T.C. Summary Opinion 2007-119



                     UNITED STATES TAX COURT



                DONALD RAY HARTLEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2380-06S.              Filed July 17, 2007.


     Donald Ray Hartley, pro se.

     Lauren B. Epstein, for respondent.



     ARMEN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1   Pursuant to section

7463(b), the decision to be entered is not reviewable by any




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years at issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     Petitioner fraudulently underpaid his Federal income taxes

for 1992, 1993, and 1994 and subsequently agreed to the

assessment of deficiencies for those years.    Respondent then

determined civil fraud penalties under section 6663.    Despite

petitioner’s stipulation, as well as the record’s independent

demonstration that he filed fraudulent returns with intent to

evade tax, petitioner contends that imposition of civil fraud

penalties would be unfair.   Thus, the issue for decision is

whether respondent’s penalty determination should be sustained.

We hold that it should.

                             Background

     Most of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ extensive

stipulation of facts and accompanying exhibits.

     At the time that the petition was filed, Donald Ray Hartley

resided in Jacksonville, Florida.

     In early 1995, petitioner told his brother-in-law that he

needed someone to help him file several years’ worth of

delinquent Federal income tax returns.    Petitioner had not yet

filed for those years because he knew he would owe money.

     Petitioner’s brother-in-law introduced him to a man named

Robert Rudolph (Mr. Rudolph), who was then employed by the
                                - 3 -

Internal Revenue Service (IRS) as a tax auditor.   Mr. Rudolph

told petitioner that he, i.e., Mr. Rudolph, could either prepare

correct returns and petitioner could then pay tax, interest, and

applicable penalties, or he could prepare returns that would

generate refunds, but only if petitioner agreed to split the

refunds with him.   Petitioner opted for the second alternative

and agreed to file false returns.   Petitioner knew that if he

filed false returns, he would be acting illegally.

     Acting pursuant to the foregoing arrangement, petitioner

filed returns with the IRS, fraudulently claiming, among other

things:   Head of household filing status; the earned income

credit; a dependency exemption for an individual who was not his

dependent; dependent care expenses that were not paid by

petitioner; a net loss from a nonexistent “Schedule C business”;

and a net loss from farming a nonexistent strawberry farm.     As a

result, petitioner received fraudulent refunds totaling

$9,924.36.

     Petitioner underpaid his taxes for the years at issue by a

total of $9,918.    The underpayment of tax for each of the years

in issue was due to fraud with the intent to evade tax.2

     In June 1995, petitioner gave Mr. Rudolph approximately

$2,116 from one of his refund checks.   Despite receiving

     2
        So stipulated. But even without that stipulation, we
would so conclude based on the overwhelming weight of the
evidence.
                                - 4 -

additional refund checks, petitioner did not make any further

payments to Mr. Rudolph because he knew that Mr. Rudolph was then

under investigation by the authorities.   Apparently so was

petitioner.

     In December 1999, petitioner pleaded guilty to one count of

violating 18 U.S.C. sec. 201(c)(1)(A) (bribery of public

officials), and the corresponding judgment was entered in April

2000.    Petitioner was sentenced to 3 months’ home detention and 3

years’ probation; petitioner also agreed--as a condition of his

probation--to cooperate with the IRS in the collection of “all

outstanding taxes, interest, and penalties.”

     In April 2005, respondent sent petitioner a Form 4549,

Income Tax Examination Changes, showing the proposed changes to

petitioner’s income tax returns for 1992, 1993, and 1994.     The

proposed changes resulted in a total balance due, including

interest and civil fraud penalties under section 6663, of

$39,645.20.3   Petitioner objected to imposition of the fraud

penalties but agreed to the adjustments related to the

underpayments of tax.

     While his objection to the fraud penalties was being

processed, petitioner submitted a Form 656, Offer in Compromise

(OIC), for all 3 tax years.   In the OIC, petitioner offered to


     3
        The interest owed was calculated only to May 25, 2005,
and the penalty calculations were made only to Apr. 25, 2005.
                                 - 5 -

pay $9,918.4   His reasons, as stated in the OIC, for thinking

that he should be entitled to relief from interest and penalties

included, inter alia:

     By agreeing to enter a plea * * * I spared the government
     the time and expense of indicting me.

     By entering into a plea agreement, I spared the government
     the time and expense of trying me.

               *     *     *      *      *     *     *

     By completing my probationary period without serious
     incident, I spared the government the time and expense of
     re-sentencing and incarcerating me.


     Petitioner also disputed his ability to pay, and he argued

that it would “create an economic hardship and * * * be unfair

and inequitable” to require him to pay the interest and penalty

portions of his potential liability.     Not surprisingly,

petitioner’s OIC was rejected.

     In response to petitioner’s disagreement with the civil

fraud penalties, respondent mailed petitioner a second Form 4549.

This one showed an amount due of only $9,918 and specifically

excluded civil fraud penalties.    The Form 4549 noted that

interest would be calculated at the time of assessment.

Petitioner signed the Form 4549 and a Form 870, Waiver of

Restrictions on Assessment and Collection of Deficiency in Tax



     4
        This amount represented the sum of the underpayments of
tax for the taxable years in issue.
                                - 6 -

(waiver), on July 15, 2005.    Tax and interest were assessed

thereafter.

     On October 13, 2005, respondent mailed to petitioner a

Notice of Federal Tax Lien Filing and Your Right to a Hearing

Under IRC 6320 showing an “Amount Owed” of $11,525.97.

Petitioner responded by mailing a check to respondent for

$11,525.97 on or about October 20, 2005.

     The issue of the underpayments of tax having been resolved,

respondent mailed to petitioner on December 13, 2005, the notice

of deficiency from which petitioner appealed to this Court.      In

the notice, respondent determined civil fraud penalties under

section 6663(a) for 1992, 1993, and 1994, in the amounts of

$1,974, $3,206.25, and $2,258.25, respectively.

     Petitioner contends that because he paid the “Amount Owed”

listed on the Notice of Federal Tax Lien Filing, he should not

have to pay any additional amount; he seeks to have us direct the

IRS to withdraw the lien.    He also contends that it would be

unfair to require him to pay any amount in addition to the

underpayments of tax because paying such additional amounts would

deprive him of all assets; he thus seeks relief from the civil

fraud penalties and statutory interest.    We address petitioner’s

contentions in turn below.
                                - 7 -

                             Discussion

A.   The Federal Tax Lien

      Petitioner asks us to direct the IRS to withdraw the tax

lien currently in place for the taxable years 1992, 1993, and

1994.   He claims he paid his debt in full and complains that the

lien remains.    However, in the context of this action for

redetermination, we lack jurisdiction to consider, much less

grant, the relief requested by petitioner.

      The Internal Revenue Service Restructuring and Reform Act of

1998, 112 Stat. 685, Pub. L. 105-206, was enacted into law on

July 22, 1998.    Section 3401 of that Act, 112 Stat. 746, grants

this Court jurisdiction to review the Commissioner’s

determination as to the propriety of filing a notice of Federal

tax lien under section 6320 or a proposed levy on property under

section 6330.

      In a collection review action, this Court’s jurisdiction

under sections 6320 and 6330 depends, in part, on the issuance of

a notice of determination by respondent’s Office of Appeals after

the taxpayer has requested an administrative hearing following

the issuance by respondent’s collection division of either a

final notice of intent to levy, see sec. 6330(a), or a notice of

filing of Federal tax lien, see sec. 6320(a).    See Sarrell v.

Commissioner, 

, 125 (2001); Moorhous v. Commissioner,
                                 - 8 -

, 269 (2001); Offiler v. Commissioner, 

,

498 (2000); see also Rule 330(b).

      Petitioner never requested an administrative hearing.

Instead, he responded to the Notice of Federal Tax Lien Filing by

mailing in a check.     Thus, because petitioner never requested a

hearing, respondent had no occasion to issue a notice of

determination.     In short, the petition in this case was filed in

response to a notice of deficiency issued pursuant to section

6213(a) and not a notice of determination under section 6320 or

6330.     Therefore, we may not, and we shall not, address the

propriety of the filing of the lien in this case.5

B.   The Notice of Deficiency

      When petitioner first disputed imposition of the civil fraud

penalties, the IRS bifurcated petitioner’s potential liabilities

into two parts:     Underpayments of tax, the assessment of which

was agreed to by petitioner when he signed the Form 4549 and the

waiver in July 2005; and the civil fraud penalties, subsequently

determined in the notice of deficiency sent to petitioner in

December 2005.     Our jurisdiction in the instant case is based on

the notice of deficiency.

      5
        Further on the subject of this Court’s jurisdiction, it
is clear that in an action for redetermination, such as the
present one, matters involving statutory interest under sec. 6601
are not generally before us and will therefore not be considered.
E.g., Bax v. Commissioner, 

, 56-57 (2d Cir. 1993); Pen
Coal Corp. v. Commissioner, 

, 255 (1996); LTV Corp.
v. Commissioner, 

, 597 (1975).
                                  - 9 -

     Section 6663(a) provides that if any part of an underpayment

of tax required to be shown on an income tax return is due to

fraud, there shall be added to the tax an amount equal to 75

percent of the portion of the underpayment that is attributable

to fraud.    The notice of deficiency determined that petitioner

was liable for the 75-percent penalty based on the entire

underpayment for each of the 3 taxable years in issue.

     The Commissioner’s determinations are ordinarily presumed to

be correct, and generally the taxpayer bears the burden of

proving otherwise.    Rule 142(a)(1); Welch v. Helvering, 

, 115 (1933).    However, this is not the case when fraud is

alleged.    See sec. 7454(a).    In that instance, the Commissioner

bears the burden of proving fraud by clear and convincing

evidence.    Sec. 7454(a); Rule 142(b).

     Fraud is defined as an intentional wrongdoing designed to

evade tax believed to be owing.      Edelson v. Commissioner, 

, 833 (9th Cir. 1987), affg. T.C. Memo. 1986-223;

Bradford v. Commissioner, 

, 307 (9th Cir. 1986),

affg. T.C. Memo. 1984-601.      Fraud is never presumed, but is a

question of fact to be resolved upon consideration of the entire

record.    Gajewski v. Commissioner, 

, 199 (1976), affd.

without published opinion 

(8th Cir. 1978); see also

Beaver v. Commissioner, 

(1970).
                                - 10 -

     As previously stated, the Commissioner bears the burden of

proving fraud by clear and convincing evidence.     Sec. 7454(a);

Rule 142(b).    In particular, the Commissioner must prove that the

taxpayer intended to evade taxes known to be owing by conduct

intended to conceal, mislead, or otherwise prevent the collection

of taxes.    See Stoltzfus v. United States, 

, 1004

(3d Cir. 1968); Rowlee v. Commissioner, 

, 1123

(1983).     In order to carry this burden, the Commissioner must

prove, for each year before the Court, that (1) an underpayment

of tax exists and that (2) a portion of the underpayment is due

to fraud.     Parks v. Commissioner, 

, 660-661 (1990).

In the instant case, respondent has met his burden and proven

that imposition of the civil fraud penalty for each of the years

in issue is appropriate.

     The record in this case clearly supports the finding that

petitioner’s Federal tax returns for 1992, 1993, and 1994 were

fraudulent.    In this regard, the record includes an extensive

stipulation of facts that not only details petitioner’s efforts

to commit fraud but also includes petitioner’s express admission

that he filed false returns with intent to evade tax.     In short,

petitioner filed fraudulent returns, concealing the fact that he

owed taxes in an attempt to obtain refunds to which he was not

entitled.
                              - 11 -

     Section 6663(b) provides that if the Commissioner

establishes that any portion of the underpayment is attributable

to fraud, then the entire underpayment is treated as attributable

to fraud, except with respect to the portion of the underpayment

that the taxpayer establishes, by a preponderance of the

evidence, is not attributable to fraud.    In this case, the entire

underpayment of tax for each year was due to petitioner’s fraud

--petitioner admits as much--and thus we sustain the imposition

of the 75-percent penalty on the entire amount of each year’s

underpayment.

     As previously stated, petitioner does not dispute the fact

that his returns for the years at issue were fraudulent, nor does

he offer any evidence to show that the fraud penalty should be

imposed on less than the entire underpayment for each year.

Rather, petitioner expresses concern that he will suffer economic

hardship if he is required to pay the penalties determined in the

notice of deficiency and statutory interest.   He asks the Court

to grant him “any relief to which [he] may be entitled by law,

regulation, or equity.”   In other words, petitioner audaciously

asks the Court to relieve him of the consequences of violating

the very laws and regulations that he now attempts

(improvidently, we might add) to invoke.

     As for relief based in equity, it is worth noting that

petitioner is seeking to be put in the same position as he would
                              - 12 -

have been if he had simply filed his tax returns properly in the

first place.   Even if we were permitted to entertain arguments

based solely in equity,6 we would not sanction petitioner’s

egregious violation of the law by permitting him to avoid the

consequences of his own choices; there are too many taxpayers who

unintentionally run afoul of the Internal Revenue Code and yet

are required to pay interest and applicable penalties to even

consider relieving petitioner of liability on equitable grounds.

Further, it was a condition of petitioner’s probation that he

cooperate with the IRS in the collection of all outstanding

taxes, interest, and penalties; we are unclear on how petitioner

is able to say he has satisfied that condition when he proposes

that the penalties associated with his conduct be overlooked.

     Petitioner is liable for the 75-percent civil fraud penalty

as determined in the notice of deficiency, and no argument--

legal or equitable--persuades us otherwise.

     To reflect our disposition of the disputed issue,



                                         Decision will be entered

                                    for respondent.




     6
        “The Tax Court is a court of limited jurisdiction and
lacks general equitable powers.” Commissioner v. McCoy, 

, 7 (1987).