The opinion
T.C. Memo. 1995-474
UNITED STATES TAX COURT
ADNAN AL KAISSY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20692-92. Filed October 3, 1995.
Thomas M. Regan, for petitioner.
John C. Schmittdiel, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
SCOTT, Judge: Respondent determined deficiencies in
petitioner's income tax and additions to tax for the years and in
the amounts as follows:
Additions to tax
Sec. Sec. Sec.
Year Deficiency 6653(a)(1) 6653(a)(1)(A) 6653(a)(1)(B)
1982 $20,694 -- -- --
1983 23,054 -- -- --
1984 21,788 -- -- --
1
1987 2,694 -- $135
1988 590 $30 -- --
1989 542 -- -- --
Sec. Sec. Sec.
Year 6653(b)(1) 6653(b)(2) 6661(a)
2
1982 $10,347 $5,174
3
1983 11,527 5,764
1984 10,894 4 5,447
1987 -- -- --
1988 -- -- --
1989 -- -- --
1
50 percent of the interest due on $2,694.
2
50 percent of the interest due on $16,124.
3
50 percent of the interest due on $18,722.
4
50 percent of the interest due on $14,437.
The only issue in controversy is whether any part of the
underpayment of tax for the calendar years 1982, 1983, and 1984,
was due to fraud with the intent to evade tax. Petitioner lists
as a further issue whether the assessment and collection of a
deficiency is barred by section 6501(a)1 for the years 1982,
1983, and 1984. Respondent on brief concedes that absent a
showing of fraud on the part of petitioner with respect to any
one of these years, assessment and collection of any tax for that
year is barred by the period of limitations, and petitioner
recognizes that if fraud is shown the period of limitations has
1
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, unless otherwise
indicated.
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not expired. Respondent shows as an issue whether petitioner is
liable for the addition to tax for negligence or intentional
disregard of rules and regulations under section 6653(a)(1) for
each of the taxable years 1987 and 1988. However, petitioner
introduced no evidence with respect to the addition to tax for
negligence for these years and has made no argument with respect
to such an issue on brief. We, therefore, assume that petitioner
has conceded the addition to tax for negligence for each of the
calendar years 1987 and 1988.
FINDINGS OF FACT
Some of the facts have been stipulated and are found
accordingly.
Petitioner, who resided in Minnetonka, Minnesota, at the
time of the filing of his petition in this case, filed his
Federal income tax return, Form 1040, for each of the calendar
years 1982, 1983, 1984, 1987, 1988, and 1989. Petitioner's
returns for each of the years 1982, 1983, 1984, 1987, and 1988
were prepared by a public accountant, June Myslajek. Each of
these returns contained a Schedule C, Profit (or Loss) from
Business or Profession, showing petitioner as a professional
wrestler who operated under the name The Sheik. On the returns
for each of the years 1982, 1983, 1984, 1987, and 1988 petitioner
claimed business expense deductions on Schedule C, including air
fares.
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Petitioner was born in Baghdad, Iraq. In 1956 petitioner
came to the United States to attend the University of Houston,
Texas, on an athletic scholarship. In 1957 petitioner
transferred to Oklahoma State University of Agriculture and
Applied Science on a wrestling scholarship. He remained at
Oklahoma State University until the fall of 1960 when he
transferred to Portland State College, Portland, Oregon. Other
than one course taken at the University of Hawaii in 1961,
petitioner completed his undergraduate education at Portland
State College and received his B.S. degree in social science on
June 10, 1962. In 1964 petitioner received his master's degree
in education from the University of Oregon.
While in Portland, petitioner began wrestling professionally
under the name Billy Whitewolf. Between 1964 and 1969 petitioner
continued his professional wrestling in Portland, Oregon, and
Hawaii. In 1969 petitioner returned home to Baghdad, Iraq. He
returned to the United States in 1975 and began wrestling for the
World Wrestling Federation. In 1981 petitioner moved to
Minnesota to wrestle for the Minneapolis Boxing and Wrestling
Club (MBWC) and affiliated clubs. At that time he began to
wrestle under the name The Sheik. He continued to wrestle under
the name The Sheik throughout the years here involved. During
the years here in issue MBWC was owned and operated by Mr. Vern
Gagne. The Salt Lake City Wrestling Club, Bay Area Allstar
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Wrestling, Chicago Wrestling Club, Nevada Wrestling Club, Inc.,
and Phoenix Wrestling Club were affiliated with MBWC, and the
group will hereinafter be referred to as the Gagne organizations.
The Gagne organizations treated petitioner for income tax
purposes as an independent contractor and shortly after yearend
furnished him with Forms 1099 purporting to show the compensation
paid to him during the taxable year. For the year 1982, the
Forms 1099 furnished to petitioner showed that he received
$58,369 from MBWC, and amounts ranging from $5,450 down to $2,550
from three of the affiliated clubs. In 1983 the Forms 1099
issued to petitioner showed that he received $41,815 from MBWC,
$12,050 from the Chicago Wrestling Club, and amounts ranging from
a high of $5,550 to a low of $3,650 from the three other
affiliated wrestling clubs. For 1984 the Forms 1099 issued to
petitioner showed that he received $48,044.88 from MBWC, and
$11,660 from the Chicago Wrestling Club, and amounts ranging from
a high of $3,425 to a low of $2,550 from the other three
affiliated wrestling clubs.
During the years 1982, 1983, and 1984 petitioner also
wrestled for the Winnipeg Wrestling Club (also known as AM-CAN),
which was an additional member of the MBWC group. In 1983 AM-CAN
issued a statement of fees, commissions, or other amounts paid to
nonresidents of Canada to petitioner showing that AM-CAN had paid
gross income to petitioner of $11,650 in that year. During the
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years 1981 through 1989 petitioner frequently wrestled for MBWC
or other Gagne organizations at matches which were far enough
removed in distance from Minnetonka, Minnesota, that airplane
travel was necessary. Generally, the Gagne organizations made
the necessary air travel arrangements for petitioner and other
wrestlers who were to appear at an event. In years prior to the
year 1981, the Gagne organization did not arrange for or pay for
the wrestlers' air travel. The wrestlers arranged for and paid
for their own air travel. Occasionally, wrestlers would not
arrive at the place where the wrestling event was to be held a
full hour ahead of the scheduled opening of the event. Mr. Vern
Gagne was not pleased with the time of arrival of some of the
wrestlers and announced to a group of them in their dressing
rooms at one event prior to 1981 that MBWC was going to begin
arranging for the wrestlers' air travel, either by commercial
airlines or by chartered plane, and that MBWC would purchase the
tickets and see that the wrestlers were furnished with the ticket
to travel to the event. At this time he stated that the cost of
the airplane tickets was going to be deducted from the gross
receipts for the performance before a division of those receipts
was made between the part the wrestlers would get and the part
the club would get, and, therefore, in effect the wrestlers would
still be paying a part of the cost of their air fare. The amount
wrestlers as a group received from an event in which they
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participated was determined by subtracting from the portion of
the gross proceeds of the event allocated to the club, the
wrestlers' television expenses, taxes, and air fare, where travel
was by air, and dividing the remainder between the wrestlers and
the club on a 30-70 or 35-65 percent basis. Before the club
began obtaining the air transportation for the wrestlers, only
television costs and taxes were deducted from the gross proceeds
before the split. The 30 to 35 percent of the club's adjusted
gross proceeds from a show allocated to the wrestlers would be
divided among the wrestlers performing at a certain event on a
basis determined by the club, which was primarily geared to the
view of the managers of the club as to which wrestlers had been
most instrumental in attracting the crowds that came to the
wrestling matches.
Mr. Vern Gagne considered the deducting of the air
transportation costs from the gross take before splitting it
between the wrestlers and the club to be a fair arrangement,
whereby the wrestlers and the club each paid a proportion of the
air fare costs.
From time to time, the wrestlers would discuss in the locker
rooms the fact that they were really paying for their own air
travel, since it "came off the top", so that the checks they
received from each wrestling event were less than they had been
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before the Gagne organizations began arranging for the air
travel.
The Gagne organizations often arranged air travel for the
wrestlers through a travel agency known as Adventure Travel, Inc.
Mary Ellen Marxen (Mrs. Marxen), who was the office manager of
MBWC during the years here in issue, generally made the
arrangements for the wrestlers' travel. She would contact a
representative of Adventure Travel, Inc., to advise him of the
wrestling dates, the number of wrestlers who would be traveling,
and the names of the travelers. The travel agency would then
make the necessary arrangements and obtain commercial air travel
tickets for the wrestlers. When petitioner and other wrestlers
were to travel by regular scheduled commercial flight, the
airline tickets would be delivered to the Minneapolis office of
MBWC prior to the scheduled match, and either the wrestlers would
come and pick the tickets up at the Minneapolis office of MBWC,
or on some occasions the tickets would be mailed or otherwise
delivered to the wrestlers by a representative of MBWC. The bill
for the wrestlers' air travel expenses where air travel was
arranged by the Gagne organizations was sent directly to and paid
by MBWC or another Gagne organization. The bills submitted to
MBWC by Adventure Travel, Inc., identified each wrestler by name,
or show name, and listed the ticket price associated with the
trip. When petitioner traveled by chartered plane, as he and
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other wrestlers did on some occasions during the years here in
issue, the invoices for the cost of the chartered travel would be
submitted by the charter company directly to MBWC, and MBWC
arranged for and paid the cost of the chartered flights to
transport the wrestlers to the matches it had arranged. Shortly
after the match had taken place, MBWC would receive a final
accounting of the receipts and expenses for each performance at
the hosting area and the percentage of the gross take that went
to MBWC. Mrs. Marxen would prepare the draft and final show
sheets for MBWC. After the final accounting, Mrs. Marxen would
supply the information as to the receipts, minus certain expenses
which included the transportation expenses by commercial airline
or chartered plane where such expenses were paid by MBWC, to Mr.
Vern Gagne or his co-promoter Mr. Wally Carbo, who would then
determine the payout to each wrestler. First the percentage of
the receipts minus certain expenses, including transportation
expenses, to be paid to all the wrestlers in the particular show
was determined, and then the percentage of that determined by Mr.
Vern Gagne and Mr. Wally Carbo to be allocated to each wrestler
was determined based on their evaluation of the wrestler's
contribution to the production of the receipts. After Mr. Vern
Gagne or Mr. Wally Carbo determined the amount to be paid to each
wrestler who participated in an event, Mrs. Marxen would prepare
payment checks to the wrestlers. Sometimes a particular check
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would include payment for more than one match. If a wrestler had
requested an advance and it had been given, the advance would be
deducted from his portion of the payoff.
The wrestlers who worked with MBWC were responsible for
arranging and paying for their own lodging, meals, and local
transportation expenses associated with out-of-town performances.
On some occasions, a wrestler working with MBWC would make his
own arrangements for regular commercial travel and pay for his
own ticket. MBWC would usually reimburse the wrestler for
commercial air travel for which the wrestler had paid. Such
reimbursements were included in the paychecks received by the
wrestlers, and would be noted on an adding machine tape which was
attached to the check, which would show also repayment of
advances or other items.
During the years 1981 through 1983, petitioner kept a ledger
in which he would record his expenses, whether the expenses were
or were not, in his opinion, deductible. During 1981 through
1983 Mrs. Lisa Baird (Mrs. Baird) did the detailed work of
keeping petitioner's ledger books. Mrs. Baird was living with
petitioner during 1981 through 1983. Petitioner would give
information to Mrs. Baird, and she would enter the information on
the ledger book record. The records would show cost of travel,
meals, and other expenses. Petitioner would give Mrs. Baird
receipts, copies of airline tickets, and other information
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regarding his expenses on trips, and Mrs. Baird would merely
record the information as given to her in the ledger. During the
period 1984 through 1987 the ledgers were kept in the same way by
petitioner's then wife, now Mrs. Beth Andrew McDaniel.
Petitioner followed the same system of giving information to his
then wife, which she entered in the ledger book record, as he had
followed with Mrs. Baird.
Prior to moving to Minnesota in 1981, petitioner had H & R
Block prepare his Federal income tax returns. He had never
prepared his own Federal income tax returns. Some of the other
wrestlers referred petitioner to Mrs. June Myslajek (Mrs.
Myslajek), saying that she did the returns of some other
wrestlers. Petitioner believed that Mrs. Myslajek had the
experience necessary to make out a proper Federal income tax
return for him. When petitioner met with Mrs. Myslajek prior to
the due date of his 1981 return, he handed her the ledger book
record that Mrs. Baird had prepared under his supervision. He
told Mrs. Myslajek that she could contact the Gagne organization
if she had any questions about his return. Mrs. Myslajek told
petitioner that she prepared returns for many wrestlers and knew
how to prepare returns for wrestlers. Petitioner sat with Mrs.
Myslajek while she prepared his return, and when it was
completed, he signed and filed the return. This same method of
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preparation of his return was followed throughout each of the
other years when Mrs. Myslajek prepared his return.
Mrs. Myslajek in her testimony at the trial insisted that
petitioner's records were right since all wrestlers paid their
own air fare. She stated that if the company had paid the air
fare and had not been reimbursed by the wrestlers, the company
should have shown it on the Forms W-2 issued to the wrestlers, or
at least on the Forms 1099. She stated that it never occurred to
her to question that petitioner had paid the air fare or if it
had been paid by the club, that it had been included in the
amount reported on the Forms 1099, since she knew from making out
returns for wrestlers, including her brother-in-law, that the
club did not pay transportation expenses for wrestlers. She
stated she knew that wrestlers paid all of their own
transportation expenses. She stated that she had no reason to
call the offices of MBWC, since she believed that either
petitioner had paid the air fare expenses, or if the company had
paid any of them, the amount was included as a payment made on
behalf of petitioner on the Forms 1099.
Among the records petitioner furnished to Mrs. Myslajek were
the Forms 1099, which were given to him by MBWC and its
affiliates. These Forms 1099 did not include the amount of air
fare paid for airline tickets furnished to petitioner. It was
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from the Forms 1099 that Mrs. Myslajek obtained the receipts of
petitioner from his profession of wrestling.
When the special agents of the Internal Revenue Service came
to petitioner's home to speak to him about his income tax returns
for the years here in issue, they asked to see various documents,
including receipts. Petitioner volunteered to them the fact that
he had kept ledger book records and voluntarily produced those
ledger books to the special agents. The special agents took the
ledgers, with petitioner's permission, copied them, and returned
them to petitioner.
In the years 1981 through 1984 petitioner claimed deductions
for air fare in the amounts of $20,359, $32,050, $38,465, and
$29,086, respectively. All air fares of petitioner in 1981 and
1983 had been paid entirely under the system described by MBWC,
and for 1982 and 1984 petitioner had otherwise paid only $659 and
$179.88, respectively, in air fares. In 1985 petitioner claimed
a deduction for air fare expenses in the amount of $18,160, all
of which was for airline tickets furnished to him by MBWC under
the system hereinbefore described.
On January 29, 1990, petitioner was charged with three
counts of violating section 7206(1) for filing false income tax
returns for each of the taxable years 1982, 1983, and 1984, based
on his claim of substantial air travel expense deductions for
those years to which he was not entitled, thereby understating
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his adjusted gross income and his tax liability. Subsequently,
petitioner pled guilty to the charge of violating section 7206(1)
for the year 1983 by knowingly filing a false income tax return
that "stated his air travel expenses were $38,465, * * * his
adjusted gross income was $17,503, whereas as he then and there
well knew and believed, he had no air travel expenses and his
adjusted gross income was $55,838, resulting in additional tax
due and owing of $14,050." Petitioner, through his attorney and
the representative of the U.S. attorney handling the case,
entered into a plea bargain agreement. When the case was called
and the court was informed of the plea bargain agreement,
petitioner stated that he had discussed his case with his lawyer
and wanted to enter the guilty plea to the year 1983 under the
plea bargain agreement. Petitioner, at the hearing, stated that
he had made a mistake, but when informed by the U.S. attorney and
the judge that it was necessary that he say that he had claimed
the deductions for air fare that he had not paid knowing that he
was not entitled to claim the deductions, he so stated.
Petitioner was permitted to continue to travel out of State to
wrestling matches between the time he entered the guilty plea and
the date of sentencing. The judgment and probation/commitment
order of the U.S. District Court was entered on May 4, 1990. It
provided that: "Imposition of sentence is suspended and the
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defendant is placed on probation for THREE (3) years", fined
$5,000, and required to perform 100 hours of community service.
The major adjustment made by respondent in the notice of
deficiency for the years 1982 through 1984 was to disallow the
air fare deductions claimed by petitioner and to assert the
addition to tax for fraud. Certain other minor adjustments were
also made by respondent, not involving fraud, and other additions
to tax as set forth above were asserted.
OPINION
The only controversy in this case concerns whether any part
of petitioner's understatement of his income tax for the years
1982, 1983, and 1984 was due to fraud with intent to evade tax.
If fraud is established, petitioner does not question
respondent's computation. Absent fraud, petitioner claims that
the period for assessment and collection of tax had expired
before the time of the issuance of the notice of deficiency and,
therefore, assessment and collection of any deficiency are
barred. Respondent does not question that, absent fraud,
assessment and collection of any deficiency for 1982, 1983, or
1984 are barred.
Section 6653(b)(1) provides for an addition to tax of 50
percent of the underpayment if any part of any underpayment is
due to fraud. Section 6653(b)(2) provides for a further addition
of 50 percent of the interest due under section 6601 upon that
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portion of an underpayment of tax by a taxpayer which is
specifically attributable to fraud.
The burden is on respondent to establish fraud by clear and
convincing evidence. Sec. 7454(a); Rule 142(b). Whether a
portion of the tax is due to fraud is a question of fact to be
determined from consideration of the entire record before the
Court. Gajewski v. Commissioner, 67 T.C. 181, 199 (1976), affd.
without published opinion 578 F.2d 1383 (8th Cir. 1978). Seldom
is the Commissioner able to produce direct evidence of a
taxpayer's fraud, since fraud by its very nature is a question of
a taxpayer's intent. However, the Commissioner may prove
fraudulent intent through circumstantial evidence. A taxpayer's
entire course of conduct may be considered in determining whether
fraudulent intent exists. Rowlee v. Commissioner, 80 T.C. 1111,
1123 (1983). The often-cited case of Bradford v. Commissioner,
796 F.2d 303, 307 (9th Cir. 1986), affg. T.C. Memo. 1984-601,
lists as some of the "badges of fraud": (1) Understatement of
income; (2) inadequate records; (3) failure to file tax returns;
(4) implausible or inconsistent explanations of behavior; (5)
concealing assets; and (6) failure to cooperate with tax
authorities. Although the factors listed in the Bradford case
are always considered, the record as a whole must be reviewed by
the Court in determining whether the Commissioner has shown fraud
by clear and convincing evidence. The only item listed in the
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Bradford case as indicating fraud which is present in the instant
case is the understatement of income. Here, the understatement
of income results from petitioner's taking an improper deduction.
All petitioner's receipts of income were reported in his gross
income on his returns for each of the years here in issue.
Respondent makes some arguments that certain items reported by
petitioner were reported in an improper manner, but does not have
any fraud contention based on underreporting of receipts by
petitioner. Respondent questions the type of the records
petitioner kept. Petitioner's records were incorrect in that
they had shown airline tickets purchased by MBWC as part of his
expense, but otherwise were reasonably good records for an
individual to keep. The controlling question here is whether
respondent has shown by clear and convincing evidence that
petitioner claimed the deductions for air fares on his tax
returns knowing that he was not entitled to claim the deductions,
and intending by claiming those deductions to evade a tax he knew
to be owing. From the evidence as a whole, we conclude that
respondent has failed to show that petitioner was aware that he
was not entitled to claim the air fare deductions, and has failed
to show any intent by petitioner to evade tax by claiming these
deductions.
Petitioner took all his records to a return preparer for
preparation of his return. This return preparer did not question
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how the air fare was paid and did not check with petitioner's
"employer" or discuss with petitioner the expenses he was
entitled to deduct. She stated in her testimony at trial that
she had no conversation with petitioner when she was preparing
his return with respect to whether he was entitled to deduct
expenses for airline tickets. She stated that she did not have
such a discussion, because--
these wrestlers were not getting reimbursed all those
years. They were not getting reimbursed according to
what I know. They were not getting reimbursed. * * *
these wrestlers always paid their own expenses * * * it
never occurred to me to ask him that [whether the cost
of the airline tickets had been included on the Forms
1099 furnished him by MBWC]. * * * if a salesman came
to me * * * I would ask him. They are different than
wrestlers are, but I would ask a wrestler too, but they
never did get reimbursed.
When this testimony of petitioner's return preparer is considered
in the light of the rest of the evidence in this record, it is
reasonable to infer that petitioner considered that his return
preparer had approved the way in which he was handling his
deductions for air fare on his return.
The record shows that in an economic sense a portion of the
airline fares was paid by the wrestlers. The amount a wrestler
got from a show was computed by taking a certain percent (usually
30 to 35 percent) of the gross amount received by the club for
putting the show on, after deductions of television costs, taxes,
and the transportation of wrestlers, where that was paid, and
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prorating it among the wrestlers. As the owner of MBWC
testified, this split the cost of airline transportation between
the club and the wrestlers. When the wrestlers had paid for
their own transportation, there was no deduction from gross
receipts for transportation prior to the split between the club
and the wrestlers. Therefore, the wrestlers each received more
from the receipts of the show than they did after the club paid
the airline ticket costs or chartered plane costs and deducted
it, as the wrestlers say, "off the top" of the take before its
division between the wrestlers and the club. In the economic
sense, the wrestlers paid a part of their own airline
transportation by receiving less for wrestling at performances
when they went by airplane than they would have received had the
club not furnished them with the airline tickets. Petitioner's
return preparer was convinced that if the club had paid out the
amount for the airline tickets as the club manager testified, the
amount should have been shown on the Forms 1099 furnished to the
wrestlers as part of payment in money or in kind to the wrestlers
for the year. Whether or not she is correct in her conclusion
that the amount paid by MBWC for air fare should have been
included on the Forms 1099, there is certainly much to be said
for her position that it should have been. Many people do not
understand the concept that a deduction cannot generally be taken
for something where an equivalent amount has not been included in
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income under circumstances such as those here present. Had the
Forms 1099 reported the payments by the MBWC for airline tickets,
a deduction for the amount of the cost of the tickets which were
used for a business purpose of being transported to the shows
might have been proper for each wrestler. The record as a whole
shows that many, if not most, of the wrestlers considered that
they were paying for the airline tickets, since the cost of the
tickets was deducted from the gross receipts from the show before
the proration of their percentage of the gross receipts among the
various wrestlers who performed at the show. The record shows
that from time to time this fact was discussed by the wrestlers
in their locker rooms or during their trips. Under these facts,
it appears plausible that petitioner could have considered that
he paid for the airline tickets that were furnished him by MBWC
and was, therefore, entitled to deduct the cost of the tickets as
an expense. While persons accustomed to tax law understand the
concept that an item paid for a person but not included in that
person's income is not deductible, it is not uncommon for people
not familiar with tax law to fail to understand this concept.
This factor, combined with the confidence petitioner placed in
his return preparer, and her certainty that wrestlers paid their
own expenses, which must in some way have been intimated to
petitioner during the preparation of his return, negates fraud by
petitioner in claiming the deductions for air fares.
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Much of this record supports a basis for petitioner to
believe that he had paid for the airline tickets. Respondent
argues that petitioner's return preparer contradicted
petitioner's statement that when he first came to her, he told
her that she could contact the Gagne organization if she had any
questions. The portion of the transcript respondent cites for
this contention does not support respondent's argument. When the
return preparer was asked whether she remembered what the
taxpayer said to her when he gave her the expense logs, her
answer was no. And she was then asked: "Do you remember what he
said when he asked you to prepare his return?" The answer was:
"No; it was nothing special, he just probably said good morning,
or good afternoon." The other citation given by respondent was
the answer to the question "Do you remember him asking you to
verify any of the information that was set out in these logs?"
The answer was, "Asking me to verify it, no". When the Court
asked the return preparer to be more precise, she said: "Did he
ask me to verify it. What do you mean by that question?"
Instead of explaining, respondent's attorney asked whether when
petitioner presented information to her, he asked her to
determine whether it was correct or not. She answered: "No, he
didn't". This testimony does not support respondent's contention
that petitioner did not inform the return preparer that the Gagne
organization could be called if she had questions.
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Petitioner voluntarily furnished his logs to the special
agents. The fact that these logs were voluntarily furnished is
an indication not only of cooperation by petitioner, but also an
indication that petitioner did not know that the logs were not
accurate. Respondent argues that petitioner may have believed
the notebook logs would satisfy the special agents of the
accuracy of his return, even though he knew the return to be
false and, therefore, that petitioner produced the logs and
permitted the special agents to photocopy them, but he must have
realized his mistake in doing this when he asked the following
day for their return. It is difficult to follow this argument,
since petitioner was aware when he asked for the return of the
logs that they had been copied by the special agents. Returning
the logs would in no way take away the information furnished to
the special agents.
Respondent argues that at times petitioner stated that he
prepared the logs, and at other times that they were prepared by
Ms. Baird, and later prepared by his ex-wife. The Court sees
nothing misleading about these statements, since the record is
clear that petitioner furnished the information and, where
needed, assisted in how it went into the logs, and the actual
writing was done by Ms. Baird, and his ex-wife. He even
explained why the two women did the actual writing by saying
their handwriting was better than his.
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Respondent contends that even if petitioner's return
preparer was negligent in the way she handled the preparation of
his return, this fact does not excuse petitioner's willfulness to
deceive. However, the question is whether respondent has shown
by clear and convincing evidence that petitioner was attempting
fraudulently to deceive in order to evade tax. The fact that he
would be led by a return preparer to believe that he had done all
that he had needed to do and his returns would be accurately
prepared, goes to the question of his intent to evade tax. In
our view, the only evidence respondent has produced in this case
that the claiming of these deductions was other than a mistaken
belief that the amounts were deductible is the statements
petitioner made when he pled guilty to count 2 of the indictment
alleging that he had filed a false return for 1983 by deducting
the cost of air transportation that he knew he was not entitled
to deduct. Respondent points out that at the hearing on
petitioner's guilty plea, the court asked petitioner: "Well, the
point is, did you know you were cheating when you had some
$38,000 in air expenses", and petitioner answered, "Yes, your
honor". The court asked, "You knew that", and petitioner
answered, "Yes". The court stated: "So you did something wrong
and you appreciate that". Petitioner answered: "Yes your honor,
I did something wrong, you are right." The Court then asked:
"No question about it, huh?" And the answer was, "Yeah". This
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followed statements made by petitioner that he had made a mistake
in the way he handled the airline fares and the court's pointing
out to him that he must not only plead guilty, but must state
that he understood what he was doing, had consulted his attorney,
and understood the charges against him, and he must answer
questions that showed he understood that he was guilty. The
transcript of the guilty plea as a whole is not clear that
petitioner testified that at the time of the filing of his return
he knew that it was wrong to claim the deductions for airline
expenses. This is really the issue, not whether later petitioner
learned, and now knows, that the claiming of these expenses was
wrong. Although the person representing the U.S. attorney's
office and the court made it clear to petitioner that he would
have to admit knowing that the claiming of these expenses was
wrong, and he did admit that, never does it appear clearly that
he departs from his statement of making a mistake and intends to
be saying that he knew at the time he filed his returns that what
he did was wrong. There is, of course, by pleading guilty, the
inherent admission that he violated the provisions of section
7206(1), which provides that any person who willfully makes and
subscribes any return which contains or is verified by
declaration that it is made under penalty of perjury, and "which
he does not believe to be true and correct as to every material
matter" is guilty of a felony. However, the conviction under
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this section does not establish that a portion of the
underpayment by petitioner in the year involved is due to fraud
with intent to evade tax under section 6653(b). Wright v.
Commissioner, 84 T.C. 636 (1985). As we stated in the Wright
case 84 T.C. at 643-644, a conviction for willful falsification,
under section 7206(1), while not dispositive, will be one of the
facts to be considered in a trial on the merits of a case.
However, there remained in Wright a genuine issue of material
fact as to whether the reason for the underpayments was an
attempt to evade taxes. We stated that the issue of intent,
adequately raised by the taxpayer in that case, was clearly one
requiring a trial on the merits.
Here, we have considered petitioner's conviction on a plea
of guilty to a violation of section 7206(1) with respect to his
1983 return, but have concluded that this evidence alone is not
sufficient to be clear and convincing that a part of the
underpayment of tax for 1983 was due to fraud with intent to
evade tax.
While petitioner attended college for some years, and even
ultimately received a master's degree in education, he primarily
was an athlete during his college years, and did not have courses
that would qualify him to have a complete understanding of
business and tax matters. His business associates were other
wrestlers. The wrestlers understood that from an economic
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standpoint, at least partially, they were paying for their
airline tickets, but there is nothing to indicate that they
understood because of the nature or the manner in which payment
was made for those tickets, or from the fact, if they knew, that
the value of the tickets was not included on the Forms 1099
furnished to them, that they were not entitled to claim a
deduction for the airline tickets. Certainly, there is no clear
and convincing evidence to the effect that petitioner did
understand this fact. We hold that respondent has failed to show
by clear and convincing evidence that any part of the
underpayment of tax for any of the years 1982, 1983, or 1984 was
due to fraud with intent to evade tax.
Since there are years involved other than the years 1982
through 1984,
Decision will be entered
under Rule 155.