Unpublished Disposition, 899 F.2d 1224 (9th Cir. 1990)Annotate this Case
Peter K. GOPAL, Petitioner-Appellant,v.COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
United States Court of Appeals, Ninth Circuit.
Submitted* March 16, 1990.Decided April 4, 1990.
Before SNEED, FARRIS and FERNANDEZ, Circuit Judges.
The Commissioner found a tax deficiency for Peter Gopal, for the year 1978, because of unreported income and included a 50 percent underpayment penalty for fraud. The tax court affirmed. Gopal appeals. We have carefully reviewed the record and affirm the tax court.
The Commissioner is allowed to reconstruct a taxpayer's income through reasonable methods when the taxpayer has inadequate records. See Cracchiola v. Commissioner, 643 F.2d 1383, 1385 (9th Cir. 1981). The Commissioner calculated Gopal's unreported income by examining his bank deposits and cash payments. Once the Commissioner showed a reasonable basis for the deficiency, the burden shifted to Gopal, to show that the amount was not income, since he is in the better position to do so. See id.; Calhoun v. United States, 591 F.2d 1243, 1254 (9th Cir. 1978), cert. denied, 439 U.S. 1118 (1979).
The Commissioner based its calculations on: 1) bank deposits, totaling $338,488.00; 2) interest income of $1,045.87; 3) cash capital contributions to D-Y Properties totaling $125,990.00; and 4) withdrawal of $144,000.00 from Semiconductor Systems International, Inc.'s bank account, which was deposited in an account to Gopal's benefit.
The tax court rejected Gopal's claim that the bank deposits and capital contribution to D-Y Properties were loans from the Swiss corporation GHF. That is a factual question to be determined from all surrounding facts and circumstances. Fisher v. Commissioner, 54 T.C. 905, 909 (1970); Haber v. Commissioner, 52 T.C. 255, 266 (1969), aff'd., 422 F.2d 198 (5th Cir. 1970). The record supports the tax court's finding that neither party intended to create a bona fide creditor-debtor relationship: We find no clear error. No repayment had been made; there is evidence that the purported promissory note was not completed until 1979, after the advances were made; there was no security, no reports filed as required by the loan documents, and no evidence of the investments that the alleged loan proceeds were used for; tax returns reflect no income or losses commensurate with such large loans; and the collection efforts were tardy at best, only coming after the tax proceeding had begun, years after the loan was supposedly due. See Saunders v. Commissioner, 720 F.2d 871, 873 (5th Cir. 1983); Estate of Chism v. Commissioner, 322 F.2d 956, 960 (9th Cir. 1963).
It was not improper to reject Gopal's testimony and documentary evidence as incredible. See Ruark v. Commissioner, 449 F.2d 311, 312 (9th Cir. 1971); Keough v. Commissioner, 713 F.2d 496, 502 (9th Cir. 1983).
Title 26 U.S.C. § 6653(b) (1982) allows the Commissioner to add a 50 percent penalty of the underpaid tax, if any part of the underpayment is due to fraud. See Estate of Beck v. Commissioner, 56 T.C. 297, 362 (1971). Evidence of fraud must be "clear and convincing." See 26 U.S.C. § 7454(a); Rule 142(b), Rules of Practice & Procedure of the U.S. Tax Court; Toussaint v. Commissioner, 743 F.2d 309, 312 (5th Cir. 1984). Evidence, however, does not need to be direct, but may be established by examining the overall circumstances of the taxpayer's conduct and the inferences therefrom. See Edelson v. Commissioner, 829 F.2d 828, 832 (9th Cir. 1987). It is a factual determination that we reverse only if it is clearly erroneous. See Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985); Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986); Lord v. Commissioner, 525 F.2d 741, 742 (9th Cir. 1975). See generally Bradford, supra.
Gopal, a well educated businessman, failed to maintain adequate records of income producing activity and exacerbated the situation be dealing extensively in cash. See id. He was not cooperative with the IRS during the investigation. See Ruark, 449 F.2d at 313; Powell v. Granquist, 252 F.2d 56, 61 (9th Cir. 1958). He satisfies the characteristics of concealing income, see Ruark, 449 F.2d at 313, as well as gross understatement of income, see Grudin v. Commissioner, 536 F.2d 295, 296 (9th Cir. 1976).