T.C. Memo. 2008-84



                       UNITED STATES TAX COURT



 INDUSTRIAL ELECTRICAL AND INSTRUMENTATION, INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19355-05.              Filed April 3, 2008.



     Robert A. Shupack, for petitioner.

     W. Robert Abramitis and Justin L. Campolieta, for

respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:    Respondent determined the following

deficiencies in and penalties on petitioner’s Federal income tax:

                                                   Penalty
     Year                Deficiency               Sec. 6663

     1999                $358,153                $268,614.75
     2000                 709,407                 532,055.25
                               - 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.

     The issues for decision are:   (1) Whether petitioner failed

to report $1,411,100 in gross receipts for 1999 and $2,406,577 in

gross receipts for 2000; (2) whether petitioner is liable for the

civil fraud penalty for 1999 and 2000; and (3) whether the

periods of limitations for 1999 and 2000 have expired.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts, the supplemental stipulation of facts,

the second supplemental stipulation of facts, the third

supplemental stipulation of facts, and the attached exhibits are

incorporated herein by this reference.   At the time petitioner

timely filed its petition, petitioner had a mailing address in

Boca Raton, Florida.

     Petitioner, Industrial Electrical & Instrumentation, Inc.

(IEI), was an active Florida corporation during the years at

issue.   Alfred White (Mr. White), during the years at issue and

as of the date of trial, was a Florida State-certified electrical

contractor.   Mr. White was also the president, secretary, and

treasurer of IEI during the years at issue.   In 1995 Mr. White

qualified petitioner to engage in electrical contracting
                               - 3 -

services.1   During the years at issue, and as of the date of

trial, petitioner remained qualified to perform electrical

contracting services.2   IEI is the only entity for which Mr.

White has submitted an application with the State of Florida to

qualify it to perform electrical contracting services.

     On July 10, 1997, Mr. White signed an “Agreement to Qualify”

with Stewart G. Penny (Stewart), Lance Penny (Lance), and Sean

Penny (Sean) (collectively the Pennys)3.   The agreement purported

to qualify Stewart to obtain permits to perform electrical

contracting services through Omni Building Contractors, Inc.

(Omni).   During the taxable years at issue Mr. White knew that

neither Omni nor the Pennys in their own capacities were State-

certified electrical contractors in Florida.   Omni was



     1
        In order to qualify IEI, Mr. White filed an application
with the Florida Department of Business & Professional Regulation
Electrical Contractors’ Licensing Board (the board). Mr. White
then received notification from the board that IEI was authorized
to engage in electrical contracting. To maintain the
qualification, Mr. White has to show that he has completed
continuing education every 2 years.
     2
        According to the board’s frequently asked questions
section of its web site,
http://www.myflorida.com/dbpr/pro/elboard/documents/elecfaqs.pdf,
to qualify a business a contractor must agree to accept full
responsibility for the business including monitoring financial
transactions, signing permits, and supervising all jobs the
business participates in. A primary qualifying agent must be an
officer or a supervising employee of the business. Pursuant to
Fed. R. Evid. 201 we take judicial notice of the board’s
definition of what it means to qualify a business.
     3
        Lance and Sean Penny are the sons of Stewart Penny.
Stewart Penny is deceased.
                                 - 4 -

administratively dissolved by the State of Florida on August 13,

1993.    Pursuant to Fla. Stat. Ann. sec. 607.1421(3) (West 2007):

“A corporation administratively dissolved continues its corporate

existence but may not carry on any business except that necessary

to wind up and liquidate its business”.    On October 2, 1985,

Stewart was enjoined by the Circuit Court of Dade County from

engaging in electrical contracting in Florida.

     Furthermore, pursuant to the “Agreement to Qualify”, Mr.

White agreed to transfer 49 percent of IEI’s shares to the Pennys

as follows:   23 percent to Lance, 23 percent to Sean, and 3

percent to Stewart.     Mr. White retained the remaining 51 percent

of the shares of IEI.    Additionally, a Miami branch of IEI was to

be established.   On July 10, 1997, the Pennys became officers and

shareholders of IEI.4    The board of directors of IEI unanimously

adopted resolutions naming the Pennys vice presidents of IEI.

The resolutions were signed by Mr. White as secretary of IEI.

The resolution naming Stewart vice president also named him

general manager of the Miami office of IEI.    The three

resolutions were titled “Authorize Appointment of Director or

Officer”.

     The Pennys, with the approval of Mr. White, engaged in

electrical contracting services during the years at issue under


     4
        IEI issued Stewart 15 shares of stock.    Lance and Sean
each were issued 115 shares of stock in IEI.
                                - 5 -

petitioner’s name.5   Petitioner maintained a checking account

with First Union National Bank (corporate account), and Mr. White

had sole signature authority.   The Pennys were given a deposit

book in order to make deposits into petitioner’s account, but

they could not withdraw money from the account.

     During taxable year 1999 IEI customer checks totaling

$1,995,915 were made payable to petitioner.   Of that amount

$551,815 was deposited by the Pennys into petitioner’s corporate

account and reported on petitioner’s 1999 Form 1120, U.S.

Corporation Income Tax Return; checks totaling $1,143,655.10 were

cashed by the Pennys or Donna Penny (Donna) at check cashing

stores and not reported on petitioner’s 1999 tax return; and

checks totaling $300,445 were endorsed by the Pennys to Classic

Title, Inc. (Classic), deposited into an escrow account, and not

reported on petitioner’s 1999 tax return.   Petitioner’s gross

receipts for 1999 were $1,962,915 with a taxable income of

$1,053,390.6   Petitioner’s gross receipts were paid to petitioner

for electrical services rendered.

     During taxable year 2000 IEI customer checks totaling

$3,087,667 were made payable to petitioner.   Of that amount



     5
         Petitioner used the calendar year as its fiscal year.
     6
        The gross receipts amount for 1999 includes negative
$33,000 in cash deposits which are allowed as redeposits of
moneys received through the cashing of checks.
                               - 6 -

$667,809 was deposited by the Pennys into petitioner’s corporate

account and reported on petitioner’s 2000 tax return; checks

totaling $1,568,735 were cashed by the Pennys or Donna at check

cashing stores and not reported on petitioner’s 2000 tax return;

and $851,123 was deposited by the Pennys into Bruce M. Harlan’s

Trust Account (Harlan Trust) and not reported on petitioner’s

2000 tax return.   The checks cashed at check cashing stores were

endorsed with petitioner’s name and by Stewart, Lance, or Sean,

followed by the initials “V.P.”, or by Donna.   The checks

deposited into the Harlan Trust were endorsed with petitioner’s

name, Sean’s name followed by the initials “V.P.”, and Bruce

Harlan’s name and trust account number.   The checks deposited

into the Harlan Trust were used to purchase real estate in trust

for the Penny family.   Petitioner’s gross receipts for 2000 were

$3,074,385.66 with taxable income of $2,086,491.7

     The Pennys, as stockholders and officers of petitioner,

negotiated and entered into contracts to perform electrical

contracting services under the name of petitioner.   The Pennys

had business cards with the name and logo of petitioner.8    The

business cards also showed Mr. White’s State-certified electrical


     7
        The gross receipts amount for 2000 includes negative
$13,281.84 in cash deposits which are allowed as redeposits of
moneys received through the cashing of checks.
     8
        The business cards indicated that Stewart was vice
president and general manager, and that Lance and Sean were vice
presidents.
                                - 7 -

contractor license number, which he obtained and used to qualify

petitioner.    Additionally, the Pennys, with Mr. White’s

awareness, used trucks and T-shirts with petitioner’s name and

logo.    In 1999 and 2000 Stewart placed advertisements for

petitioner’s services in the telephone book under petitioner’s

name.9   The Pennys issued customers invoices bearing petitioner’s

name and using Mr. White’s license number.    IEI’s customers paid

the invoices with checks made out to petitioner.

     The Pennys deposited money into the corporate account when

they needed to pay IEI’s vendors and suppliers.    Vendors and

suppliers sent petitioner bills for electrical contracting

supplies that the Pennys purchased on credit.    Mr. White was

aware, and approved, of the Pennys’ performing electrical

contracting work during the years at issue using petitioner’s

name and its credit because Stewart did not have good credit.

One of the reasons that Mr. White entered into the “Agreement to

Qualify” was to allow Stewart to use petitioner’s credit rating.

When petitioner received bills from a vendor or supplier, Mr.

White faxed the bill to the Pennys at the Miami branch office of

petitioner.    Mr. White wrote checks from petitioner’s corporate

account to pay petitioner’s supply bills with money that




     9
        Alma Gordon contacted and hired petitioner after seeing
its advertisement in the telephone book.
                                - 8 -

petitioner obtained through the performance of electrical

contracting services by the Pennys.

     Petitioner included the amounts paid to vendors and

suppliers in the costs of goods sold it reported on its tax

returns for 1999 and 2000.   After the expenses were paid, Mr.

White wrote checks to Omni for money that was left over in

petitioner’s corporate account.   Before Mr. White made any

payments to Omni, Stewart submitted a Form W-9, Request for

Taxpayer Identification Number and Certification, on behalf of

Omni.    Mr. White wrote the checks to Omni because he did not want

to have to withhold taxes.   Petitioner included the checks drawn

on the corporate account and made payable to Omni as

subcontracting expenses in the cost of goods sold that petitioner

reported on its tax returns for 1999 and 2000.

     During the years at issue, the Pennys obtained permits to

perform electrical contracting work with Mr. White as the

qualifier and using petitioner’s name.    None of the Pennys put

his name on the electrical contracting permits, nor did Omni.

The permits were “pulled” with the knowledge and approval of Mr.

White.    The electrical contracting permits listed petitioner as

the contractor.

     On November 17, 1997, Stewart, acting on behalf of

petitioner, signed a contract with the Presidential Condominium

Association, Inc. (Presidential), to perform electrical
                                - 9 -

contracting services.    Two days later, Mr. White signed a

document authorizing petitioner to perform electrical contracting

services at Presidential.    Petitioner, and Mr. White personally,

helped finance the electrical contracting services performed by

the Pennys at Presidential.10

     In 1998, petitioner sued Presidential in order to recover

payment for services either performed or being performed.

Stewart hired Andre Zamorano (Mr. Zamorano), an attorney, to

represent petitioner.    Lance, acting on behalf of petitioner,

filed a claim of lien against Presidential.    The claim of lien

listed petitioner as the lienor.    Mr. Zamorano filed a notice of

lis pendens on behalf of petitioner and listed petitioner as

plaintiff.   Mr. Zamorano never heard of, or had reason to believe

that he was representing, Omni.    Mr. White was aware that the

Pennys initiated the lawsuit on behalf of petitioner against

Presidential and eventually settled.    Presidential paid

petitioner in 2000 with checks for the settlement of the lawsuit

brought by petitioner.    The Pennys or Donna cashed these checks

at a check cashing store, and the proceeds were not reported on

petitioner’s 2000 tax return.

     The Pennys negotiated contracts for petitioner to perform

electrical contracting work for the Archdiocese of Miami



     10
        Mr. White used an undisclosed amount of his own money to
finance the project.
                               - 10 -

(archdiocese) at LaSalle High School (LaSalle).11   The

archdiocese hired petitioner to complete electrical and wiring

work on a lift station located at LaSalle.   After work began on

the lift station, many other problems arose at LaSalle.   A

project that was projected to take approximately 30 days to

complete ended up taking approximately a year and a half, ending

in May 2000.   The archdiocese and IEI drafted contracts for the

LaSalle job.   The Pennys acted on behalf of IEI.

     On behalf of petitioner Stewart hired workers for the

LaSalle job.   At the LaSalle jobsite they wore T-shirts with

petitioner’s name and logo and occasionally drove a truck

emblazoned with petitioner’s name and logo and Mr. White’s

license number.   Petitioner paid them in cash.   Additionally, the

Pennys acting on petitioner’s behalf hired Kring’s Shoring, Inc.,

and Ringemann Plumbing, Inc., as subcontractors to work on the

LaSalle job.

     At the direction of Stewart, Donna prepared invoices for the

archdiocese for services rendered by petitioner at LaSalle.

Petitioner’s name was at the top of each of the invoices.

Furthermore, using petitioner’s letterhead, Stewart issued

requests for payment to the archdiocese.   To pay for petitioner’s

electrical contracting services the archdiocese wrote several




     11
          LaSalle is owned by the archdiocese.
                               - 11 -

checks payable to petitioner, not to the Pennys or Omni.12      The

Pennys changed some of the checks from the archdiocese by adding

the Harlan Trust to the payee portion of the check.

     Mr. White hired Robert Cole (Mr. Cole), a certified public

accountant, to prepare petitioner’s corporate tax returns for

1999 and 2000.    Mr. White signed petitioner’s 1999 and 2000 tax

returns.    Mr. White gave Mr. Cole monthly portions of a

“transaction detail” report that Mr. White prepared.13      Mr. Cole

used the monthly reports to prepare petitioner’s tax returns for

1999 and 2000.    The “transaction detail” reports did not include

all Presidential’s payments to petitioner.    Furthermore, the

“transaction detail” reports for 1999 and 2000 did not include

proceeds of checks to petitioner that the Pennys did not deposit

into petitioner’s bank account but instead cashed at check

cashing stores, endorsed to Classic, or deposited into the Harlan

Trust.    Petitioner made payments to Omni that are reflected in

the “transaction detail” reports prepared by Mr. White for 1999

and 2000 as payment for “outside services”.




     12
        One of the checks from the archdiocese was endorsed by
Mr. White payable to petitioner in the amount of $132,332.80.
     13
        The   “transaction detail” report Mr. White prepared does
not reflect   all of IEI’s activity but is only a partial
transaction   log. The “transaction detail” report shows accounts
receivable,   accounts payable, and other expenses incurred by IEI.
                                 - 12 -

       During the years at issue, petitioner was a cash method

taxpayer.      At no point during 1999 or 2000 did Mr. White ask the

Pennys how much money they had received on the jobs they

performed on behalf of IEI.

                                 OPINION

I.    Unreported Income

       The Commissioner’s determinations generally are presumed

correct, and the taxpayer bears the burden of proving that those

determinations are erroneous.      Rule 142(a); Welch v. Helvering,

, 115 (1933); Durando v. United States, 

,

550 (9th Cir. 1995).      Once there is evidence of actual receipt of

funds by the taxpayer, the taxpayer has the burden of proving

that all or part of those funds are not taxable.        Tokarski v.

Commissioner, 

 (1986).

       There is ample evidence linking petitioner to an income-

producing activity (IEI), and respondent has demonstrated that

petitioner received unreported income.

II.    Fraud

       The fraud penalty is a civil sanction provided primarily as

a safeguard for the protection of the revenue and to reimburse

the Government for the heavy expense of investigation and the

loss resulting from a taxpayer’s fraud.        See Helvering v.

Mitchell, 

, 401 (1938).        Fraud is intentional
                               - 13 -

wrongdoing on the part of the taxpayer with the specific purpose

to evade a tax believed to be owing.    See McGee v. Commissioner,

, 256 (1973), affd. 

 (5th Cir. 1975).

     The Commissioner has the burden of proving fraud by clear

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

satisfy the burden of proof, the Commissioner must show:      (1) An

underpayment exists; and (2) the taxpayer intended to evade taxes

known to be owing by conduct intended to conceal, mislead, or

otherwise prevent the collection of taxes.     See Parks v.

Commissioner, 

, 660-661 (1990).     The Commissioner must

meet this burden through affirmative evidence because fraud is

never presumed.   See Beaver v. Commissioner, 

, 92

(1970).

     A.   Underpayment

     An “underpayment” is the amount by which the tax imposed

exceeds the excess of the sum of the amount shown as the tax by

the taxpayer on his return, plus amounts not so shown that were

previously assessed (or collected without assessment), over the

amount of rebates made.    See sec. 6664(a).

     Petitioner argues that there is no underpayment because the

money the Pennys earned performing electrical contracting

services was income either to the Pennys or to Omni.    Further,

petitioner claims that it was not actively engaged in the
                              - 14 -

performance of electrical contracting services during the years

at issue but merely allowed the Pennys to use its name, its

credit, and Mr. White’s electrical contracting license.     We

disagree.

     The Pennys wanted to engage in the electrical contracting

business but did not have a license to do so.   In fact, the State

of Florida enjoined Stewart from being in the electrical

contracting business.   As a result, the Pennys made a deal with

Mr. White whereby they would become officers and shareholders of

IEI and thus have access to a license and be able to engage in

the electrical contracting business.

     Petitioner relies on the language in the “Agreement to

Qualify” that the work performed by the Pennys was performed by

Omni, not IEI.   Omni could not have performed electrical

contracting work as it was not licensed to do so, and a license

holder had not qualified Omni to perform electrical contracting

services.   Pursuant to Florida law, a licensed electrical

contractor can qualify a business organization to engage in

electrical contracting.   Fla. Stat. Ann. sec. 489.521 (West

2006).   Additionally, at least one officer or supervising

employee of the business organization must be qualified to engage

in contracting in the category of the business conducted.        Id.

sec. 489.521(5).    Mr. White was not affiliated with Omni in any

way; thus he could not qualify Omni to perform electrical
                              - 15 -

contracting services (neither could the Pennys).    Mr. White

could, and did, qualify petitioner to perform electrical

contracting services, and the Pennys were shareholders and

officers of petitioner.

      Mr. White testified that one of the reasons he entered the

agreement with the Pennys was to enable them to “pull” permits.

The permits were “pulled” with petitioner’s name, not Omni’s.

      With Mr. White’s knowledge and approval, the Pennys used

petitioner’s goodwill and credit to obtain clients and supplies.

The Pennys used business cards, trucks, and T-shirts emblazoned

with petitioner’s name and logo.    Customers who hired

petitioner14 never heard of Omni.   Workers hired by the Pennys to

perform electrical contracting services never heard of Omni, only

petitioner.   Mr. Zamorano, an attorney hired by Stewart to file a

lawsuit on behalf of petitioner, never heard of Omni.     The

electrical contracting work performed by the Pennys was on behalf

of petitioner, not Omni or the Pennys as individuals because it

could not have been performed by Omni, or the Pennys as they were

not licensed.

      Income is be taxed to the individual or entity which earns

it.   Lucas v. Earl, 

 (1930).   Petitioner cannot


      14
        Customers entered into agreements with IEI to perform
electrical contracting services. Customers did not enter into
agreements with Omni or the Pennys as individuals.
                               - 16 -

contract away its liability for Federal income taxes, nor can it

anesthetize us to the fact that it tried to do so.      Gibson v.

Commissioner, T.C. Memo. 1982-374.      Further, taxation of income

cannot be escaped by anticipatory arrangements assigning it to

someone else.   Id.   The “Agreement to Qualify” was an

anticipatory agreement that attempted to assign all of

petitioner’s income to the Pennys and/or Omni despite the fact

that the work was performed by or on behalf of petitioner.

     The business that held itself out to the general public and

its patrons was IEI, not Omni.   Petitioner had advertisements in

the telephone book, issued invoices with its name on them, had

its workers wear T-shirts with its name and logo on it, and had

trucks with its name, logo, and Mr. White’s license number on it.

Additionally, all customer checks were made out to petitioner,

not Omni or the Pennys.   Other than Mr. White, the witnesses who

testified had never heard of Omni.15

     Respondent has shown by clear and convincing evidence that

during the taxable years at issue, petitioner engaged in the

electrical contracting business and did not report all of its



     15
        This case is similar to Omnitec Corp. v. Commissioner,
T.C. Memo. 2006-202. In Omnitec, the Court held that the income
was earned by Omnitec Missouri as opposed to Omnitec Nevada
because the record indicated that everyone doing business with
Omnitec believed it was Omnitec Missouri and had no knowledge of
there being an Omnitec Nevada. Omnitec, unlike this case, did
not involve a civil fraud penalty. The similarity in name to
Omni in this case is strictly coincidental.
                              - 17 -

gross receipts on its tax returns.     Proceeds of checks that were

not deposited into petitioner’s checking account were not

reported on petitioner’s tax return.    Instead of depositing the

checks into petitioner’s bank account, the Pennys, officers and

shareholders of petitioner, either cashed the checks at check

cashing stores or endorsed them over to Classic or to the Harlan

Trust.

     In 1999, petitioner had unreported gross receipts of

$1,411,100 from its electrical contracting business.    Petitioner

reported gross receipts of only $551,815 and a net loss of

$8,002.   Respondent determined that petitioner’s correct taxable

income for 1999 was $1,053,390.16    We agree with respondent.

     In 2000, petitioner had unreported gross receipts of

$2,406,577 from its electrical contracting business.    Petitioner

reported gross receipts of only $667,809 and a net loss of




     16
        The corrected taxable income of $1,053,390 for 1999 is
computed as follows:

     Gross receipts            $1,411,100
     Costs of sales               476,339
     Net operating loss           (56,308)
     Salaries and wages:
       Cash payments             (293,400)
     Salaries and wages:
       Reclassified
         contract labor          (476,339)
     Total adjustments          1,061,392
     Previously reported
       taxable income                (8,002)
                                - 18 -

$13,084.    Respondent determined that petitioner’s correct taxable

income for 2000 was $2,086,491.17    We agree with respondent.

     Accordingly we conclude that petitioner understated its

income in both 1999 and 2000.

     B.    Fraudulent Intent

     The Commissioner must prove that a portion of the

underpayment for each taxable year at issue was due to fraud.

Sec. 7454(a); see also Profl. Servs. v. Commissioner, 

, 930 (1982).    The existence of fraud is a question of fact to

be resolved from the entire record.      See Gajewski v.

Commissioner, 

, 199 (1976), affd. without published

opinion 

 (8th Cir. 1978).     Because direct proof of a

taxpayer’s intent is rarely available, fraud may be proven by

circumstantial evidence, and reasonable inferences may be drawn

from the relevant facts.    See Spies v. United States, 

, 499 (1943); Stephenson v. Commissioner, 

, 1006



     17
        The corrected taxable income of $2,086,491 for 2000 is
computed as follows:

     Gross receipts             $2,406,577
     Costs of sales                510,000
     Salaries and wages:
       Cash payments              (307,002)
     Salaries and wages:
       Reclassified
         contract labor           (510,000)
     Total adjustments           2,099,575
     Previously reported
       taxable income               (13,084)
                               - 19 -

(1982), affd. 

 (6th Cir. 1984).    A taxpayer’s entire

course of conduct can be indicative of fraud.    See Stone v.

Commissioner, 

, 223-224 (1971); Otsuki v.

Commissioner, 

, 105-106 (1969).     The following badges

of fraud have been used to prove fraud:    (1) Understating income,

(2) maintaining inadequate records, (3) implausible or

inconsistent explanations of behavior, (4) concealment of income

or assets, (5) failing to cooperate with tax authorities, (6)

engaging in illegal activities, (7) an intent to mislead which

may be inferred from a pattern of conduct, (8) lack of

credibility of the taxpayer’s testimony, (9) filing false

documents, (10) failing to file tax returns, and (11) dealing in

cash.    No single factor is necessarily sufficient to establish

fraud.    A combination of a number of factors constitutes

persuasive evidence.    Below we discuss the factors that we find

to be present.

     In the case of a corporation, such as petitioner, the

fraudulent activities of a corporate agent or officer may be

imputed to the corporation if:    (1) The wrongdoer so dominates

the corporation that it is, in reality, a creature of his will,

his alter ego or, (2) the agent was acting in behalf of, and not

against the interests of, the corporation.     M.J. Laputka & Sons,

Inc. v. Commissioner, T.C. Memo. 1981-730.
                                 - 20 -

           1.   Understating Income

     Petitioner, as we found above, understated its gross

receipts in both 1999 and 2000, and as a result also understated

its taxable income in both years.     Only funds deposited into

petitioner’s bank account were reported on its return.      However,

petitioner earned significantly more than was deposited into the

account.    Petitioner argues that the money from electrical

contracting services belonged to Omni or the Pennys individually.

We disagree.     See supra.

           2.   Maintaining Inadequate Records

     Petitioner kept a “transaction detail” report that was

little more than a reflection of the activity of petitioner’s

corporate account.     Petitioner’s “transaction detail” report did

not reflect the checks that were cashed at check cashing stores

or endorsed to Classic or the Harlan Trust.      The report did not

reflect all of petitioner’s business.

           3.   Implausible or Inconsistent Explanations of Behavior

     In his testimony, Mr. White acknowledged that he was aware

that petitioner was working on the Archdiocese job and that it

was a “significant” job.      Mr. White claimed that the income from

this work was the Pennys’, he did not know how much the job was

worth, and it was not his business to know.      Despite these
                                - 21 -

claims, Mr. White endorsed a check from the archdiocese payable

to petitioner in the amount of $132,332.80.

           4.   Concealment of Income or Assets

     The stockholders and officers of petitioner concealed

petitioner’s income through various methods.      In 1999 officers

and shareholders of petitioner endorsed over to Classic checks

totaling $300,445 payable to petitioner.18    In 1999, officers and

shareholders of petitioner cashed at check cashing stores checks

totaling $1,143,655.10 made out to petitioner.19     In 2000,

officers and shareholders of petitioner cashed at check cashing

stores checks totaling $1,568,7335.50 made out to petitioner.20

Also in 2000, officers and shareholders of petitioner endorsed

over to the Harlan Trust checks totaling $851,123 made out to

petitioner.21    By not depositing the money in the corporate

account and distributing the money from the corporation,

petitioner avoided “double taxation” on millions of dollars.

     Officers and shareholders of petitioner exhibited a pattern

of concealment of IEI’s income during the years at issue.       The



     18
           Four checks were endorsed to Classic in 1999.
     19
           Forty-seven checks were cashed at check cashing stores
in 1999.
     20
           Twenty-seven checks were cashed at check cashing stores
in 2000.
     21
           Six checks were endorsed to the Harlan Trust in 2000.
                                  - 22 -

incidents were not isolated, but were continuous throughout the

2-year period.

          5.    An Intent To Mislead

     The behavior described in relation to the concealment of

income also indicates an intent to mislead.      Once again, the

behavior was continuous on the part of petitioner’s officers and

shareholders.

          6.    Filing False Documents

     Petitioner’s 1999 and 2000 tax returns indicate that Mr.

White was the sole shareholder.      The two tax returns failed to

disclose that the Pennys were shareholders and officers who

collectively owned 49 percent of petitioner.22     As we have found,

the returns understated petitioner’s income by large amounts for

both 1999 and 2000.

          7.    Dealing in Cash

     During 1999 and 2000, petitioner dealt in cash.      The cashing

of checks at check cashing stores has been detailed supra.         In

addition, petitioner paid its workers in cash.      Michael Delucia

and Jamie Massey testified that petitioner paid them in cash for

their services performed for petitioner.




     22
        Although Mr. White claimed that he was the only officer
of petitioner, he never disputed that the Pennys were
shareholders.
                                  - 23 -

           8.     Petitioner’s Arguments

     Petitioner relies heavily on the argument that the Pennys

were not officers of petitioner and that Mr. White was the only

officer.    Petitioner argues that Mr. White’s actions were not

fraudulent, and therefore neither were petitioner’s.       We

disagree.       Mr. White endorsed a check payable to IEI in the

amount of $132,332.80 that he knew was never reported on

petitioner’s tax return.       Mr. White was more involved with

petitioner than he claimed.       Mr. White knew that petitioner had a

major project at LaSalle and work at other locations, yet the

documents he turned over to Mr. Cole did not include much of the

income those jobs generated for petitioner.       Pursuant to Fla.

Stat. Ann. sec. 607.0830 (West 2007), a director must discharge

his or her duties in good faith, with ordinary care, and in a

manner he or she believes to be in the best interests of the

corporation.       Even if we assume arguendo that Mr. White’s conduct

on behalf of petitioner was not fraudulent, the Pennys were

officers and shareholders of petitioner; and their actions in

their capacity as officers and shareholders of petitioner also

establish that petitioner is liable for the civil fraud penalty.

The Pennys, who were 49-percent shareholders, were, together with

Mr. White, the dominant figures of petitioner.       See M.J. Laputka

& Sons, Inc. v. Commissioner, supra.       Petitioner’s counsel

admitted at trial that Stewart was a “thief, a liar, and a
                              - 24 -

crook”.   Stewart, however, was the general manager of IEI’s Miami

branch, a vice president, and together with Lance, Sean, and

Donna ran that branch of petitioner on a day-to-day basis.

     All of the electrical contracting work that petitioner

undertook in 1999 and 2000 was the result of the Pennys’ efforts.

Pursuant to Florida law, when in the usual course of business of

a corporation an officer or other agent is held out by the

corporation, or has been permitted to act for it or manage its

affairs, in such a way as to justify third persons who deal with

him in inferring or assuming that he is doing an act within the

scope of his authority, the corporation is bound thereby.     Edward

J. Gerrits, Inc. v. McKinney, 

 (Fla. Dist. Ct. App.

1982).

     We conclude that respondent has proven by clear and

convincing evidence that petitioner fraudulently underpaid its

taxes for 1999 and 2000.

     Once the Commissioner establishes that any portion of the

underpayment is attributable to fraud, the entire underpayment is

treated as attributable to fraud and subject to a 75-percent

penalty, except with respect to any portion of the underpayment

that the taxpayer establishes is not attributable to fraud.     Sec.

6663(a) and (b).   Petitioner has not proven that any part of

either underpayment is not attributable to fraud.   Therefore, the
                               - 25 -

underpayments for 1999 and 2000 are subject to the 75-percent

penalty.

III.   Period of Limitations

       Petitioner argues that respondent cannot assess the tax

liabilities petitioner reported on its tax returns because the

statutory periods of limitations have expired.

       In the case of a false or fraudulent return with the intent

to evade tax, the tax may be assessed at any time.      See sec.

6501(c)(1).    A fraudulent return deprives the taxpayer the bar of

the statutory period of limitations for that year.      See Badaracco

v. Commissioner, 

, 396 (1984); Lowy v. Commissioner,

, 520 (2d Cir. 1961), affg. T.C. Memo. 1960-32; see

also Colestock v. Commissioner, 

, 385 (1994).

       We found that petitioner filed fraudulent income tax returns

for 1999 and 2000; therefore, the periods of limitations on

assessment for both of these years remain open.

       In reaching all of our holdings herein, we have considered

all arguments made by the parties, and to the extent not

mentioned above, we find them to be irrelevant or without merit.

       To reflect the foregoing,

                                        Decision will be entered

                                   for respondent.