April

1986, funds were transferred from at least one of the Canadian

corporate accounts into a bank account in Beverly Hills,

California, belonging to Ms. Ford.

V.   Petitioners’ 1986 Return

     On petitioners’ 1986 return, they did not report that they

had received any wages, salaries, or other compensation (e.g.

self-employment income).   They did not attach any Forms W-2, Wage

and Tax Statement, to their 1986 return.    The 1986 return did not

include a Schedule C, Profit or Loss From Business.   Petitioners

reported taxable income of negative $275,937, stated they had no

income tax liability, and requested a refund for the full amount

of their estimated tax payments of $38,000.   Mr. Ford knew when
                                 - 8 -

petitioners were filing their 1986 return that they were not

reporting all of their income.

      Item 10 on Schedule B, Interest and Ordinary Dividends,

asked the following question:    “At any time during the tax year,

did you have an interest in or a signature or other authority

over a financial account in a foreign country (such as a bank

account, securities account, or other financial account)?”

Petitioners responded that they did not.   This was false:   in

addition to the Canadian brokerage accounts, petitioners each

opened foreign bank accounts in 1985 at the TSB Private Bank

International S.A. in Luxembourg and maintained them throughout

1986.

VI.   Respondent’s Notice of Deficiency

      In respondent’s notice of deficiency, dated February 26,

1999, he determined that petitioners had unreported income for

1986.   Specifically, respondent determined that petitioners

should have reported all of the long-term and short-term capital

gains and losses from the Canadian brokerage accounts in 1986,

totaling $5,084,483, because Mr. Ford was the beneficial owner of

the stocks traded.

VII. Respondent’s Increase in Deficiency

      Respondent amended his answer in this case to assert

additional unreported income of $2.8 million based on statements

made under oath by Mr. Ford in his allocution quoted above as to
                               - 9 -

his failure to include income of more than $2.8 million from the

sale of securities.   Petitioners conceded during this case that

this unreported income of more than $2.8 million was not included

in the notice of deficiency.

     Mr. Ford used Marc Ford’s name in many of petitioners’

financial transactions.   During 1985 and 1986, Mr. Ford had

access to bank accounts which were opened under the name of Marc

Ford, and he wrote checks from those accounts.   Mr. Ford owned

assets in Marc Ford’s name and opened brokerage accounts in Marc

Ford’s name.   During 1986, Mr. Ford owned, in Marc Ford’s name,

shares of International Tillex and Beverly Development.

VIII. Ms. Ford’s Financial Transactions

     Ms. Ford signed many financial documents relating to these

transactions, including some relating to ownership in shares of

International Tillex.   In 1986, she had multiple brokerage

accounts and bank accounts in her name and signed documents

relating to them.

     During 1986, Ms. Ford purchased several items for large

amounts of money.   For instance, she purchased fur coats costing

approximately $17,000 from the Pappas Fur Co. in British

Columbia.   On or about April 30, 1986, she purchased a 1986

Rolls-Royce from Gregg Motors Rolls-Royce of Beverly Hills,

California, for $114,736.80, which she paid by checks in the

amounts of $100,000 and $14,899.50.
                              - 10 -

     Ms. Ford also transferred large sums of money among her

various personal accounts during 1986.   On August 11, 1986, she

wrote a check for $286,000 from her personal account at Security

Pacific National Bank, made payable to Security Pacific National

Bank, with a notation that it was for a cashier’s check.     On

August 27, 1986, Ms. Ford wrote another check from her Security

Pacific account, this time payable to “Cash”, for $346,290.78.

On April 15, 1986, Ms. Ford deposited a check for $55,074 from

her brokerage account at Yorkton Securities, Inc., into her

account with the National Bank of Canada.   On February 9, 1986,

Ms. Ford wrote a check for $10,000 to Codowell S.A., in

Switzerland.   Less than a year after signing her 1986 return, on

April 12, 1988, Ms. Ford sent a handwritten letter to the

managing director of the TSB Private Bank International S.A., in

Luxembourg, requesting that $100,000 be placed in a high-yield

account for her.

     On or about June 19, 1986, Ms. Ford purchased a house in

Montecito, California, for $1,150,000.   Ms. Ford borrowed

$1,150,000 from the Maryland Bank International N.A. in

Luxembourg to make the purchase, signing documents for a deed of

trust to the Maryland Bank.   The downpayment was taken from the

Canadian brokerage account of one of the nominee corporations,

and the Maryland Bank loan was guaranteed by another nominee

corporation’s trading account.   Ms. Ford made no monthly payments
                                - 11 -

as to this house during 1986.    However, on the 1986 return,

petitioners claimed a deduction for home mortgage interest of

$56,416 on Schedule A, Itemized Deductions.

     Ms. Ford was a partner in at least one business venture.

She purchased an interest in the Courtyard by Marriott Ltd.

Partnership on August 1, 1986, for $200,000, comprising $30,400

in cash and a “limited partner note” of $169,600.    The 1986

return listed a $17,163 loss which had been passed through to Ms.

Ford from her ownership interest in the Courtyard by Marriott

Limited Partnership.

                                OPINION

I.   Net Capital Gains

     We decide whether respondent arbitrarily or erroneously

determined that petitioners failed to recognize $2,341,878 in net

capital gains in 1986 attributable to more than $5 million of

capital gains for the year.   Petitioners bear the burden of

proving that the amount set forth in the notice of deficiency is

arbitrary or erroneous; respondent is presumed correct once he

has put forth some probative evidence linking petitioners with

the income-producing activity.     See Rule 142(a); Welch v.

Helvering, 290 U.S. 111 (1933); Weimerskirch v. Commissioner, 596

F.2d 358 (9th Cir. 1979), revg. 67 T.C. 672 (1977).4

     4
       Sec. 7491(a) was added to the Internal Revenue Code by the
Internal Revenue Service Restructuring and Reform Act of 1998,
                                                   (continued...)
                              - 12 -

     As a threshold matter, respondent must show some income

source to support his determination.   Weimerskirch v.

Commissioner, supra.   Here, respondent has established the

existence of income from the Canadian brokerage accounts in the

form of an exhibit presented at Mr. Ford’s Fatico5 hearing.    This

exhibit showed over $5 million in capital gains for 1986 on which

no tax was paid.   Respondent has also established that both

petitioners controlled these accounts and that these corporations

received income totaling more than Can$ 8 million from trading in

International Tillex stock.

     The record shows that both petitioners controlled, and

received income from, the nominee corporations.   Mr. Ford,

through his assistant Linda Hazlett, who acted under his

direction and control, set up and controlled Blackbird

Investments and its corporate trading account.    He and Ms. Ford

received $1,750,000 from the Maryland Bank in Luxembourg, secured


     4
      (...continued)
Pub. L. 105-206, sec. 3001(c), 112 Stat. 727, effective for court
proceedings arising from examinations commencing after July 22,
1998. Sec. 7491(a)(1) provides that the burden of proof shifts
to the Commissioner in specified circumstances. Petitioners make
no argument that sec. 7491(a)(1) applies to this case, and we
conclude that it does not (as this case predates the enactment of
sec. 7491(a)).
     5
       In U.S. District Court, the parties are given an
opportunity to present evidence with respect to sentencing. U.S.
Sentencing Guidelines sec. 6A1.3 (2002). This evidentiary
hearing is held before the sentencing of a convicted criminal.
See United States v. Fatico, 579 F.2d 707 (2d Cir. 1978).
                               - 13 -

by the Blackbird Investments trading account, and from a Toronado

Resources account.   These funds were used by Ms. Ford to purchase

the Montecito home and for Mr. Ford’s payment of taxes owed from

the 1970s.   In March 1986, Mr. Ford authorized a withdrawal from

a Solar Aquafarms, Ltd. account, which Ms. Ford used to buy fur

coats at the Pappas Fur Co. in Canada.   Mr. Ford also transferred

money from various Canadian corporate accounts, derived from

International Tillex stock transactions, into his own bank

accounts.    Further, in April 1986, funds were transferred from at

least one of the Canadian corporate accounts into a bank account

in Beverly Hills, California, belonging to Ms. Ford.   Ms. Ford

purchased a house in Montecito, California, in 1986, financed by

a mortgage for which funds from a Blackbird Investments account

were pledged as security.   Approximately $25,000 was also taken

from a Toronado Resources account for a downpayment.   At the time

of the purchase, Blackbird Investments had a brokerage account in

Canada which traded in International Tillex stock.   On June 12,

1986, an additional $250,000 was wired into Ms. Ford’s bank

account in California for the purpose of making home improvements

and buying home furnishings.   These facts show that each

petitioner had control, and made frequent beneficial use, of the

income in the Canadian accounts based on which respondent

determined the deficiency and additions to tax stated in his

notice of deficiency.   The Court concludes that respondent has
                                - 14 -

met his minimal burden of establishing a source of income

underlying his determination of deficiency.      See Weimerskirch v.

Commissioner, supra.

      Petitioners urge that we should find respondent’s

determination arbitrary and erroneous because respondent lost

some of the evidence upon which it was based.      Petitioners’ only

evidence in support of their argument is their own testimony.        We

do not find petitioners credible; their testimony was

inconsistent and implausible, as discussed infra.       We hold that

respondent correctly determined unreported net capital gains of

$2,341,878 for 1986.

II.   Other Unreported Income

      We next decide the correctness of the increased deficiency

based upon the $2.8 million of unreported income asserted by

respondent in an amended answer.    Respondent bears the burden of

proof on this issue.   Rule 142(a).      In support of his increase,

respondent points the Court to Mr. Ford’s previously quoted

allocution and his testimony before this Court, both of which

were under oath and made while represented by counsel.      During

his allocution Mr. Ford acknowledged that he had: “failed to

include income in excess of $2.8 million I had received from the

sale of securities belonging to me which I had secreted in

accounts in the name of my son and others”.
                               - 15 -

     In this Court, petitioners conceded that respondent’s notice

of deficiency did not include this $2.8 million.    While

petitioners now claim in their brief that respondent erred in

calculating this amount, we conclude to the contrary.    Mr. Ford’s

words, which were spoken under oath on at least two occasions

while represented by counsel, are clear and unambiguous.    We

conclude that petitioners failed to report this other $2.8

million from the sale of securities.6

III. Fraud

     We decide whether petitioners are liable for the above-

mentioned additions to tax for fraud under section 6653(b)(1)(A)

and (B).7    Respondent must prove his determination of fraud by


     6
       Our decision as to this $2.8 million and the approximately
$5 million above is also consistent with our finding that the
nominee corporations controlled by petitioners failed to
recognize income totaling more than Can$ 8 million.
     7
         In relevant part, sec. 6653(b) provides:

          (1) In general.--If any part of any underpayment (as
     defined in subsection (c)) of tax required to be shown on
     a return is due to fraud, there shall be added to the tax
     an amount equal to the sum of--

          (A) 75 percent of the portion of the underpayment
     which is attributable to fraud, and

          (B) an amount equal to 50 percent of the interest
     payable under section 6601 with respect to such portion
     for the period beginning on the last day prescribed by
     law for payment of such underpayment (determined without
     regard to any extension) and ending on the date of the
     assessment of the tax or, if earlier, the date of the
                                                    (continued...)
                                - 16 -

clear and convincing evidence.    See sec. 7454(a); Rule 142(b);

Rowlee v. Commissioner, 80 T.C. 1111, 1113 (1983).    Respondent

must prove that petitioners fraudulently intended to underpay

their tax.   See Powell v. Granquist, 252 F.2d 56 (9th Cir. 1958);

Miller v. Commissioner, 94 T.C. 316, 332-333 (1990).    Respondent

must meet his burden through affirmative evidence because fraud

is never imputed or presumed.    See Beaver v. Commissioner, 55

T.C. 85, 92 (1970).   Whether fraud exists in a given situation is

a factual determination that must be made after reviewing the

particular facts and circumstances of the case.    DiLeo v.

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

1992).

     If respondent establishes that some part of an underpayment

was due to fraud, the entire underpayment is treated as

attributable to fraud unless petitioners prove otherwise.     Sec.


     7
      (...continued)
     payment of the tax.

         (2) Determination of portion attributable to fraud.
    If the Secretary establishes that any portion of an
    underpayment is attributable to fraud, the entire
    underpayment shall be treated as attributable to fraud,
    except with respect to any portion of the underpayment
    which the taxpayer establishes is not attributable to
    fraud.

         (3) Special rule for joint returns. In the case of
    a joint return, this subsection shall not apply with
    respect to a spouse unless some part of the underpayment
    is due to the fraud of such spouse.
                                  - 17 -

6653(b)(2).    The fraud penalty may be applied against a spouse

only where some part of the underpayment is due to the fraud of

the spouse.    Sec. 6653(b)(3).

     A.    Underpayment of Tax

     Mr. Ford has acknowledged under oath and while represented

by counsel that petitioners’ 1986 return does not report all of

their income for 1986 and that this unreported income was subject

to significant Federal income tax.         This testimony conclusively

establishes the existence of a knowing underpayment by

petitioners.    See Considine v. United States, 683 F.2d 1285, 1287

(9th Cir. 1982).

     B.     Intent To Evade Tax

     Fraudulent intent may be proven by circumstantial evidence

because direct proof of a taxpayer’s intent is rarely available.

Reasonable inferences may be drawn from the relevant facts.

Spies v. United States, 317 U.S. 492, 499 (1943); Stephenson v.

Commissioner, 79 T.C. 995 (1982), affd. 748 F.2d 331 (6th Cir.

1984).    Fraud requires a clear and convincing showing that the

taxpayer intended to evade a tax known or believed to be owing by

conduct intended to conceal, mislead, or otherwise prevent the

collection of tax.     Stoltzfus v. United States, 398 F.2d 1002,

1004 (3d Cir. 1968).    While a conviction under section 7206(1)

does not, in and of itself, establish fraudulent intent, it is a

factor from which we “may properly infer fraud” where it is
                                - 18 -

combined with other badges of fraud.     Considine v. United States,

supra; Estate of Rau v. Commissioner, 301 F.2d 51 (9th Cir.

1962), affg. T.C. Memo. 1959-117.

     We often rely on certain indicia of fraud in deciding the

existence of fraud.   The presence of several indicia is

persuasive circumstantial evidence of fraud.     Beaver v.

Commissioner, supra at 93.   The badges of fraud include:    (1)

Understatement of income, (2) maintenance of inadequate records,

(3) failure to file tax returns, (4) implausible or inconsistent

explanations of behavior, (5) concealment of income or assets,

and (6) failure to cooperate with tax authorities.     Spies v.

United States, supra; Estate of Trompeter v. Commissioner, 279

F.3d 767, 773 (9th Cir. 2002), vacating and remanding 111 T.C. 57

(1998); Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th Cir.

1986), affg. T.C. Memo. 1984-601.    We discuss each of the badges

as it may relate to our case.

     1.   Understatement of Income

     Understating income is indicative of fraudulent intent.

Bradford v. Commissioner, supra.     The existence of an

understatement of income was clearly and convincingly established

by Mr. Ford’s guilty plea, by his testimony in both his criminal

case and in this case, and by our findings concerning

petitioners’ unreported taxable income for 1986.    The evidence
                               - 19 -

also establishes that Ms. Ford played an integral part in this

understatement of income.

     Ms. Ford testified that she had no knowledge of the

understatement, but she owned several of the nominee corporations

at issue in this case.   She also recognized the corporate names

of Pooh Bear Investments, Ltd.; Bear & Pebbles Investments, Ltd.;

For Door Investments, Ltd.; and Solar Aquafarms, Ltd.    Ms. Ford’s

recognition of these names and their history (she testified that

For Door was a combination of the names Doorn and Ford, and that

Pooh Bear as well as Bear & Pebbles was named for petitioners’

dogs) makes her testimony that she had no knowledge of Mr. Ford’s

activities less than credible.    The Court concludes that Ms. Ford

had knowledge of, and involvement in, the fraudulent financial

transactions of 1986.    This factor weighs against petitioners.

     2.     Maintenance of Inadequate Records

     Lack of records is indicative of fraudulent intent.    Id.

Mr. Ford acknowledged during his testimony in this case that

petitioners kept few records as to the subject transactions.      The

“records” in this case consist of handwritten letters, some

canceled checks, a few banking records from domestic and

international accounts, and a stock option exercise agreement by

Ms. Ford.    Those records show direct control and management of

the Canadian accounts by both petitioners.

     This factor weighs against petitioners.
                                - 20 -

     3.   Failure To File a Tax Return

     Failing to file tax returns is indicative of fraudulent

intent.   Bradford v. Commissioner, supra.   Although petitioners

did file a 1986 tax return, the mere filing of that return does

not necessarily weigh in favor of petitioners.    Where, as here,

the return was admittedly filed with an understatement of income

and requested a full refund of the $38,000 paid in estimated

taxes, this factor weighs against petitioners.

     4.   Implausible or Inconsistent Explanations of Behavior

     Giving implausible or inconsistent explanations of behavior

is indicative of fraud.   Id.   Mr. Ford testified before this

Court that the Canadian accounts held money owned by Mr. Doorn.

The record, however, shows that Mr. Ford controlled the accounts

in question and repeatedly received financial benefit from them,

by his own admission taking up to $1 million in 1986.     This sum

was never repaid, and there was never an accounting between

petitioners and Mr. Doorn.   The Court finds his explanation

implausible, because the evidence establishes petitioners’

ownership and control of the Canadian money.

     Ms. Ford claimed that she did not even notice petitioners’

negative income on their tax return when she signed it.     This is

not credible given her expenditures in 1986:     she wrote over

$600,000 in checks to cash, purchased a $1.15 million home,

purchased a Rolls-Royce automobile, and purchased $17,000 in
                               - 21 -

Canadian furs.   Ms. Ford testified she did not know why the house

in Montecito was titled only in her name, but it was, and she

signed multiple documents to make it so.   She also claimed to

have no knowledge as to where she found the money to buy the

house in Montecito or whether she borrowed money from the

Maryland Bank in Luxembourg.   In fact, she personally signed a

mortgage on the Montecito home with the Maryland Bank in

Luxembourg.

     Ms. Ford testified that she does not know where she found

the money to write a check to cash for $346,290.78, or how the

cash was used.   When asked whether the amount of $346,290.78 was

wired to her domestic bank account from an account at the

Maryland Bank in Luxembourg, she responded that it was possible,

but she could not recall.   She testified that she did not

remember whether in 1986 she had an account with the Maryland

Bank in Luxembourg, or whether she had money wired to her from

overseas, but the evidence shows she was involved in

international money transfers in that year, at least one of them

from her personal trading account at Yorkton Securities, Inc.,

into her personal bank account in California.   Ms. Ford testified

that she does not recall having worked for International Tillex

in 1985, having exercised an International Tillex stock option

while there, or even what a stock option is.    After she was shown

a copy of a Tillex option agreement she signed on August 20,
                               - 22 -

1984, she testified that she did not recall a relationship with

the company.    She further claimed that she was not aware of Mr.

Ford’s criminal charges until sometime after his Fatico

sentencing hearing.

     Ms. Ford testified that she did not read the question on

Schedule B of the return which asked whether she had an interest

in, or signature or other authority over, a foreign bank account,

and she could not confirm whether the question was answered

truthfully.    The record evidence shows that she did have several

bank and brokerage accounts overseas in 1986, and she even

admitted in testimony that she had a bank account at TSB Private

Bank International S.B. in Luxembourg.     Ms. Ford’s testimony was

not truthful.    She testified, under oath, that she had no

financial experience, but she did.      She testified under oath that

she never looked at anything her husband gave her to sign, but

she did—she later admitted that she knew the names of the nominee

corporations and even from where they were derived.     She stated

on the 1986 return that she had no overseas bank accounts, but

she did.   The Court finds Ms. Ford’s testimony inconsistent and

implausible because her claims of ignorance are not credible when

viewed against her complex and numerous financial dealings in

1986.

     This factor weighs against petitioners.
                              - 23 -

     5.   Concealment of Income or Assets

     Concealing income or assets is indicative of fraud.

Bradford v. Commissioner, 796 F.2d 303 (9th Cir. 1986).     Mr. Ford

admitted under oath that he “secreted” securities belonging to

him “in accounts in the name of my son and others.”   Further

examination by respondent uncovered money hidden in Canadian

brokerage accounts which respondent determined belonged to

petitioners.   Ms. Ford played a critical role in Mr. Ford’s

concealment of assets, taking sole title to their Montecito home

and to their Rolls-Royce.   She also was listed as the owner of

several of the nominee corporations at issue, and she owned in

her own name many investments, including shares of International

Tillex.   Had these assets been owned by Mr. Ford, he would have

been unable to represent to the SEC that he owned no stocks or

bonds, that he had gross income of $16,000 in 1985, that he had a

net worth of negative $560,000 throughout 1985 and 1986, and that

he was unemployed and trying to avoid filing for bankruptcy.

     On the basis of Mr. Ford’s own testimony and upon the

evidence before the Court, the Court concludes that petitioners

concealed assets from the SEC and from respondent.

     Ms. Ford played a sophisticated role in petitioners’

concealment of assets; she was not financially naive.   Her

testimony to the contrary is flatly contradicted by all the

evidence before this Court.   In 1986, she was a business partner
                               - 24 -

in the Courtyard by Marriott Limited Partnership, a personal

investment which indicates some business knowledge on her part.

That same year, she received money from her Yorkton Securities,

Inc. brokerage account and deposited it into her personal bank

account.    She also took title to, and paid for, a Rolls-Royce and

$17,000 in Canadian furs, and she wrote a cashier’s check and a

check to cash totaling over $600,000.   These transactions

establish that Ms. Ford personally benefited from the fraudulent

scheme of which she now claims utter ignorance.   She sent a

handwritten letter to an international banker in Luxembourg less

than a year after she signed the fraudulent return, instructing

him in detail to open an overseas bank account in her name.    Such

evidence of actions subsequent to the act at issue is admissible

where it shows knowledge, intent, or absence of mistake.     Fed. R.

Evid. 404(b); Huddleston v. United States, 485 U.S. 681 (1988)

(the conditional relevancy of subsequent acts is determined by a

preponderance of the evidence); United States v. Olivo, 69 F.3d

1057 (10th Cir. 1995) (conditionally relevant evidence that

criminal defendant, charged with possession of marijuana with

intent to distribute, still had some marijuana in his car over a

year after the alleged crime, held admissible).   The Court

concludes that Ms. Ford was directly involved in the financial

transactions of 1986 and finds her testimony to the contrary not

credible.
                               - 25 -

     This factor weighs against petitioners.

     6.    Cooperation With Authorities

     Failure to cooperate with authorities is indicative of

fraud.    Mr. Ford was less than forthcoming with the SEC, and we

do not find any evidence that petitioners were helpful in

reconstructing the transactions underlying respondent’s notice of

deficiency.    We find this factor weighs against petitioners.

     7.     Conclusion

     On the basis of the above analysis, we find that all of the

badges of fraud weigh against both petitioners.    We therefore

conclude that petitioners intended to evade tax known or believed

to be owing.

     C.     Portion of Underpayment Attributable to Fraud

     Respondent has proven clearly and convincingly that a

portion of petitioners’ underpayment is attributable to fraud.

Thus, the whole underpayment is attributable to fraud, except to

the extent petitioners prove otherwise.    Sec. 6653(b)(2).

Petitioners testified that Mr. Doorn and other unnamed Europeans

owned the money in the Canadian accounts.    Mr. Ford allegedly

viewed his role as that of an “agent” for the Europeans, and

testified that his only interest in the Canadian accounts was a

50-percent profit participation once the Europeans’ original

investment was recouped.    Thus, he testified, the moneys which

petitioners used from these accounts were “loans” repayable to
                               - 26 -

Mr. Doorn and the Europeans.   Mr. Ford admitted under oath and

while represented by counsel that petitioners have no documents

or other evidence to support these assertions.     He attempted to

rationalize this lack of records by saying that “it was family.

It was informal”.

     Contrary to Mr. Ford’s testimony, the evidence shows a

consistent pattern of ownership and control of these funds by

both petitioners as discussed above.     At trial, Mr. Ford

testified that he received at least a few hundred thousand

dollars, and perhaps as much as a million dollars, in purported

“loans” from the Canadian accounts, which he admittedly never

repaid.   He also testified that there was never an accounting

between petitioners and Mr. Doorn.      Petitioners did not call Mr.

Doorn, Marc Ford, or any of their accountants as witnesses.       It

is well established that the failure of one party to introduce

evidence within his or her possession leads to the inference that

the information if produced would be favorable to the opposing

party.    Wichita Terminal Elevator Co. v. Commissioner, 6 T.C.

1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947); see also

McKay v. Commissioner, 89 T.C. 1063, 1069 (1987) (failure of

witness to testify to fact peculiarly within his knowledge

suggests that testimony would have been unfavorable), affd. 886

F.2d 1237 (9th Cir. 1989).   On the basis of this evidence and his

lack of credibility while testifying, the Court is not persuaded
                                - 27 -

by Mr. Ford’s testimony and finds that petitioners have failed to

show that any of the underpayment of tax was not due to fraud.

      D.   Period of Limitations Under Section 6501(c)

      After a return is filed, the Commissioner generally has 3

years within which to assess a deficiency in a civil tax case.

Sec. 6501(a)(1).    However, in the case of a false or fraudulent

return that is filed with the intent to evade tax, the tax may be

assessed at any time.    Sec. 6501(c).   Since we conclude that

petitioners’ 1986 return was such a return, we also conclude the

period for assessment remains open.      Id.; see also Considine v.

United States, 683 F.2d at 1288.

IV.   Estoppel

      Petitioners urge in their opening brief that the Court apply

judicial or equitable estoppel to overturn respondent’s

determination.   Neither estoppel argument is timely presented.

Rule 39 requires that all affirmative defenses be set forth in

the pleadings.     Fazi v. Commissioner, 105 T.C. 436, 444-446

(1995).    Rule 34(b)(4) requires that concise assignments of error

be stated in the initial pleadings for each error asserted and

states that any issue not raised in the assignments of error

shall be deemed to be conceded.    Because petitioners have failed
                               - 28 -

properly to raise the issue of judicial or equitable estoppel, we

decline to allow them to raise it now.8

V.   Section 6015(b) Relief

     Ms. Ford requests section 6015(b) relief from joint and

several liability.    Spouses filing a joint Federal income tax

return are generally jointly and severally liable for the tax

shown on the return or found to be owing.    Sec. 6013(d)(3);

Butler v. Commissioner, 114 T.C. 276, 282 (2000).    In certain

cases, however, an individual filing a joint return may avoid

joint and several liability for tax (including interest,

penalties, and other amounts) by qualifying for relief under

section 6015.    The three types of relief prescribed in that

section are:    (1) Full or apportioned relief under section

6015(b) (full or apportioned relief), (2) proportionate relief

under section 6015(c) (proportionate relief), and (3) equitable

relief under section 6015(f) (equitable relief).    Ms. Ford claims

entitlement only to relief under section 6015(b).    Ms. Ford bears



     8
       Petitioners would still not prevail even if these issues
were properly before us. Contrary to petitioners’ assertions on
this issue, the fact that Marc Ford may have paid tax on the
referenced $2.8 million does not mean that respondent is estopped
from determining the $2.8 million is rightfully taxed to
petitioners. Nor would a finding that petitioners were
“prevented” by respondent’s actions from filing an amended return
for 1986, on which they would have reported the disputed income,
serve to estop respondent from now asserting fraud. A taxpayer
who files a fraudulent return does not purge the fraud by a
subsequent voluntary disclosure. Badaracco v. Commissioner, 464
U.S. 386, 394 (1984).
                                - 29 -

the burden of proving that claim.     See Alt v. Commissioner,

119 T.C. 306, 311 (2002), affd. 101 Fed. Appx. 34 (6th Cir.

2004); see also Rule 142(a)(1).

     Section 6015(b) provides relief from joint and several

liability to the extent that the liability is attributable to an

understatement of tax.     To be eligible for this relief, a

requesting spouse needs to satisfy the following five elements of

section 6015(b)(1):

             (A) a joint return has been made for a taxable
     year;

          (B) on such return there is an understatement of
     tax attributable to erroneous items of 1 individual
     filing the joint return;

          (C) the other individual filing the joint return
     establishes that in signing the return he or she did
     not know, and had no reason to know, that there was
     such understatement;

          (D) taking into account all the facts and
     circumstances, it is inequitable to hold the other
     individual liable for the deficiency in tax for such
     taxable year attributable to such understatement; and

          (E) the other individual elects (in such form as
     the Secretary may prescribe) the benefits of this
     subsection * * *.

The requesting spouse’s failure to meet any one of these

requirements prevents him or her from qualifying for section

6015(b) relief.     Alt v. Commissioner, supra at 313.

     Respondent concedes that the elements of subparagraphs (A)

and (E) have been satisfied and focuses on the remaining

subparagraphs.     Respondent argues that Ms. Ford meets none of
                              - 30 -

these requirements.   We consider only the second of these three

subparagraphs because we agree with respondent that its

requirements have not been met.

     We conclude that Ms. Ford knew or had reason to know of the

1986 underpayment at the time she signed the return so as to be

precluded from receiving her requested relief under section

6015(b).   Credible evidence shows that Ms. Ford was intimately

involved in the convoluted financial transactions which

transpired in 1986, that she played a crucial role in the

utilization of nominee corporations and brokerage accounts, and

that she played a crucial role in the concealment of assets

acquired in 1986, as previously discussed.

     The previously discussed inconsistencies in her testimony,

piled one upon the next, also make her testimony not credible to

the Court.

                  ______________________________

     All of the parties’ arguments have been considered.    We have

rejected as meritless those not discussed herein.     Accordingly,



                                         Decision will be entered

                                    under Rule 155.
