Simmons v. Commissioner

*1009 OPINION

This case was assigned to Special Trial Judge Francis J. Cantrel for the purpose of conducting the hearing and ruling on respondent's motion for judgment of default and dismissal and entry of decision. After a review of the record, we agree with and adopt his opinion which is set forth below. ¹

*178 OPINION OF THE SPECIAL TRIAL JUDGE

Cantrel, Special Trial Judge: Respondent, in his notice of deficiency dated May 24, 1977, determined a deficiency in petitioner's Federal income tax for the taxable calendar year *1010 1974 in the amount of $ 3,059,820.54 and an addition to the tax under section 6653(b)² in the amount of $ 1,529,910.27. Petitioner filed no Federal income tax return for 1974. While he maintained his legal residence at Parsons, W. Va., on August 8, 1977, the date the petition herein was filed, he was at that time incarcerated in the Federal Correctional Institution at Lexington, Ky. During 1974, his wife was a foreign national living abroad, and she was not subject to the filing of a U.S. Federal income tax return.

Petitioner was employed by the U.S. Defense Department from June 1973 until November 1974. His post of duty during that period *179 was Saigon, Republic of South Vietnam, where he held the position of Chief, Petroleum Section, Defense Attache Office. He also held the position of Chief, Petroleum Quality Assurance Inspector. His duties included the purchase of petroleum products for the Republic of Vietnam Armed Forces. On September 15, 1975, petitioner entered a plea of guilty in the U.S. District Court for the Northern District of West Virginia. ³

*180 As noted hereinbefore, respondent issued a notice of deficiency to petitioner on May 24, 1977. ⁴ On August 8, 1977, a timely petition was filed contesting both the income tax deficiency and the addition to the tax under section 6653(b). ⁵ On October 11, 1977, respondent filed his answer which denied the allegations of error set forth in the petition and affirmatively pled facts to support his determination for the addition to the tax under section 6653(b). On October 25, 1977, a reply was filed which denied in substantial part the affirmative allegations of fraud set forth in respondent's answer.

*1011 *181 On January 7, 1980, respondent filed the motion herein under consideration. That motion, which was signed "no objection" by both petitioner and his counsel, reads in pertinent part:

4. Petitioner's counsel has advised respondent's counsel that while petitioner is unwilling to execute settlement documents fully conceding the deficiency in income tax and addition to tax under section 6653(b) in issue, petitioner no longer desires to contest the deficiency in income tax and addition to the tax under section 6653(b) determined in respondent's statutory notice dated May 24, 1977.

5. Petitioner's counsel has further advised respondent's counsel that petitioner does not desire to prosecute this case and therefore will not actively engage in stipulation of facts as required by T.C. Rule 91 or otherwise participate in the preparation of this case for trial and will not appear at the calendar call of this case in order to contest the deficiency in income tax and addition to tax under section 6653(b) determined by respondent in his statutory notice of deficiency.

6. Petitioner's counsel has likewise advised respondent's counsel that petitioner has no objection to the entry of a decision for*182 respondent in the amounts determined as a deficiency in income tax and addition to tax under section 6653(b) in respondent's statutory notice dated May 24, 1977.

7. The Court's granting of the motion herein will conserve the Court's valuable time and resources and permit respondent to apply his personnel and resources to disputed cases. ⁶

* * * *

*183 *1012 The issue before us is whether we may enter a decision against petitioner for an addition to tax for fraud under section 6653(b)⁷ on a motion for judgment of default and dismissal without requiring respondent to put on affirmative proof of fraud, when fraud has been denied in petitioner's reply but, subsequent thereto, petitioner and his counsel have unequivocally advised the Court, after the pleadings were closed and prior to the issuance of a notice of trial, that the income tax deficiency and the addition to the tax will not be contested. The issue here is somewhat different than that presented in Gordon v. Commissioner, 73 T.C. 736 (1980).

*184 We recognize that section 7454(a) and Rule 142(b), Tax Court Rules of Practice and Procedure, ⁸ explicitly provide that in any case involving the issue of fraud with intent to evade tax, the burden of proof in respect of that issue is on the respondent, and that burden of proof is to be carried by clear and convincing evidence. Miller v. Commissioner, 51 T.C. 915, 918 (1969); Gano v. Commissioner, 19 B.T.A. 518, 533 (1930).

Pursuant to the authority invested in us by section 7453, the Rules of Practice and Procedure of this Court were substantially revised, adopted, and promulgated, effective January 1, 1974. Therein appeared for the first time Rule 123, ⁹ which is derived *1013 from rule 55, Federal Rules of Civil Procedure. 60 T.C. 1069, 1129. ¹⁰Rule 123*185 provides in part:

(a) Default: When any party has failed to plead or otherwise proceed as provided by these Rules or as required by the Court, he may be held in default by the Court either on motion of another party or on the initiative of the Court. Thereafter, the Court may enter a decision against the defaulting party, upon such terms and conditions as the Court may deem proper, * * *

* * * *

(d) Effect of Decision on Default or Dismissal: A decision rendered upon a default * * * other than a dismissal for lack of jurisdiction, shall operate as an adjudication on the merits.

While we have addressed*186 in the past other procedures allowing respondent to sustain his imposition of the fraud addition to tax, short of putting on affirmative proof thereof at trial, those procedures are not applicable here. ¹¹

A review of the cases under rule 55, Federal Rules of Civil Procedure, discloses that most defaults are granted because a party has failed to plead. Here petitioner did plead and, therefore, default cannot be entered on that basis. We, too, are mindful that defaults do not appear to be favored under rule 55 of the Federal Rules of Civil Procedure merely because a party does not appear at trial. Here, however, after the pleadings were closed and prior to the issuance of a trial notice, petitioner and his counsel clearly advised the Court in writing --

(1) That while petitioner is unwilling*187 to execute settlement documents fully conceding the income tax deficiency and addition to the tax, he no longer desires to contest those issues;

(2) That petitioner does not desire to prosecute this case; that he will not further proceed or participate in trial preparations and will not appear at trial to contest the income tax deficiency and addition to the tax; and

(3) That petitioner does not object to the entry of decision for respondent in the amounts determined as a deficiency in income tax and addition to tax under section 6653(b) in respondent's statutory notice of deficiency.

As we view this record, no controversy now remains in this *1014 case. Indeed, such statements can be deemed to constitute either a concession of all issues or a failure to otherwise proceed under Rule 123(a).

While we do not have the precise factual situation here as we had in Gordon, we think it is unnecessary to require respondent to waste his and the Court's time by proceeding further, in these circumstances, where petitioner has clearly and unequivocally advised the Court that he will not further prosecute his case. Moreover, in view of the Court's mounting caseload, we will exercise *188 our discretion under Rule 123(a) and enter decision herein, including the fraud addition to tax, without requiring respondent to affirmatively put on proof of fraud. Respondent's motion will be granted.

An appropriate order and decision will be entered.