Jerome Francis Schmitt, Petitioner

T .C . Summary Opinion ?009-10 7

UNITED STATES TAX COURT

JEROME FRANCIS SCHMITT, P titioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 7249-06S .

piled July 13, 2009 .

Jerome Francis Schmitt, pro se .

Brian Bilheimer and Marco Franco ., for.respondent .

DEAN, 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 . Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case . Unless otherwise indicated, sub equent section references are to the Internal Revenue Code in effect for the years at issue, and all Rule references are to the Tax Court Rules o f Practice and Procedure .

Respondent determined for 2001 a deficiency in petitioner's Federal income tax of $4,456, a fraud penalty under section 666 3 ofv;$ 2,s815, and in the alternative an accuracy - related penalt y 0„ ( ~----under---section 6662 of $128 . . Respondent determined .for 2002 a .deficiency in petitioner's Federal income tax of $5,192, a fraud (cid:127)penalty4under section 6663 of $2,714, and in the alternative a n accuracyi-related penalty under section 6662 of $315 .

-s-Petitioner presented no argument or evidence with respect t o any-of the adjustments that result in the deficiencies for eithe r I year . He is deemed to have conceded those items . See Bradley v .

Commissioner , 100 T .C . 367, 370 (1993) ; Sundstrand Corp ... & Subs .

v . Commissioner , 96 T .C . 226, 344 (1991) ; Rybak v . Commissioner , 91'T .C . 524, 566 n ..19 .(1988) .

The issue remaining for decision is whether petitioner is liable for the fraud penalty, or in the alternative the accuracy- related penalty, for 2001 or 2002 .

Background None of the facts have been stipulated . The exhibits received in evidence are incorporated herein by reference . When the petition was filed, petitioner was living in New York .

Petitioner timely filed his Federal income tax returns fo r 2001 and 2002 . Petitioner marketed telecommunication services in the New York City area during the years at issue . On his income tax returns petitioner itemized his deductions and filed Forms 2106, Employee Business Expenses, claiming, before the application of the 2-percent floor of section 67(a), employee business expenses of $15,008 for 2001 and $14,778 for 2002 . On line 7 of the forms, "reimbursements re eived from your employer", petitioner indicated zero .

Respondent selected petitioner's tax returns for examination . Revenue Agent Richard Leb ando (Lebrando) sent an appointment letter to petitioner to begin the examination .

.Petitioner appeared for the initial examination meeting accompanied by his return preparer . Lebrando asked petitione r for substantiation of his employee busi ess expenses-and charitable contributions as shown on hi Schedule A, Itemized Deductions . Petitioner provided to Lebrando a typewritte n statement asserting that petitioner ma r keted telecommunication s services and that "My company didn't ha ve [sic] reimbursement policy ." Upon receipt of petitioner's statement, Lebrando asked petitioner to supply him with a letter or other documentation from his employer to corroborate the written statement .

Petitioner provided . Lebrando with an undated document bearing an apparent letterhead with the name "Primus Telecommunications Group, Inc ." (Primu ), in response to the agent's document request . The documen states that petitioner was employed as a "Senior Account Executive" with the company in 20011 and that Primus "had no stated reimbursement policy for their expenses at that time ." The document is signed by a Steve Garcia, "Sales Manager" . Lebrando thought the document appeared suspect because the letterhead looked just like the top„of the Web site of Primus .

Lebrando contacted Primus and solicited a copy of its reimbursement policy . Primus-forwarded to Lebrando a copy of its "Financial Policy And Procedure Manual" dated February 1, 2001 .

The first paragraph of the manual states : "Employees will be reimbursed for actual and reasonable expenses incurred while traveling or conducting business on behalf of the Company or attending mandatory Company meetings ." Primus's human resources (HR) department informed Lebrando by letter² that Steven Garci a was an account executive whose manager was Richard .Cadiz . The H R department enclosed copies of petitioner's signed reimbursement requests for travel expenses for 2001 .

Lebrando expanded his examination to include 2002 .

Petitioner informed Lebrando that his employer in 2002 was not the same as in 2001 . Petitioner provided Lebrando with a 'Petitioner attached to his 2001 Federal income tax return a Form W-2, Wage and Tax Statement, from Primus showing wages of $31,337 .54 .

i 2The letterhead on the human resources letter differed from that of the document that petitioner had supplied to Lebrando .

document indicating that it was from "Broadview Networks " (Broadview) .' The undated document stat( ss that Broadview employed petitioner as an account execut ive in 2002 and that "Broadview Networks, Inc, had no. stated reimbursement policy fo r their expenses at that time ." The document bears the signature of a William Cory, "Sales Director" .

Lebrando contacted Broadview and o tained from the company's comptroller a copy of its 30-page expen~e reimbursement policy effective for 2002 . The comptroller reported to Lebrando by letter that the statement in petitioner's document that Broadview had no reimbursement policy "is complet ly untrue ." The comptroller also reported that the Broa view "has never employed a Sales Director named William Cory .

Petitioner attempted to substantia e his mileage with documents entitled "Log of Miles Driven" for 2001 and 2002 . Th e document for 2001 purports to cover the period from January 4 through April 12, 2001 . The document for 2002 lists dates from January 7 through October 28, 2002 . The documents show the categories of "Contact Name & Address", miles driven "Per Mapquest", and "Tolls/Parking" .

Petitioner provided a similar docu ent as substantiation for his entertainment and meals expenses for 2001 . Lebrand o 3Petitioner attached to his 2002 F deral income tax return a Form W-2 from Broadview Network reporting wages of $61,359 .93 .

6 - attempted to match the dates and locations on the mileage log with those on the entertainment and meals expense log to no avail . . No similar log was provided for 2002, but petitioner di d submit copies of American Express card statements, . with certain amounts circled for the period April 9 through December 6, 2002 .

He did not explain the significance of the circled items . There were charges on the statements for both petitioner and Alice E .

Schmitt . For May 5, 2002 ., petitioner circled charges for food and . beverages purchased in both Springfield, Virginia, and New York .

At trial petitioner was disruptive and refused to cooperate with either respondent or the Court .

Discussio n Addition to Tax for Frau d The Commissioner has the burden of proving fraud by clear and convincing evidence . Sec . 7454(a) ; Rule 142(b) ; Parks v .

Commissioner , 94 T .C . 654 (1990) .

As part of his burden in the trial of a fraud case, the Commissioner must first prove an underpayment of some amount of tax . Sec . 6663(a)4 Hebrank v . Commissioner , 81 T .C . 640, 642 (1983) . To do this, the Commissioner may not merely rely on a

6663 . See Omnibus Budget Reconciliation Act of 1989 , Pub . L . 101-239, sec . 7721( a), (c)(1), 103 Stat . 2395, 2399 .

taxpayer's failure to disprove the deficiency determination .

Parks v . Commissioner , supra at 660-661 . 1 Second, the Commissioner must show that at least some par t of the underpayment of-tax was due to fraud . Sec . 6663(a) ; Rule 142(b) ; DiLeo v . Commissioner , 96 T .C . ~58, 873 (1991), affd . 959 F .2d 16 (2d Cir . 1992) .

; Parks v . Commis Toner , supra .at 664 ; Hebrank v . . Commissioner , supra . If the Commissioner establishes that some .portion of the underpayment i attributable to fraud, the entire underpayment shall be treate as attributable t o fraud, except with respect to any portion of the underpayment that the taxpayer establishes is not at ributable to fraud . Sec .

6663(b) .

The Commissioner will meet his burden of proof if it is shown that the taxpayer intended to eva e a tax known to be due and owing by conduct intended to concea , mislead, or otherwis e prevent tax collection .

Stoltzfus v . Uhited States , .398 F .2d 100 .2, 1004-1005 (3d Cir . 1968) ; Parks Commissioner , supra at existence of fraud is a question of fact to be resolved upo n consideration of the entire record .

DiLeo v . Commissioner , supr a at 874 . The Commissioner may prove fraud by circumstantial evidence because direct evidence of the taxpayer's intent is rarely available .

Stephenson v . .Commi sioner, 79 T .C . 995 , 1005-1006 (1982), affd . per curiam 748 F .2d 331 (6th Cir . 1984) .

8 - .Intent to mislead or conceal may be inferred from a pattern of conduct .

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

A pattern of consistent underreporting of income for several years , especially when accompanied by . other, circumstances showing intent to conceal, is strong evidence of fraud .

Holland v . Unite d States , 348 U .S . 121 (1954) ; Parks v . Commissioner , supra at 664 .

An implausible explanation of behavior is also a "badge o f fraud" .

Bradford v . Commissioner , 796 F .2d 303, 307 (9th Cir .

1986), affg . T .C . Memo . 1984-601 .

The Court, however, will not sustain a determination of fraud based only on circumstances that at most create only the suspicion of fraudulent intent .

Katz v . Commissioner , 90 T .C .

1130, 1144 (1988) ; Green v . Commissioner , 66 T .C . 538, 55 0 ,(1976) ; Ross Glove Co . v . Commissioner , 60 T .C . 569, 608 (1973) .

Respondent has shown that petitioner failed to report the receipt of $2,639 .73 of income reported on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profi t Sharing Plans, IRAs, Insurance Contracts, etc ., in 2002 and claimed deductions for unreimbursed employee business for which he lacked proper substantiation for both 2001 and 2002 .¢ Respondent has shown that petitioner underpaid his taxes for bot h years .

For both years petitioner deducted relatively large ;amount s of employee business expenses for which he failed to produce 9 - appropriate substantiation . Petitioner, on his tax returns, stated that he had received no reimburs ments from his employers for his employee business expenses . Re pondent, however, obtained records from one of his employ rs that show that petitioner in fact received reimburseme t for expenses in 2001 pursuant to his employer's written reim ursement policy . During the examination of both his 2001 and 20 2 returns, petitioner submitted false documents to Lebrando c .ncerning his employers' reimbursement policies . Petitioner's sibmission of the false documents is evidence of guilty knowled e that he could hav e received or did receive expense reimbur ements and falsified his tax returns to wrongfully obtain tax deductions .

The Court holds that respondent ha produced clear and convincing evidence that part of each u derpayment of tax for 2001 and 2002 was due to fraud under section 6663 . Since petitioner has not shown that any portion of the underpayment for each year is not due to fraud, the entire underpayment shall be treated as attributable to fraud . 5 Sec . 6663(b) .

To reflect the foregoing, Decision will be entered for res ndent .

5The accuracy-related penalty under sec . 6662(a) does not .apply to any portion of an underpayment on which the fraud penalty under sec . 6663 applies . Sec . 6662(b) .

4. Former sec . 6653 was repealed and replaced in part by sec .