The question upon which this petition for review of the decision of the Tax Court will be decided is whether that decision was clearly erroneous in its finding that a part of the deficiency for each of the years 1948 and 1949 was due to fraud with intent to evade tax.1 The Tax Court assessed the fraud penalty in addition to the 25 per cent penalty provided by § 291 (a) of the same Code, as well as the 10 per cent penalty under § 294(d) (1) (A), and the 6 per cent penalty imposed by § 294(d) (2).2

A number of questions were dealt with by the Tax Court, but petitioner has appealed only the item of fraud penalty aggregating for the two years $64,937.84. The Commissioner brought out also that petitioner A. Raymond Jones (referred to hereafter as petitioner or taxpayer) had entered a plea of nolo contendere to an indictment3 charging willful failure to file an income tax return for each of the years, and that he had paid a total fine of $10,000.00.

The basis of the petition for review is petitioner's claim that there was no clear and convincing evidence before the Tax Court upon which to base a finding of fraud as defined by the statute. We set forth in the margin all of the Tax Court's finding relating to the charge of fraud4 and these findings will serve as the statement of facts upon which our opinion will be based.

These findings, which alone represent the basis of the Tax Court's conclusion of fraud, show that in truth the only specific fact5 which it used as the basis for this conclusion was the deliberate failure to file the two tax returns which were prepared for him by his accountant. There is no indication that the Tax Court disbelieved any of the statements of Jones or found his testimony subject to discount because it conflicted with that of other witnesses. Under the decisions of the Supreme Court and of this Court, we do not think that such deliberate failure is enough.

In fact, the statutory scheme shows that Congress intended to deal with willful failure to file and with fraud in different ways. It defined the two separate defenses in separate statutes, Footnote 1 supra. In the landmark Spies6 case the Supreme Court pointed out the difference in clear terms. And we have been doing the same thing over the years. Beginning with Hargrove7 and coming down through Veino,8 we have consistently held that "fraud implies bad faith, intentional wrongdoing and a sinister motive. It is never imputed or presumed and the courts should not sustain findings of fraud upon circumstances which at the most create only suspicion."9

In Goldberg v. Commissioner, 5 Cir., 1956, 239 F.2d 316, 321, we stated; "The fraud which the Commissioner was required to prove to sustain the penalty is actual and intentional wrongdoing with a specific intent to evade the tax. * * * It is never imputed or presumed, and findings of fraud should not be sustained upon circumstances which at most create only suspicion." And we repeated, in Eagle v. Commissioner, 5 Cir., 1957, 242 F.2d 635, 637, that the Commissioner carried the burden "to prove affirmatively by clear and convincing evidence actual and intentional wrongdoing on the part of the petitioner with a specific intent to evade the tax."

In quoting the Tax Court's decision, Footnote 4, supra, we emphasized several statements which the Tax Court seemed to indicate might furnish support for the conclusion of fraud and which were seized upon by the Commissioner and argued before us as an adequate showing of fraud to warrant the fifty per cent penalties. First, consider the statement in the Tax Court's opinion: "Raymond kept the forms for the taxable years in his possession until the agents investigating his income tax liability asked for them. These returns had not been signed by either taxpayer. * * * The taxpayer deliberately refrained from executing and filing those forms as their return. * * * The information shown on the prepared forms was necessary or at least would have been helpful to the Government in determining the tax. * * *" This statement is significant in that it shows that the Tax Court did not find that Jones employed evasive tactics when asked for his tax returns, but that it accepted the fact that he did turn them over to the revenue agents upon their request. The evidence shows beyond dispute also that his books were made readily available to them.

The quoted statement shows merely that the taxpayer deliberately held the documents and did not file them. He had been told by his auditors that this would subject him to penalty under § 291(a). That the information would have been helpful to the Government does not tend to sustain the charge that the taxpayer failed to file the prepared returns with a fraudulent intent, and no support for such a conclusion is found in the authorities.

The Tax Court's finding that the petitioner did not show that his failure to file these returns was "due to reasonable cause and not due to willful neglect," equally fails to furnish support for a fraud charge. Those words are taken direct from § 291(a) and serve only to justify the infliction of the penalties of that section upon petitioner. Petitioner does not appeal from the twenty-five per cent penalties levied under that statute. The words do not have any tendency to supply a connotation of fraud.

The Tax Court found that "the evidence shows that the reason for the failure to file the documents was that Raymond did not want to use his money or have it taken to pay the taxes * * * because he chose to use his money instead for other purposes, including the expansion of his business. * * * He made payments of $32,086.00 in 1948 and 1949 on a home which he was purchasing." The Commissioner, in his presentation before us, dwells upon these findings as if they convicted petitioners of patent perfidy and intentional wrongdoing. Leaving aside the fact that the house had been purchased before the first tax return was due and that the payments had to be made to avoid its sacrifice, the argument is utterly lacking in force that a citizen can be convicted of intentional wrongdoing with specific intent to evade his taxes because he elects to use his money, much of it borrowed, for pressing business needs, — "giving the squeaking wheel the grease," as petitioner expresses it, i. e., to save his business and his home in preference to turning it over to the Government even though he knows he owes taxes.

Of course, the taxpayer claims that he was cramped financially because of the failure of the Government to pay him a claim of $663,000.00 due since 1944, under which, ten years later, he did receive through the Court of Claims $339,000.00. We do not have to hold that he had the right to omit filing his tax returns and paying his income tax because the Government failed to pay money due him, in order to view with understanding the undisputed proof of what was going through the mind of petitioner at the time he omitted the filing of these two tax returns. At all events, there is nothing in this situation which gives any substance to a charge of fraud.10

We have gone into the charges of fraud in some detail to demonstrate that, if every finding of fact by the Tax Court is accepted as true, there is no evidence of fraud upon which the conclusion of the Tax Court can rest; and respondent furnishes no law to support his contention. Respondent relies chiefly on the recent Ninth Circuit case of Powell v. Grandquist, 1958, 252 F.2d 56, affirming the decision of the District Court of Oregon reported in 146 F. Supp. 308. We are not called upon to decide whether we would follow that case as respondent interprets it, because it is clearly distinguishable on the facts. In addition to the deliberate and defiant refusal to file his tax returns because he did not like the way the Government was being run, Powell kept no formal books, did not cooperate with the agents when they were checking such records as he had, and withheld from them information concerning real estate transactions.11 Nothing resembling those facts is present here where there is no evidence of concealment, of misrepresentation, of subterfuge. The result announced in that case is not unlike that reached by us in Veino, supra, where the District Court made findings of fact sufficient to support fraud independent of the mere willful failure to file tax returns.

We think that the record in this case shows that petitioner has satisfied the full penalty of the law; in fact, has, by acquiescing in fines and exactions totaling $58,278.85, paid rather dearly for whatever obliquity may properly be ascribed to him here. The judgment of the Tax Court as to both petitioners is reversed insofar as it includes the fifty per cent fraud penalties provided by § 293(b), and the cause is remanded for further proceedings in consonance with this opinion.

Reversed and remanded.