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ROBERT M. TEMPLE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentTemple v. CommissionerNo. 23071-96
United States Tax Court T.C. Memo 2000-337; 2000 Tax Ct. Memo LEXIS 395; 80 T.C.M. 611; T.C.M. (RIA) 54104;November 1, 2000, Filed2000 Tax Ct. Memo LEXIS 395">*395 APPENDIX J
1992 Gross Receipts
Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
Educational
Zoological
Programs, Inc. $ 100 Plume Enterprises 400359855
Anheuser-Busch 2,000 Plume Enterprises 400359855
Anheuser-Busch 2,700 Plume Enterprises 400359855
Anheuser-Busch 1,400 Plume Enterprises 400359855
Timothy L. Charles 500 Galingale Group 400359863
Anheuser-Busch 1,400 Plume Enterprises 400359855
Avian Farms 560 Galingale Group 400359863
Avian Farms 350 Galingale Group 400359863
Avian Farms 70 Plume Enterprises 400359855
Anheuser-Busch 1,600 Plume Enterprises 23-043-10
Anheuser-Busch2000 Tax Ct. Memo LEXIS 395">*396 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
______
Total 17,880
1992 Royalty Income
Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
Pennzoil Products $ 155 Trundle Management
Eton Trust Co.,
Ltd., Trustee n1 1163506106
Pennzoil Products 281 Trundle Management
Eton Trust Co.,
2000 Tax Ct. Memo LEXIS 395">*397 Ltd., Trustee 1163506106
Pennzoil Products 257 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 332 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 745 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 432 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
______
Total 2,203
Total Income n2 20,083
Frank R. Bodor , for petitioner.Carol A. Szczepanik , for respondent.Ruwe, Robert P.RUWEMEMORANDUM FINDINGS OF FACT AND OPINION RUWE, JUDGE: 2000 Tax Ct. Memo LEXIS 395">*398 Respondent determined deficiencies and additions to tax in petitioner's Federal income tax as follows:
Additions to tax
___________________________________
Sec. Sec. Sec.Year Deficiency 6651(f) 6653(b)(1) 6654(a)
____ __________ _________ __________ _________
1988 $ 26,874 N/A $ 20,156 $ 1,718
1989 29,683 $ 22,262 N/A 2,006
1990 25,383 19,037 N/A 1,671
1991 7,078 5,309 N/A 410
1992 4,572 3,429 N/A 200
After concessions, 1 the issues for decision are: (1) Whether petitioner had unreported income from veterinary services, the sale of animals, and oil and gas royalties in the years in issue; (2) whether petitioner is liable for additions to tax for fraud under sections 6653(b)(1) 2 and 6651(f); 2000 Tax Ct. Memo LEXIS 395">*399 (3) whether petitioner is liable for failure to pay estimated tax under
section 6654(a) ; and (4) whether petitioner is liable for the imposition of a penalty undersection 6673 for taking a frivolous and groundless position in these proceedings.FINDINGS OF FACT Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioner resided in Bristolville, Ohio.
During the years in issue, petitioner and his wife2000 Tax Ct. Memo LEXIS 395">*400 Catherine Temple (Mrs. Temple) lived at 5955 Stroups Hickox Road, Bristolville, Ohio (5955 property). The 5955 property was a country home with more than 300 acres.
During the years in issue, petitioner was a veterinarian, and he operated a veterinary clinic out of his residence. Petitioner performed services as a veterinarian for several clients including Sea World, 3 Anheuser Busch, the Ohio Department of Wildlife, Canton Veterinary Hospital, Educational Zoological Programs, Inc., Constance A. Halle, Robert M. Sabo, and Wendy Arbogast. Petitioner also provided expert testimony for ITT Hartford.
Petitioner also had property located at 5501 Stroups Hickox Road (5501 property). Petitioner used the 5955 and 5501 properties for livestock breeding. Petitioner bred and sold llamas and birds during the years in issue. Petitioner sold llamas or birds to the following customers: John C. or Maria L. Gifford, Kerney L. and Ann R. Martini, Llamas of Michigan, Swan Lake Llamas, 2000 Tax Ct. Memo LEXIS 395">*401 Avian Farms, Ronald G. and Carole L. DeRhodes, Sunny Hill Farms, William L. and Maureen F. Crawford, Fish and Feathers Intl., Ronald C. and Lisa Blider, Educational Zoological Programs, Inc., 4 Robert M. Sabo, Dennis Grodings, Jerome T. and Barbara A. Grone, Timothy L. Charles, William J. and Patricia M. Boever, Mary Z. Reed, and Wendy Arbogast.
During the years in issue, petitioner's gross receipts from services provided as a veterinarian and from the sale of animals were as follows:
Year Gross Receipts
____ ______________
1988 1 $ 47,750
1989 2 88,404
1990 3 74,360
1991 4 16,059
1992 5 17,880
____________
Total 244,453
2000 Tax Ct. Memo LEXIS 395">*402 Approximately half of petitioner's receipts during 1988 were in the form of checks payable to Dr. Temple, while the remaining checks were payable to Plume Enterprises. 5 Payments in 1989, 1990, 1991, and 1992 were almost exclusively made to Plume Enterprises, except for one check in the amount of $ 15,500 6 in 1990, 7 one check in the amount of $ 600 in 1991, 8 and three checks totaling $ 1,410 in 1992. 9
2000 Tax Ct. Memo LEXIS 395">*403 With the exception of one check issued in 1989 and seven checks issued in 1992, all checks payable to Plume Enterprises were deposited in an account with Bank One, 10 account No. 400359855 (Bank One 855 account), held in the name of Plume Enterprises. 11 Oxford Charter Corp. was listed as trustee on Plume Enterprises' Bank One 855 account. L. R. Mayer was the executive director of Oxford Charter Corp. during 1987.
Mrs. Temple had signatory authority over the Bank One 855 account, and the monthly bank statements were sent to petitioner's residence. During the years in issue, Mrs. Temple signed the following checks drawn on Plume Enterprises' Bank One 855 account:
Year Payee Amount
____ _____ ______
1989 Lets Go Travel $ 2000 Tax Ct. Memo LEXIS 395">*404 240
1989 Lets Go Travel 480
1989 Cash 1,000
1989 R&J Auto Services 404
1989 DS.BA 625
1990 R&J Auto Services 814
1990 R&J Auto Services 169
1990 Action Travel 791
1990 Radisson Resort 497
1990 Action Travel 158
1990 Admiral Bendoro 144
1990 Trundle Management 1 2,000
1990 Trundle Management 2 1,500
1990 Trundle Management 500
1991 Action Travel 278
1991 Hotel Westcourt 162
1991 2000 Tax Ct. Memo LEXIS 395">*405 Action Travel 318
1991 Action Travel 296
1991 Greenbelt Holiday Inn 67
1992 Control Management Inc. 400
1992 Cash 391
1992 McMeyers & Ford, Inc. 300
_______
Total 11,534
The one check issued in 1989 that was not deposited into the Bank One 855 account was deposited in another Bank One account, account No. 400359863 (Bank One 863 account). 2000 Tax Ct. Memo LEXIS 395">*406 The Bank One 863 account was held in the name of Galingale Group, Oxford Charter Corp., Trustee. 12 L. R. Mayer was the executive director of Oxford Charter Corp. during 1987.
Mrs. Temple had signatory authority over the Bank One 863 account, and during the years in issue, she signed the following checks drawn on that account:
Year Payee Amount
____ _____ ______
1988 Lets Go Travel $ 694
1988 Bavarian Manor 50
1988 Custom Parrot Network 10,000
1988 Bavarian Manor 133
1988 Sheraton Centre 531
1988 Custom Parrot Network 3,500
2000 Tax Ct. Memo LEXIS 395">*407 1988 Trundle Management 1 2,000
1989 The Sheraton Greensboro 512
1989 DS.BA 1,250
1989 Lets Go Travel 724
1989 Regal Travel 138
1990 Trundle Management 2 2,000
1990 Home Centers 281
1991 Trundle Management 3 2,000
1991 Trundle Management 4 2,000
1991 Cash 300
1991 Cash 500
1992 Cash 107
_______
Total 26,720
2000 Tax Ct. Memo LEXIS 395">*408 The seven checks issued in 1992 that were not deposited in the Bank One 855 account were deposited in an account with Cortland Savings and Banking Co.13 held in the name of Plume Enterprises. These checks totaled $ 8,800, and they were deposited from August to December 1992 in the Cortland Savings account. Neither petitioner nor his wife was listed as having signatory authority over the Cortland Savings account, but monthly bank statements 14 were sent to their residence, which was also the address listed on the signature card as the account
During 1992, the following checks were drawn on the Plume Enterprises' Cortland Savings account:
Year Payee Amount
____ _____ ______
1992 Comfort Suites $ 164
2000 Tax Ct. Memo LEXIS 395">*409 1992 L. R. Mayer 1 125
1992 Action Travel 220
1992 Galt House 386
1992 Piccolo Co. 1,000
1992 Control Management, Inc. 2 400
1992 McMyers & Ford 3 300
1992 Piccolo Co. 5,458
______
Total 8,053
2000 Tax Ct. Memo LEXIS 395">*410 All the above-listed checks were written between September and December 1992. The two largest checks drawn on the Cortland Savings account, one for $ 1,000 and the other for $ 5,458, were payable to Piccolo Co. The check for $ 1,000 was written on October 29, 1992, and the check for $ 5,458 was written on December 31, 1992. Piccolo Co. had an account with Second National Bank of Warren, 15 account No. 1163353006 (Second National 006 account). 16
G. Bodor had signatory authority over Piccolo's account with Second National Bank. 17 During the years in issue, G. Bodor signed the following checks, all of which were drawn on Piccolo Co.'s Second National 006 account:
2000 Tax Ct. Memo LEXIS 395">*411 Year Amount Payee
____ ______ _____
1988 $ 10,000 Purfle Co.
1988 14,000 Purfle Co.
1988 10,000 Purfle Co.
1988 7,630 Purfle Co.
1989 22,571 Purfle Co.
1989 5,000 Purfle Co.
1989 9,597 Purfle Co.
1990 5,000 Purfle Co.
1991 4,400 Purfle Co.
1991 4,479 Purfle Co.
1992 1 2,000 Purfle Co.
______
Total 94,677
The first seven checks listed above, totaling $ 78,798, were deposited2000 Tax Ct. Memo LEXIS 395">*412 into a Dollar Savings and Trust Co. account, account No. 218-000-827 (Dollar Savings 827 account). The Dollar Savings 827 account was held in the name of Purfle Co. with Eton Trust Co., Ltd., as trustee. 18 Both petitioner and Mrs. Temple had signatory authority over the Dollar Savings 827 account.
Mrs. Temple signed checks payable to cash and drawn on the Dollar Savings 827 account during the years in issue as follows:
Year Amount
____ ______
1989 $ 4,000
1989 4,500
1989 4,500
1989 1,500
1989 2,000
1989 2,892
1989 4,833
1989 4,000
1989 4,500
1989 4,000
2000 Tax Ct. Memo LEXIS 395">*413 ______
Total 36,725
In addition to the above-listed checks payable to cash, Mrs. Temple withdrew $ 5,000 from the Dollar Savings 827 account in the form of a cashier's check payable to petitioner. Purfle Co. was remitter on another check drawn on a Dollar Savings bank account and payable to petitioner in the amount of $ 5,000.
The last four checks, listed on the previous page, and drawn on the Second National 006 account, totaled $ 15,879. All these checks were deposited into a second bank account with Dollar Savings and Trust Co., account No. 213-593-320 (Dollar Savings 320 account). The Dollar Savings 320 account was held in the name of Purfle Co. with Eaton Trust Co., Ltd., as trustee. 19 Both petitioner and Mrs. Temple had signatory authority over this account.
Mrs. Temple signed checks payable to cash and drawn on the Dollar Savings 320 account during the years in issue2000 Tax Ct. Memo LEXIS 395">*414 as follows:
Year Amount
____ ______
1990 $ 1,500
1990 500
1990 500
1990 2,500
1991 3,000
1991 2,000
1991 2,000
1991 1,500
1991 200
1992 2,000
1992 2,500
1992 2,000
______
Total 20,200
On May 26, 1992, B. L. Holtzhauer replaced petitioner and Mrs. Temple as the person authorized to sign checks on the Dollar Savings 320 account. The following checks payable to cash were signed by B. L. Holtzhauer:
Year Amount
____ ______
1992 $ 1,000
1992 1,000
1992 2,045
______
2000 Tax Ct. Memo LEXIS 395">*415 Total 4,045
On December 7, 1992, the Dollar Savings 320 account was closed, and the proceeds were deposited into Barclays Bank, Nassau, Bahamas.
Prior to February 1985, petitioner was title owner of the 5501 and 5955 properties. On February 28, 1985, petitioner granted his interest in the 5501 and 5955 properties to Black Creek Management Co. with Nassau Life Insurance Co., 20 Ltd., as trustee 21 by warranty deeds.
2000 Tax Ct. Memo LEXIS 395">*416 Oil and gas drilling sites were located on both the 5501 and 5955 properties. On February 1, 1985, petitioner executed an Exchange of Royalty Interest with Old Labrador Investment Co. with Nassau Life Insurance Co., Ltd., as trustee. The Exchange of Royalty Interest indicates that petitioner granted Old Labrador Investment Co. with Nassau Life Insurance Co., Ltd., as trustee his interest in the oil and gas leases for both properties for a stated consideration of $ 10. The Exchange of Royalty Interest was recorded in the Trumbull County Recorder's Office on February 28, 1985.
On January 25, 1988, Black Creek Management Co. with Nassau Life Insurance Co., Ltd., as trustee granted by warranty deed for a stated consideration of $ 1 the 5501 and 5955 properties to Trundle Management with Eton Trust Co., Ltd., as trustee 22 by warranty deed. 23 On the same day, Old Labrador Investment Co. with Nassau Life Insurance Co., Ltd., as trustee, granted for $ 1 in consideration its royalty interest in the oil and gas leases in both properties to Trundle Management with Eton Trust Co., Ltd., as trustee.
2000 Tax Ct. Memo LEXIS 395">*417 Petitioner and his wife continued to reside at the 5955 property. Petitioner continued to use the 5501 and 5955 properties for livestock operations and to operate a veterinary clinic. Petitioner continued to exercise dominion and control over the 5501 and 5955 properties.
Pennzoil Oil and Scavenger Oil paid royalties for use of the oil and gas wells located on both properties during the years in issue. Royalty payments from Pennzoil and Scavenger were as follows:
Year Royalty Income
____ ______________
1990 1 $ 2,789
1991 2 2,199
1992 3 2,203
_______
Total 7,191
With the exception of one deposit, all checks were deposited into an account with the Second National Bank2000 Tax Ct. Memo LEXIS 395">*418 of Warren, account No. 1163506106 (Second National 106 account). The account was held in the name of Trundle Management, Eton Trust Co., Ltd., Trustee. 24 Originally, Mrs. Temple and P. Evans had signature authority over the account. Petitioner's address was listed on the signature card. On July 7, 1992, B. L. Holtzhauer's name was added to the signature card. The address listed as B. L. Holtzhauer's address on the signature card was petitioner's residence. Bank statements were sent to petitioner's residence.
During the years in issue, Mrs. Temple signed checks drawn on the Second National 106 account as follows:
Year Amount Payee
____ ______ _____
1989 $ 500 Cash
1989 500 Cash
1989 312 DS.BA
1990 1,000 Cash
1990 2000 Tax Ct. Memo LEXIS 395">*419 3,450 Sweda Heating & Cooling
1990 1,316 R.C. Drywall
_____
Total 1 7,078
Petitioner was in the process of remodeling and expanding his personal residence in 1989.
Petitioner made a $ 5,000 deposit into the Second National 106 account in 1988. The source of the $ 5,000 deposit was a bank check payable to petitioner drawn from one of the Dollar Savings and Trust accounts.
Petitioner filed Form 1040, U.S. Individual Income Tax Return, for the years 1975 through 1979. Petitioner did not file a Federal income tax return for 1980, and he has not filed a Federal income tax return for any year since 1980.
OPINION I. UNREPORTED INCOME Petitioner failed to file Federal income tax returns for the years 1988, 1989, 1990, 1991, and 1992. Respondent determined that petitioner was engaged in the business activity of performing2000 Tax Ct. Memo LEXIS 395">*420 veterinary services and selling livestock during those years. Respondent computed petitioner's business gross receipts based on deposits made to bank accounts which petitioner controlled during those years, taking into account transfers and nontaxable items. Respondent also determined that petitioner received royalty income during the years 1990, 1991, and 1992.
Petitioner does not dispute the existence of the transactions that produced the income that respondent attributes to him. Rather, petitioner argues that the income was received by, and deposited into bank accounts of, valid irrevocable trusts. Petitioner asserts that respondent has improperly imputed gross income received by a trust to petitioner and has improperly failed to recognize the trust as a separate entity. We note, as a preliminary matter, that petitioner did not provide copies of any trust agreements, nor did he or his wife testify at trial.
Section 61(a) provides, in part, that "gross income means all income from whatever source derived, including (but not limited to)" compensation for services, gains derived from dealing in property and royalties. It is fundamental to our system of taxation that income must be2000 Tax Ct. Memo LEXIS 395">*421 taxed to the one who earns it. See
Commissioner v. Culbertson, 337 U.S. 733">337 U.S. 733 , 337 U.S. 733">739-740, 93 L. Ed. 1659">93 L. Ed. 1659, 69 S. Ct. 1210">69 S. Ct. 1210 (1949);Lucas v. Earl, 281 U.S. 111">281 U.S. 111 , 281 U.S. 111">114-115, 74 L. Ed. 731">74 L. Ed. 731, 50 S. Ct. 241">50 S. Ct. 241 (1930). Income can be attributed to an individual when the recipient has total control or dominion over the funds and uses the funds for personal purposes. SeeDavis v. United States, 226 F.2d 331">226 F.2d 331 , 226 F.2d 331">334 (6th Cir. 1955);Woods v. Commissioner, T.C. Memo 1989-611 , affd. without published opinion929 F.2d 702">929 F.2d 702 (6th Cir. 1991).A. VETERINARIAN SERVICES AND THE SALE OF LIVESTOCK Petitioner provided veterinarian services, and he bred and sold animals. As a result, petitioner received payments by checks totaling $ 47,750 in 1988, 25 $ 88,404 in 1989, 26 $ 74,360 in 1990, 27 $ 16,059 in 1991, 28 and $ 17,880 in 1992. 29 In 1988, checks totaling $ 11,000 were payable to Dr. Temple, while the remaining checks totaling $ 36,750 were payable to Plume Enterprises and deposited into the Bank One 855 account. This account was fashioned as a trustee account, but all funds deposited in the account were based on payments petitioner received for veterinarian services that he provided and from the sale2000 Tax Ct. Memo LEXIS 395">*422 of animals that he sold. Mrs. Temple had signatory authority over the account.
In 1989, petitioner received checks totaling $ 88,404 for the services he provided as a veterinarian and from the sale of animals. Petitioner deposited checks totaling $ 87,804 in the Bank One 855 account, and the remaining check for $ 600 in the Bank One 863 account. Petitioner's spouse, Mrs. Temple, had signatory authority over both accounts.
In 1990, petitioner received checks totaling $ 74,360 for the services he provided as a veterinarian and from the sale of animals. Petitioner deposited checks totaling $ 74,360 into the Bank One 855 account, which Mrs. Temple had signatory authority over.
In 1991, petitioner received checks totaling $ 16,059 for the services he provided as a veterinarian and from the sale of animals. 30 Petitioner deposited checks totaling $ 16,059 into the Bank One 855 account, which Mrs. Temple had signatory2000 Tax Ct. Memo LEXIS 395">*423 authority over.
In 1992, petitioner received checks totaling $ 17,880 for the services he provided as a veterinarian and from the sale of animals. Petitioner deposited checks totaling $ 7,670 in the Bank One 855 account and checks totaling $ 1,410 in the Bank One 863 account. Mrs. Temple had signatory authority over both accounts.
Amounts deposited into the Bank One 855 account in the name of Plume Enterprises and the Bank One 863 account in the name of Galingale Group constituted income of petitioner. Petitioner earned the income, he and his wife exercised total dominion and control over those funds, and they expended the funds for their personal expenses. From these two accounts alone, Mrs. Temple signed checks totaling $ 38,254 31 for personal items, including cash, travel agencies, hotels, auto services and deposits to other accounts over which2000 Tax Ct. Memo LEXIS 395">*424 she had signatory authority.
The remaining payments received by petitioner in 1992, checks totaling $ 8,800, from services he provided as a veterinarian and animals that he sold were deposited into the Cortland Savings account between August and December 1992. Neither petitioner nor his wife was listed as having signatory authority over the Cortland Savings account; however, monthly bank statements were sent to petitioner's residence, and the signature card listed petitioner's address as the account owner's address.
During the period from September to December 1992, checks totaling $ 8,053 were drawn on the Cortland Savings account. A majority of those funds, checks totaling $ 6,458, were deposited in an account with the Second National Bank of Warren. 32 G. Bodor had signatory authority over the Second National 006 account, and during the years in issue she wrote checks totaling2000 Tax Ct. Memo LEXIS 395">*425 $ 94,677 and deposited them into one of two Dollar Savings and Trust accounts. Petitioner and his wife had signatory authority over both Dollar Savings and Trust accounts. We find that the $ 8,800 was earned by petitioner and then funneled through the various accounts as part of petitioner's overall plan to conceal income. Once we view through the layers of nominee accounts through which the funds were channeled, petitioner remained in control of the funds.
B. ROYALTY INCOME A fundamental principle of income tax law is that economic substance prevails over form. See
Gregory v. Helvering, 293 U.S. 465">293 U.S. 465 , 79 L. Ed. 596">79 L. Ed. 596, 55 S. Ct. 266">55 S. Ct. 266 (1935). "When the form of the transaction has not, in fact, altered any cognizable economic relationships, 2000 Tax Ct. Memo LEXIS 395">*426 we will look through that form and apply the tax law according to the substance of the transaction."Zmuda v. Commissioner, 79 T.C. 714">79 T.C. 714 , 79 T.C. 714">720 (1982), affd.731 F.2d 1417">731 F.2d 1417 (9th Cir. 1984). This rule applies regardless of whether the entity has a separate existence recognized under State law and whether, in form, it is a trust, a common-law business trust, or some other form of jural entity. See id.We find the various transactions which purported to result in a transfer of petitioner's interest in the 5501 and 5955 properties and his royalty interest in those properties to be without economic substance. Petitioner always remained in possession of the properties, and he continued to control the properties as he had done before the transfers.
Petitioner and his wife continued to live in their residence located on the 5955 property. Petitioner continued to use the properties for livestock breeding, sale of livestock, and operation of a veterinary clinic. Petitioner, regardless of legal title, exercised dominion and control over the properties.
Payments of $ 7,191 were made for the use of oil and gas wells located on petitioner's properties during the years in2000 Tax Ct. Memo LEXIS 395">*427 issue. With the exception of one check for $ 1,800, payments totaling $ 5,391 were deposited into the Second National 106 account. Mrs. Temple had signatory authority over this account, petitioner's address was listed on the signature card, and bank statements were mailed to petitioner's residence.
Mrs. Temple signed checks totaling $ 2,000 payable to cash in 1989 and 1990 and checks totaling $ 4,766 in 1990 to contractors from this account. Petitioner was in the process of remodeling and expanding his personal residence in 1989.
The one check for $ 1,800 that was not deposited in the Second National 106 account was deposited into the Bank One 855 account. Mrs. Temple signed checks totaling $ 11,534 for personal items including, cash, hotels, several travel agencies, and an automobile service shop drawn on this account.
Petitioner argues that if the income items in appendixes F through J are attributed to him, then respondent has failed to subtract expenses or deductions from petitioner's gross receipts for each year in issue. However, petitioner did not provide any evidence regarding allowable expenses or deductions, and neither petitioner nor his wife testified.
Even in criminal2000 Tax Ct. Memo LEXIS 395">*428 tax evasion cases, where the Government bears the greater burden of proof beyond a reasonable doubt, it is well settled "that evidence of unexplained receipts shifts to the taxpayer the burden of coming forward with evidence as to the amount of offsetting expenses, if any."
Siravo v. United States, 377 F.2d 469">377 F.2d 469 , 377 F.2d 469">473 (1st Cir. 1967); see alsoFranklin v. Commissioner, T.C. Memo 1993-184 . Where the taxpayer has failed to file a return, or his return shows no receipts from a particular activity, then the assumption that he, more readily than respondent, has access to evidence of deductions or other offsetting amounts makes the nonexistence of such amounts a fair presumption, at least as an initial matter and absent a satisfactory explanation of such nonexistence or the production of some probative evidence. SeeFranklin v. Commissioner, supra. We hold that petitioner had unreported taxable income of $ 47,750 in 1988, $ 88,404 in 1989, $ 77,149 in 1990, $ 18,258 in 1991, and $ 20,083 in 1992. See appendixes F through J.
II. ADDITIONS TO TAX FOR FRAUD The next issue is whether any part of the underpayment of income tax for each year in issue is2000 Tax Ct. Memo LEXIS 395">*429 due to fraud. Respondent's notice of deficiency determined that petitioner is liable for the addition to tax for fraud imposed under section 6653(b)(1) 33 for the taxable year 1988 and for the addition to tax for fraudulent failure to file under section 6651(f) 34 for the taxable years 1989, 1990, 1991, and 1992. Each section imposes an addition to tax equal to 75 percent of the portion of an underpayment that is attributable to fraud. Because these provisions are analyzed similarly as to the determination of fraudulent intent, we consolidate our discussion of respondent's fraud determinations. See
Clayton v. Commissioner, 102 T.C. 632">102 T.C. 632 , 102 T.C. 632">653 (1994).2000 Tax Ct. Memo LEXIS 395">*430 Respondent has the burden of proving by clear and convincing evidence that an underpayment exists for the years in issue and that some portion of the underpayment is due to fraud. See sec. 7454(a);
Rule 142(b) ;Niedringhaus v. Commissioner, 99 T.C. 202">99 T.C. 202 , 99 T.C. 202">210 (1992). Consequently, respondent must establish: (1) Petitioner has underpaid his taxes for each year; and (2) some part of the underpayment is due to fraud. SeeDiLeo v. Commissioner, 96 T.C. 858">96 T.C. 858 , 96 T.C. 858">873 (1991), affd.959 F.2d 16">959 F.2d 16 (2d Cir. 1992). Fraud is the intentional wrongdoing on the part of a taxpayer to evade a tax believed to be owing. SeePetzoldt v. Commissioner, 92 T.C. 661">92 T.C. 661 , 92 T.C. 661">698 (1989). Where fraud is determined for each of several years, respondent's burden applies separately or each of the years. SeeDrieborg v. Commissioner, 225 F.2d 216">225 F.2d 216 , 225 F.2d 216">219-220 (6th Cir. 1955), affg. in part and revg. in part a Memorandum Opinion of this Court dated Feb. 24, 1954.A. UNDERPAYMENT OF TAXES Based on the evidence presented and our previous analysis, we find that respondent has clearly and convincingly established that petitioner understated his taxable income by $ 47,7502000 Tax Ct. Memo LEXIS 395">*431 35 in 1988, $ 88,404 36 in 1989, $ 77,149 37 in 1990, $ 18,258 38 in 1991, and $ 20,083 39 in 1992. Petitioner underpaid his taxes for each year in issue.
B. FRAUDULENT INTENT Respondent must prove that a portion of the underpayment is attributable to the fraudulent intent of petitioner. Fraud is the intentional wrongdoing motivated by a specific purpose to evade a tax known or believed to be owing. See
Stoltzfus v. United States, 398 F.2d 1002">398 F.2d 1002 , 398 F.2d 1002">1004 (3d Cir. 1968). The existence of fraud is a question of fact to be resolved upon consideration of the entire record. SeeGajewski v. Commissioner, 67 T.C. 181">67 T.C. 181 , 67 T.C. 181">199 (1976), affd. without published opinion578 F.2d 1383">578 F.2d 1383 (8th Cir. 1978).Direct proof of a taxpayer's intent is rarely available; thus, fraud may be proven by circumstantial evidence, and reasonable inferences may be drawn from2000 Tax Ct. Memo LEXIS 395">*432 the relevant facts. See
Spies v. United States, 317 U.S. 492">317 U.S. 492 , 317 U.S. 492">499, 87 L. Ed. 418">87 L. Ed. 418, 63 S. Ct. 364">63 S. Ct. 364 (1943);Stephenson v. Commissioner, 79 T.C. 995">79 T.C. 995 , 79 T.C. 995">1006 (1982), affd.748 F.2d 331">748 F.2d 331 (6th Cir. 1984). Any conduct, the likely effect of which would be to mislead or to conceal may establish an affirmative act of evasion. See317 U.S. 492">Spies v. United States, supra at 499 .The courts have relied upon a number of indicia of fraud in deciding whether an underpayment of tax is due to fraud. While no single factor is necessarily sufficient to establish fraud, the existence of several indicia is persuasive circumstantial evidence of fraud. See
92 T.C. 661">Petzoldt v. Commissioner, supra. Respondent argues that the following factors or "badges" of fraud are present in this case: (1) A substantial and consistent understatement of income; (2) extensive dealings in cash; (3) use of nominee accounts; 40 (4) failure to cooperate with revenue agents; and (5) petitioner's level of education.
2000 Tax Ct. Memo LEXIS 395">*433 1. SUBSTANTIAL AND CONSISTENT UNDERSTATEMENT OF INCOME Consistent failure to report substantial amounts of income over a number of years is, standing alone, highly persuasive evidence of fraudulent intent. See
Kurnick v. Commissioner, 232 F.2d 678">232 F.2d 678 (6th Cir. 1956), affg.T.C. Memo 1955-31 ;Reash v. Commissioner, 218 F.2d 954">218 F.2d 954 (6th Cir. 1954), affg. per curiam a Memorandum Opinion of this Court dated Dec. 28, 1953. In this case, there is a substantial and consistent underpayment of tax for each of the years in issue.2. EXTENSIVE DEALINGS IN CASH Dealing in cash to avoid scrutiny of one's finances is a badge of fraud. See
Bradford v. Commissioner, 796 F.2d 303">796 F.2d 303 , 796 F.2d 303">307-308 (9th Cir. 1986), affg.T.C. Memo 1984-601 . Petitioner made numerous and substantial cash transactions during the 5 years in issue.During the years in issue, Mrs. Temple signed checks payable to cash totaling $ 59,223 that were drawn on four different accounts, all of which were fashioned as trust accounts. Mrs. Temple was not a named trustee on any of these accounts. For the short period of time that B. L. Holtzauer replaced petitioner and Mrs. Temple2000 Tax Ct. Memo LEXIS 395">*434 on the Dollar Savings 320 account, checks totaling $ 4,045 were issued payable to cash. The last check issued to cash in the amount of $ 2,045 was used toward the purchase of a bank check for $ 2,645. The Dollar Savings 320 account was closed, and the proceeds deposited into an account in Nassau, Bahamas.
Wendy Arbogast was one of petitioner's clients. Ms. Arbogast testified that she had purchased a bird from petitioner for $ 1,400 but paid $ 800 of the purchase price in cash. Ms. Arbogast testified that petitioner told her when she started going to him for veterinary services that he preferred cash payments.
3. USE OF NOMINEE ACCOUNTS Use of nominees to conceal assets that a taxpayer has unfettered control over is evidence of fraud. See
Friedman v. Commissioner, T.C. Memo 1968-145 , affd.421 F.2d 658">421 F.2d 658 (6th Cir. 1970).Petitioner received checks from various customers for providing veterinarian services, the sale of animals, and royalties and deposited them into various bank accounts fashioned as trustee accounts. These deposits were derived from income earned by and taxable to petitioner. The accounts were fashioned as trust accounts in an effort by petitioner2000 Tax Ct. Memo LEXIS 395">*435 to disguise the true ownership of the accounts.
4. FAILURE TO COOPERATE WITH REVENUE AGENTS Failure to cooperate with revenue agents during the audit phase of a case is an additional indication of guilty knowledge on a taxpayer's part. See
Professional Servs. v. Commissioner, 79 T.C. 888">79 T.C. 888 , 79 T.C. 888">933 (1982).Revenue Agent Gentile conducted the examination of petitioner for the years in issue. Mr. Gentile testified that as an initial step in his examination of petitioner, he sent petitioner two appointment letters. However, petitioner did not appear at either appointment and did not provide any books or records during the course of the examination.
5. LEVEL OF EDUCATION A taxpayer's level of education and his prior history of filing proper Federal income tax returns are relevant. See
Stephenson v. Commissioner, 79 T.C. 995">79 T.C. 995 (1982).Petitioner is a doctor of veterinary medicine. A person with his level of education should know that he cannot escape liability from income taxation and still enjoy control and dominion over all the income he received by establishing nominee accounts. Petitioner filed Federal income tax returns for 1975, 1976, 1977, 1978, and 1979. 2000 Tax Ct. Memo LEXIS 395">*436 His filing of proper returns for years prior to the years in issue demonstrates that he was aware of his income tax responsibilities.
C. CONCLUSION The facts and circumstances of this case clearly and convincingly support respondent's determination of fraud for each year in issue.
III. ADDITIONS TO TAX FOR FAILURE TO PAY ESTIMATED TAX For 1988, 1989, 1990, 1991, and 1992, respondent determined additions to tax for failure to pay estimated tax under
section 6654 . If there is an underpayment of estimated tax for any of the years in issue,section 6654(a) imposes an addition to tax equal to the interest rate established undersection 6621 applied to the amount of the underpayment for the period of the underpayment. This addition to tax is mandatory and, unless one of the exceptions insection 6654(e) applies, is imposed regardless of reasonable cause or extenuating circumstances. SeeDodge v. Commissioner, 96 T.C. 172">96 T.C. 172 , 96 T.C. 172">183 (1991), affd. on this issue981 F.2d 350">981 F.2d 350 (8th Cir. 1992);Grosshandler v. Commissioner, 75 T.C. 1">75 T.C. 1 , 75 T.C. 1">21 (1980).The Commissioner's determinations of additions to tax under
section 6654 are presumed to be correct, and the taxpayer2000 Tax Ct. Memo LEXIS 395">*437 bears the burden of proving that he is not liable for those additions. SeeRule 142(a) . Petitioner did not offer any evidence that he paid estimated tax for 1988, 1989, 1990, 1991, and 1992. Accordingly, we sustain respondent's determination.IV. PENALTY PURSUANT TO SECTION 6673 Under
section 6673 , this Court may award a penalty to the United States of up to $ 25,000 when the proceeding has been instituted or maintained by the taxpayer primarily for delay or if the taxpayer's position in such proceeding is frivolous or groundless. Seesec. 6673 . Based on the record, we conclude that such an award is appropriate in this case. Petitioner's argument that he can escape liability for income tax by purporting to assign earnings from his personal activities to a series of trusts is frivolous. Accordingly, a penalty is awarded to the United States undersection 6673 in the amount of $ 5,000.We have considered all arguments in this case. Those arguments not discussed herein are without merit or irrelevant. To reflect the foregoing,
An appropriate order will be issued granting respondent's motion for a penalty, and decision will be entered under Rule 155.
APPENDIX A
1988 Gross Receipts
As2000 Tax Ct. Memo LEXIS 395">*438 Stated in Notice of Deficiency 1 Concessions Total
_____________________________________ ___________ _____
Payor Amount
_____ ______
Sea World of Ohio $ 500 0 $ 500
Sea World of Ohio 500 0 500
Sea World of Ohio 1,000 0 1,000
Sea World of Ohio 1,500 0 1,500
Swan Lake Llamas 5,750 0 5,750
Sea World of Ohio 1,500 0 1,500
Society Bank 5,750 ($ 5,750) 0
Bank One 200 (200) 0
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 5,000 2000 Tax Ct. Memo LEXIS 395">*439 0 5,000
Jerome T. Grone 2,500 0 2,500
Sea World of Ohio 1,500 0 1,500
Sunny Hill Farm 1,500 0 1,500
John C. Gifford 100 0 100
Sunny Hill Farm 13,500 0 13,500
Piccolo Company 10,000 (10,000) 0
John C. Gifford 1,100 0 1,100
John C. Gifford 7,300 0 7,300
Custom Parrot
Network 3,500 (3,500) 0
Dollar Bank
Cashier Check 15,000 (15,000) 0
______ _________ ______
Total 82,200 (34,450) 47,750
2000 Tax Ct. Memo LEXIS 395">*440 APPENDIX B
1989 Gross Receipts
As Stated in Notice of Deficiency n1 Concessions Total
_________________________________ ___________ _____
Payor Amount
_____ ______
Llamas of Michigan $ 2,450 0 $ 2,450
Llamas of Michigan 22,050 0 22,050
Dennis Grodings 900 0 900
Sea World of Ohio 1,500 0 1,500
John C. Gifford 9,500 0 9,500
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 105 0 105
Sea World of Ohio 1,500 0 1,500
John C. Gifford 1,200 0 1,200
Sea World of Ohio 1,500 0 2000 Tax Ct. Memo LEXIS 395">*441 1,500
State of Ohio 3,649 0 3,649
Valley Las Vegas 1,815 ($ 1,815) 0
Ronald G. DeRhodes 22,000 0 22,000
Canton Veterinary
Hospital 5,000 0 5,000
Sea World of Ohio 3,000 0 3,000
Wendy H. Arbogast 1,800 0 1,800
Constance A. Halle 150 0 150
William C. Crawford 200 0 200
William C. Crawford 1,000 0 1,000
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 1,500 0 1,500
Ronald C. Blidar 1,800 0 1,800
Ronald C. Blidar 1,000 0 2000 Tax Ct. Memo LEXIS 395">*442 1,000
Sea World of Ohio 1,500 0 1,500
John C. Gifford 600 0 600
______ _________ _______
Total 90,219 (1,815) 88,404
APPENDIX C
1990 Gross Receipts
As Stated in Notice of Deficiency Concessions Total
_________________________________ ___________ _____
Payor Amount
_____ ______
John C. Gifford 9,500 0 $ 9,500
Educational
Zoological
Programs, Inc. 100 0 100
Kerney L. Martini 8,500 0 8,500
Scavenger Oil Corp. 1,800 ($ 1,800) 0
Sea World of Ohio 1,500 0 1,500
Kerney L. Martini 2000 Tax Ct. Memo LEXIS 395">*443 7,500 0 7,500
Intuit 2 0 2
Sea World of Ohio 1,500 0 1,500
Educational
Zoological
Programs, Inc. 350 0 350
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 1,200 0 1,200
Sea World of Ohio 1,500 0 1,500
Wendy H. Arbogast 200 0 200
Educational
Zoological
Programs Inc. 100 0 100
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 1,500 0 1,500
Robert Sabo 145 0 145
Sea World of Ohio 1,500 0 1,500
Ronald G. DeRhodes 1,200 2000 Tax Ct. Memo LEXIS 395">*444 0 1,200
State of Ohio 728 0 728
Wendy H. Arbogast 1,800 0 1,800
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 1,500 0 1,500
Robert Sabo 135 0 135
Robert Sabo 210 0 210
Sea World of Ohio 1,500 0 1,500
Educational
Zoological
Programs, Inc. 100 0 100
William Boever 15,500 0 15,500
Robert Sabo 90 0 90
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 1,500 0 1,500
Sea World of Ohio 9,000 0 9,000
Total2000 Tax Ct. Memo LEXIS 395">*445 1 76,160 (1,800) 74,360
1990 Royalty Income
Payor Amount Concessions Total
_____ ______ ___________ ______
Scavenger Oil Corp. 1 $ 1,800 $ 0 $ 1,800
Pennzoil Products 257 0 257
Pennzoil Products 289 0 289
Pennzoil Products 443 0 443
______ _______ _______
Total 2,789 0 2,789
______ _______ _______
2000 Tax Ct. Memo LEXIS 395">*446 Total Income 2 78,949 (1,800) 77,149
APPENDIX D
1991 Gross Receipts
As Stated in Notice of Deficiency Concessions Total
_________________________________ 2000 Tax Ct. Memo LEXIS 395">*447 ___________ _____
Payor Amount
_____ ______
Robert Sabo $ 600 0 $ 600
Robert Sabo 70 0 70
Robert Sabo 35 0 35
Fish and Feathers
International 250 0 250
Robert Sabo 1,000 0 1,000
Robert Sabo 500 0 500
Bad Film 10,500 ($ 10,500) 0
Educational
Zoological
Programs Inc. 200 0 200
State of Ohio 1,000 0 1,000
Robert Sabo 35 0 35
Robert Sabo 123 0 123
Avian Farms 2,750 0 2000 Tax Ct. Memo LEXIS 395">*448 2,750
Mary Z. Reed 500 0 500
Avian Farms 35 0 35
ITT Hartford 595 0 595
Robert Sabo 66 0 66
Avian Farms 1,000 0 1,000
Sea World of Ohio 1,800 0 1,800
Avian Farms 1,000 0 1,000
Mary Z. Reed 1,500 0 1,500
Sea World of Ohio 1,800 0 1,800
Sea World of Ohio 1,200 0 1,200
________ __________ ______
Total 26,559 (10,500) 16,059
1991 Royalty Income
Payor Amount Concessions Total
2000 Tax Ct. Memo LEXIS 395">*449 _____ ______ ___________ _____
Pennzoil Products $ 249 $ 0 $ 249
Pennzoil Products 209 0 209
Pennzoil Products 241 0 241
Pennzoil Products 337 0 337
Pennzoil Products 217 0 217
Pennzoil Products 578 0 578
Pennzoil Products 369 0 369
Total 2,199 0 2,199
______ ________ ______
Total Income 1 28,758 (10,500) 18,258
2000 Tax Ct. Memo LEXIS 395">*450 APPENDIX E
1992 Gross Receipts
As Stated in Notice of Deficiency Concessions Total
_________________________________ ___________ _____
Payor Amount
_____ ______
Educational
Zoological
Programs, Inc. $ 100 0 $ 100
Anheuser-Busch 2,000 0 2,000
Anheuser-Busch 2,700 0 2,700
Anheuser-Busch 1,400 0 1,400
Timothy L. Charles 500 0 500
Anheuser-Busch 1,400 0 1,400
Avian Farms 560 0 560
Avian Farms 350 0 350
Avian Farms 70 0 70
Anheuser-Busch 1,600 0 1,600
Anheuser-Busch2000 Tax Ct. Memo LEXIS 395">*451 1,200 0 1,200
Anheuser-Busch 1,200 0 1,200
Anheuser-Busch 1,200 0 1,200
Cortland Savings
Bank 391 ($ 391) 0
Anheuser-Busch 1,200 0 1,200
Anheuser-Busch 1,200 0 1,200
Anheuser-Busch 1,200 0 1,200
______ _______ _______
Total 8,271 (391) 17,880
1992 Royalty Income
Payor Amount Concessions Total
_____ ______ ___________ _____
Pennzoil Products $ 155 $ 0 $ 155
Pennzoil Products 281 0 281
Pennzoil Products 2000 Tax Ct. Memo LEXIS 395">*452 257 0 257
Pennzoil Products 332 0 332
Pennzoil Products 745 0 745
Pennzoil Products 432 0 432
________ ______ _______
Total 2,203 0 2,203
________ ______ _______
Total Income 1 20,474 (391) 20,083
APPENDIX F
1988 Gross Receipts
Deposited in
Payor Amount Payee Account No.
2000 Tax Ct. Memo LEXIS 395">*453 _____ ______ _____ ____________
Sea World of Ohio $ 500 Dr. Temple
Sea World of Ohio 500 Dr. Temple
Sea World of Ohio 1,000 Dr. Temple
Sea World of Ohio 1,500 Dr. Temple
Swan Lake Llamas 5,750 Plume Enterprises 400359855
Sea World of Ohio 1,500 Dr. Temple
Sea World of Ohio 1,500 Dr. Temple
Sea World of Ohio 1,500 Dr. Temple
Sea World of Ohio 1,500 Dr. Temple
Sea World of Ohio 5,000 Plume Enterprises 400359855
Jerome T. Grone 2,500 Plume Enterprises 400359855
Sea World of Ohio 1,500 Dr. Temple
Sunny Hill Farm 1,500 Plume Enterprises 400359855
John C. Gifford 100 Plume Enterprises 400359855
Sunny Hill Farm 13,500 Plume Enterprises 400359855
John C. Gifford 1,100 Plume Enterprises 400359855
John C. Gifford 7,300 Plume Enterprises 400359855
_______
Total 47,750
2000 Tax Ct. Memo LEXIS 395">*454 APPENDIX G
1989 Gross Receipts
Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
Llamas of Michigan $ 2,450 Plume Enterprises 400359855
Llamas of Michigan 22,050 Plume Enterprises 400359855
Dennis Grodings 900 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
John C. Gifford 9,500 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Sea World of Ohio 105 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
John C. Gifford 1,200 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
State of Ohio 3,649 Plume Enterprises 400359855
Ronald2000 Tax Ct. Memo LEXIS 395">*455 G. DeRhodes 22,000 Plume Enterprises 400359855
Canton Veterinary
Hospital 5,000 Plume Enterprises 400359855
Sea World of Ohio 3,000 Plume Enterprises 400359855
Wendy H. Arbogast 1,800 Plume Enterprises 400359855
Constance A. Halle 150 Plume Enterprises 400359855
William C. Crawford 200 Plume Enterprises 400359855
William C. Crawford 1,000 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Ronald C. Blidar 1,800 Plume Enterprises 400359855
Ronald C. Blidar 1,000 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
John C. Gifford 600 Galingale Group 400359863
_______
Total 88,404
APPENDIX H
2000 Tax Ct. Memo LEXIS 395">*456 1990 Gross Receipts
Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
John C. Gifford $ 9,500 Plume Enterprises 400359855
Educational
Zoological
Programs, Inc. 100 Plume Enterprises 400359855
Kerney L. Martini 8,500 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Kerney L. Martini 7,500 Plume Enterprises 400359855
Intuit 2 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Educational
Zoological
Programs, Inc. 350 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Sea World of Ohio 1,200 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Wendy2000 Tax Ct. Memo LEXIS 395">*457 H. Arbogast 200 Plume Enterprises 400359855
Educational
Zoological
Programs Inc. 100 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Robert Sabo 145 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Ronald G. DeRhodes 1,200 Plume Enterprises 400359855
State of Ohio 728 Plume Enterprises 400359855
Wendy H. Arbogast 1,800 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Robert Sabo 135 Plume Enterprises 400359855
Robert Sabo 210 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Educational
Zoological
Programs, Inc. 100 Plume Enterprises 400359855
William Boever 2000 Tax Ct. Memo LEXIS 395">*458 15,500 Galingale Llamas 1 400359863
Robert Sabo 90 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Sea World of Ohio 1,500 Plume Enterprises 400359855
Sea World of Ohio 9,000 Plume Enterprises 400359855
_______
Total 74,360
1990 Royalty Income
Deposited in
Payor Amount Payee Account No.
_____ _______ _____ ____________
Scavenger Oil Corp. $ 1,800 Plume Enterprises 400359855
Pennzoil Products 257 Trundle Management
2000 Tax Ct. Memo LEXIS 395">*459 Eton Trust Co.,
Ltd. Trustee 1 1163506106
Pennzoil Products 289 Trundle Management
Eton Trust Co.,
Ltd. Trustee 1163506106
Pennzoil Products 443 Trundle Management
Eton Trust Co.,
Ltd. Trustee 1163506106
________
Total 2,789
________
Total Income 2 77,149
APPENDIX I
1991 Gross Receipts
2000 Tax Ct. Memo LEXIS 395">*460 Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
Robert Sabo $ 600 Wendy Arbogast 400359855
Robert Sabo 70 Plume Enterprises 400359855
Robert Sabo 35 Plume Enterprises 400359855
Fish and Feathers
International 250 Plume Enterprises 400359855
Robert Sabo 1,000 Plume Enterprises 400359855
Robert Sabo 500 Plume Enterprises 400359855
Educational
Zoological
Programs, Inc. 200 Plume Enterprises 400359855
State of Ohio 1,000 Plume Enterprises 400359855
Robert Sabo 35 Plume Enterprises 400359855
Robert Sabo 123 Plume Enterprises 400359855
Avian Farms 2,750 Plume Enterprises 400359855
Mary Z. Reed 500 Plume Enterprises 400359855
Avian2000 Tax Ct. Memo LEXIS 395">*461 Farms 35 Plume Enterprises 400359855
ITT Hartford 595 Plume Enterprises 400359855
Robert Sabo 66 Plume Enterprises 400359855
Avian Farms 1,000 Plume Enterprises 400359855
Sea World of Ohio 1,800 Plume Enterprises 400359855
Avian Farms 1,000 Plume Enterprises 400359855
Mary Z. Reed 1,500 Plume Enterprises 400359855
Sea World of Ohio 1,800 Plume Enterprises 400359855
Sea World of Ohio 1,200 Plume Enterprises 400359855
______
Total 16,059
1991 Royalty Income
Deposited in
Payor Amount Payee Account No.
_____ ______ ______ ____________
Pennzoil Products $ 249 Trundle Management
2000 Tax Ct. Memo LEXIS 395">*462 Eton Trust Co.,
Ltd., Trustee 1 1163506106
Pennzoil Products 209 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 241 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 337 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 217 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 578 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 2000 Tax Ct. Memo LEXIS 395">*463 369 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
_______
Total 2,199
_______
Total Income 2 18,258
APPENDIX J
1992 Gross Receipts
Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
Educational
Zoological
Programs, Inc. $ 100 Plume Enterprises 400359855
Anheuser-Busch2000 Tax Ct. Memo LEXIS 395">*464 2,000 Plume Enterprises 400359855
Anheuser-Busch 2,700 Plume Enterprises 400359855
Anheuser-Busch 1,400 Plume Enterprises 400359855
Timothy L. Charles 500 Galingale Group 400359863
Anheuser-Busch 1,400 Plume Enterprises 400359855
Avian Farms 560 Galingale Group 400359863
Avian Farms 350 Galingale Group 400359863
Avian Farms 70 Plume Enterprises 400359855
Anheuser-Busch 1,600 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
______
Total 2000 Tax Ct. Memo LEXIS 395">*465 17,880
1992 Royalty Income
Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
Pennzoil Products $ 155 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1 1163506106
Pennzoil Products 281 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 257 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 332 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil2000 Tax Ct. Memo LEXIS 395">*466 Products 745 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 432 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
______
Total 2,203
Total Income 2 20,083
Footnotes
1. Respondent concedes the following amounts of income set forth in the computation of petitioner's gross receipts from veterinary services and the sale of animals in the statutory notice of deficiency: $ 34,450 in 1988 (see appendix A); $ 1,815 in 1989 (see appendix B); $ 1,800 in 1990 (see appendix C); $ 10,500 in 1991 (see appendix D); and $ 391 in 1992 (see appendix E).↩
2. Unless otherwise indicated, 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.↩
3. Anheuser Busch purchased Sea World in 1989.↩
4. Purchased a snake.↩
1. See appendix F.↩
2. See appendix G.↩
3. See appendix H.↩
4. See appendix I.↩
5. See appendix J.↩
5. See appendix F.↩
6. All amounts throughout this opinion are rounded to the nearest dollar.↩
7. See appendix H. This check was payable to Galingale Llamas and deposited into a Bank One account, account No. 400359863 (Bank One 863 account). Mrs. Temple had signatory authority over this account.↩
8. See appendix I. This check was payable to Wendy Arbogast but deposited in Plume Enterprises' Bank One account, account No. 400359855 (Bank One 855 account). Mrs. Temple had signatory authority over this account.↩
9. See appendix J. These checks were payable to Galingale Group and deposited into the Bank One 863 account. Mrs. Temple had signatory authority over this account.↩
10. See appendixes F, G, H, I, and J.↩
11. For a period that included June 10, 1988, through Sept. 25, 1992.↩
1. These checks, totaling $ 3,500, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩
2. These checks, totaling $ 3,500, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩
12. For a period that included June 13, 1988, through Sept. 30, 1992.↩
1. These checks, totaling $ 8,000, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩
2. These checks, totaling $ 8,000, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩
3. These checks, totaling $ 8,000, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩
4. These checks, totaling $ 8,000, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩
13. Account No. 23-043-10. See appendix J.↩
14. For the period beginning Aug. 18 and ending Oct. 30, 1992. owner's address.↩
1. L. R. Mayer was the executive director of Oxford Charter Corp. during 1987. Oxford Charter Corp. was listed as trustee on Plume Enterprises' Bank One 855 account and for a Plume Enterprises' bank account with Society Bank of Eastern Ohio.↩
2. Control Management had a contract with Plume Enterprises with Pritchel & Pritchel as trustee. The agreement stated, in part, that Control Management would establish and maintain bank accounts for Plume Enterprises.↩
3. The notation on this check indicates that it is payment for trustee fees.↩
15. For a period that included May 2, 1988, through Dec. 29, 1992.↩
16. Several substantial deposits were also made into Piccolo's account by Plume Enterprises, drawn on account No. 400359855 and by Trundle Management, drawn on account No. 1163506106. All these deposits were made by checks signed by Mrs. Temple in the years 1988- 1992.↩
17. We note that petitioner's attorney Frank R. Bodor was the taxpayer, along with his wife Gina Bodor, in
Bodor v. Commissioner, T.C. Memo 1993-456 , affd. without published opinion52 F.3d 324">52 F.3d 324↩ (6th Cir. 1995). In that case, this Court found that Robert Temple signed checks for an entity created and operated by Mr. and Mrs. Bodor pursuant to a plan to create tiered structures of domestic and foreign trust shell entities to disguise the fact that Mr. and Mrs. Bodor or their minor children still owned property.1. This check was issued in 1992 and signed by B. L. Holtzhauer with what appears to be a signature stamp.↩
18. For a period that included Nov. 22, 1988, through Mar. 15, 1990.↩
19. For a period that included Mar. 15, 1990, through Dec. 7, 1992.↩
20. Nassau Life Insurance Co. was an entity which assisted taxpayers to avoid the payment and collection of their Federal income taxes. See
Boyce v. Commissioner, T.C. Memo 1990-658 , affd. without published opinion955 F.2d 47">955 F.2d 47 (9th Cir. 1992); see alsoPara Techs. Trust v. Commissioner, T.C. Memo 1992-575 ; andJohnson v. Commissioner, T.C. Memo 1989-591 . Due to illegal activities and a "tax situation", Nassau Life Insurance Co. ceased operations. SeeBodor v. Commissioner, T.C. Memo 1993-456↩ .21. The tax mailing address used by Nassau Life Insurance Co. on the warranty deeds was P.M.B. 11 Grand Turk, Turks & Caicos Islands, British West Indies.↩
22. The tax mailing address used by Eton Trust Co., Ltd., on the warranty deeds was Grant Petroleum Building, Providenciales, British West Indies.↩
23. The timing of the transfer is similar to the facts in
Bodor v. Commissioner, supra.↩ The taxpayer in that case was Frank R. Bodor. He is the attorney representing petitioner in the present case. In Bodor, we found that the taxpayer transferred his interest in eight properties by quitclaim to various foreign entities for which Nassau Life Insurance Co. served as trustee, that due to illegal activities in late 1986 or early 1987, Nassau Life ceased operations, and that Mr. Bodor knew that the problems stemmed from illegal activities and a "tax situation".1. See appendix H.↩
2. See appendix I.↩
3. See appendix J.↩
24. For a period that included June 9, 1988, through Jan. 8, 1993.↩
1. B. L. Holtzhauer signed one check in the amount of $ 60,
payable to Universal Disposal in 1992.↩
25. See appendix F.↩
26. See appendix G.↩
27. See appendix H.↩
28. See appendix I.↩
29. See appendix J.↩
30. One check for $ 600 was actually made payable to one of petitioner's customers, Wendy Arbogast, but deposited into the Bank One 855 account. See appendix I.↩
31. Consisting of checks totaling $ 11,534 from the Bank One 855 account and checks totaling $ 26,720 from the Bank One 863 account.↩
32. Additional checks totaling $ 825 were used to pay L. R. Mayer ($ 125), Control Management ($ 400), and McMeyers & Ford ($ 300). We believe these expenses were incurred, in part, to maintain the appearance of a valid trust arrangement. Most of the remaining funds were spent on travel expenses.↩
33. Sec. 6653(b)(1) provides, in part:
SEC. 6653(b) Fraud.--
(1) In General. -- If any part of any underpayment * * * of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.↩
34. Sec. 6651(f) provides:
SEC. 6651(f) Increase in Penalty for Fraudulent Failure to File. -- If any failure to file any return is fraudulent, paragraph (1) of subsection (a) shall be applied --
(1) by substituting "15 percent" for "5 percent" each place it appears, and
(2) by substituting "75 percent" for "25 percent".
Sec. 6651(a)(1) provides in relevant part:
SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX.
(a) addition to the Tax. -- In case of failure --
(1) to file any return required under authority of subchapter A of chapter 61 * * * on the date prescribed therefore (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate;↩
35. See appendix A or F.↩
36. See appendix B or G.↩
37. See appendix C or H.↩
38. See appendix D or I.↩
39. See appendix E or J.↩
40. Use of bank accounts fashioned as trust accounts to conceal assets.↩
1. On some checks, more than one party is listed on a payor's check (i.e., John and Maria Gifford). We note, that in some instances, respondent may list one payor (i.e., John Gifford) as the payor when in fact it was the other party, presumably his spouse (i.e., Maria Gifford) who signed the check. These differences haveno impact on our decision, and for consistency, we use only the name of the party used by respondent in the notice of deficiency throughout these appendixes.↩
1. In the notice of deficiency, the total is $ 74,360, however, this appears to be an adding error.↩
1. Respondent originally included payment from Scavenger Oil in its computation of petitioner's gross receipts from the sale of animals and for royalty income. In respondent's concessions, the double counting of this one check was eliminated. We note that the record is not clear on whether the payment was for the purchase of an animal or for royalty payments. Nevertheless, it is clear that petitioner received an $ 1,800 payment from Scavenger Oil in 1990. Whether the check represents payment for the purchase of an animal or royalty income has no bearing on the outcome of this case. In either case, it is taxable income to petitioner as ordinary income.↩
2. Includes totals from previous page.↩
1. There is a $ 1 difference in the totals due to rounding.↩
1. There is a $ 1 difference in the totals due to rounding.↩
1. The deposit slip shows that Galingale Llamas belongs to Galingale Group.↩
1. Petitioner's address is listed as the mailing address for all checks made payable to Trundle Management.↩
2. Includes totals from previous page.↩
1. Petitioner's address is listed as the mailing address for all checks made payable to Trundle Management.↩
2. There is a $ 1 difference in the totals due to rounding.↩
1. Petitioner's address is listed as the mailing address for all checks made payable to Trundle Management.↩
2. There is a $ 1 difference in the totals due to rounding.↩
Document Info
Docket Number： No. 23071-96
Citation Numbers： 2000 T.C. Memo. 337, 80 T.C.M. 611, 2000 Tax Ct. Memo LEXIS 395
Judges： \"Ruwe, Robert P.\"
Filed Date： 11/1/2000
Precedential Status： Non-Precedential
Modified Date： 4/17/2021