Raymond Chico v. Cir

• Court: Court of Appeals for the Ninth Circuit
• Decided: October 8, 2021
• Docket: 20-71017
• Status: Unpublished

Opinion

NOT FOR PUBLICATION

UNITED STATES COURT OF APPEALS FILED FOR THE NINTH CIRCUIT OCT 8 2021 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS RAYMOND CHICO; RUBY CHICO, No. 20-71017

Petitioners-Appellants, Tax Ct. No. 22264-16

v. MEMORANDUM* COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

Appeal from a Decision of the United States Tax Court

Submitted October 6, 2021** San Francisco, California

Before: THOMAS, Chief Judge, and HAWKINS and FRIEDLAND, Circuit Judges.

Raymond and Ruby Chico appeal the Tax Court’s imposition of a fraud

penalty for their 2010 through 2012 federal income tax returns. We have

jurisdiction under 26 U.S.C. § 7482(a)(1), and we affirm.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). We review the Tax Court’s imposition of a fraud penalty for clear error, see

Bradford v. Comm’r, 796 F.2d 303, 307 (9th Cir. 1986), and we apply clear error

review to Tax Court decisions based on a stipulated record, even when credibility

determinations are at issue, see Church By Mail, Inc. v. Comm’r, 765 F.2d 1387,

1390 (9th Cir. 1985). The Chicos contend that we should review the findings de

novo because the case was decided by a successor judge on the basis of the trial

record before the prior judge. However, the Chicos consented to their case being

decided by a successor judge on the basis of the prior trial record, without further

testimony or evidentiary development. This consent meant that the case was

decided in a manner that treated the trial record as a stipulated record, so clear error

review applies.

The Tax Court did not clearly err in finding clear and convincing evidence of

fraud based on the six badges of fraud present in the record. The record supports

the Tax Court’s findings that the Chicos: (1) understated their income by more than

$275,000 over three years; (2) produced no “adequate records” to substantiate the

figures reported on their tax returns; (3) failed to file tax returns for Lakewood

Patient Resource Center even after being asked to do so by the Revenue Agent with

the IRS in 2016; (4) implausibly attributed their underreported income to

nontaxable investments from an inheritance when the Revenue Agent accurately

2 characterized the majority of these transfers as nontaxable; (5) concealed income

from Lakewood by failing to report constructive dividends received in 2011 and

reporting only some of the income they received in 2010; and (6) failed to

cooperate with the Revenue Agent’s investigation by ignoring his early requests for

interviews and blaming their attorney for failing to produce adequate records. See

Bradford, 796 F.2d at 307–08 (listing badges of fraud).

The Tax Court also considered these badges of fraud in the context of Mr.

Chico’s specialized knowledge and experience on “corporate and business taxation”

as a tax preparer himself to find even stronger circumstantial evidence of fraud.

There is no clear error in the Tax Court’s finding that the total weight of these

badges provided clear and convincing evidence of the Chicos’ “‘specific intent to

avoid a tax known to be owing.’” Maciel v. Comm’r, 489 F.3d 1018, 1026 (9th Cir.

2007) (quoting Estate of Trompeter v. Comm’r, 279 F.3d 767, 773 (9th Cir. 2002)).

Therefore, we affirm the judgment of the Tax Court.

AFFIRMED.