Maciel v. Comm'r

2004 Tax Ct. Memo LEXIS 29 | Tax Ct. | 2004

GEORGE MACIEL, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Maciel v. Comm'r

No. 7802-00

United States Tax Court

T.C. Memo 2004-28; 2004 Tax Ct. Memo LEXIS 29; 87 T.C.M. 881;

February 4, 2004, Filed

---

">*29 Judgment entered in favor of Respondent and against Petitioner. Court ruled Petitioner fraudulently underpaid taxes.

            [Appendices omitted]

David M. Kirsch, for petitioner.

G. Michelle Ferreira and Charlotte A. Mitchell, for respondent.

Ruwe, Robert P.

---

RUWE

MEMORANDUM FINDINGS OF FACT AND OPINION

RUWE, Judge: Respondent determined deficiencies in petitioner's Federal income taxes and penalties pursuant to section 6663¹ as follows:

Year	Deficiency	Penalty Sec. 6663
1 1990	$ 192,954	$ 144,715.50
1991	71,337	53,502.75
1992	56,075	42,056.25

After concessions, ² the issues to be decided for 1990, 1991, and 1992, are as follows:

">*30 (1) Whether, and to what extent, petitioner received and failed to report income;

(2) whether petitioner is entitled to various adjustments to reconstructed income not claimed on his returns;

(3) whether petitioner intentionally failed to report income in an effort to fraudulently evade the payment of taxes; and

(4) whether respondent's assessment of deficiencies and penalties is barred by the period of limitations.

             FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts, supplemental stipulations of facts, and the attached exhibits are incorporated herein by this reference. Petitioner resided in Santa Clara, California, at the time he filed the petition.

A. General Background

Petitioner has been involved in the trucking business for more than 20 years. During the years at issue, petitioner was the sole shareholder, president, and chief executive officer of Alviso Rock, Inc. (Alviso), a corporation organized and existing under the laws of the State of California. Alviso was a trucking and hauling business located in Newark, California. Additionally, during the aforesaid period, petitioner">*31 was the general manager of George Maciel Trucking, Inc. (GMT), a wholly owned subsidiary of Alviso. Alviso and GMT were C corporations that reported their consolidated income on Forms 1120, U.S. Corporation Income Tax Return, for the taxable years ending November 20, 1989, 1990, 1991, 1992, and 1993.

In addition to Alviso and GMT, petitioner engaged in the following noncorporate business activities.

B. The BAMA Partnership

In 1989, petitioner entered into a partnership with Michael D. Mitchem named BAMA Equipment (BAMA). BAMA was engaged in the business of selling new and used trucks. Petitioner owned a 50- percent interest in BAMA.

During the years in issue, BAMA wrote numerous checks to petitioner and/or his related corporation(s), which he deposited into noncorporate bank accounts over which he had signatory authority. BAMA paid petitioner rent for the use of one of his real properties, which he deposited into the aforesaid bank accounts. BAMA was also a sponsor of petitioner's racing business. ³

">*32 On his 1991 and 1992 returns, petitioner claimed deductions for passthrough losses from BAMA of $ 56,786 and $ 8,777, respectively. For those years, petitioner's capital accounts in BAMA were negative $ 26,046 and $ 34,823, respectively. As previously stated, respondent concedes loss deductions for 1991 and 1992 of $ 26,046 and $ 8,777, respectively. Additionally, respondent concedes petitioner's capital loss deduction of $ 3,000 for 1992.

BAMA dissolved in 1992.

C. Tri-City Truck Parts and Newark Wreckers

In 1987, petitioner and Peter Viviano (Mr. Viviano) formed M& V Investments of which each owned a 50-percent interest. ⁴ On April 14, 1987, M& V Investments purchased a company named Tri- City Truck Parts and Equipment (Tri-City) for $ 350,000. The seller, Raymound Giarrusso (Mr. Giarrusso), took back a $ 200,000 note from petitioner and Mr. Viviano with the balance of the purchase price, $ 150,000, being paid in cash. At the same time, M& V Investments purchased Newark Wreckers, Inc. (Newark Wreckers), from Mr. Giarrusso for $ 50,000, for which each partner paid $ 25,000. Accordingly, for the two purchases, each partner contributed $ 100,000 and was personally liable under">*33 the $ 200,000 note payable to Mr. Giarrusso.

For each of the taxable years 1987 through 1990, Newark Wreckers filed Forms 1120. Petitioner was a 50-percent shareholder and president of Newark Wreckers from 1987 through 1989. Likewise, Tri-City timely filed Forms 1065, U.S. Partnership Return of Income, for each of the years 1987 through 1990. Petitioner was a 50-percent income and loss partner of Tri-City.

On April 27, 1990, petitioner sold his 50-percent interest in M& V Investments (Tri-City and Newark Wreckers) to Mr. Viviano for $ 200,000. The $ 200,000 purchase price was paid in the form of three cashier's checks for $ 100,000, $ 75,000, and $ 25,000, which were initially made payable to Mr. Viviano but were subsequently endorsed to petitioner. Pursuant to">*34 the sales agreement, petitioner relinquished all claims he had in Tri-City and Newark Wreckers, and he was discharged from his obligation to pay on the note to Mr. Giarrusso. ⁵ Petitioner did not report this sale on his 1990 return. ⁶

">*35 During 1987 through 1990, Mr. Viviano and petitioner made several short-term loans/advances to Tri-City and Newark Wreckers. There were no formal loan agreements created to evidence these transactions. The parties followed the practice of immediately repaying themselves when the entities were able, usually within 3 weeks to 3 months. Petitioner alleges that he has never been repaid at least $ 56,450 in loans and advances, and he now contends that this amount offsets any gain he realized upon the sale of M& V Investments to Mr. Viviano.

D. Newark Truck and Body Shop

With part of the funds secured from Mr. Viviano, in May 1990, petitioner purchased land and a vacant building located at 7373 Wells Avenue, in Newark, California, from Mr. Guarrusso for $ 200,000. Upon receipt of the three cashier's checks from Mr. Viviano totaling $ 200,000, petitioner purchased two cashier's checks made payable to himself, one for $ 175,000 and the other for $ 25,000. On May 16, 1990, petitioner took the $ 175,000 cashier's check made payable to himself and purchased two more cashier's checks. One of the cashier's checks was for $ 127,504.82 and made payable to Fidelity National Title, apparently the">*36 escrow agent for the purchase of 7373 Wells Avenue, and a second cashier's check was for $ 47,495.18 and made payable to petitioner. On June 11, 1990, petitioner deposited the second cashier's check for $ 47,495.18 and the $ 25,000 cashier's check purchased with the funds received from Mr. Viviano into Bank of Milpitas account No. 512-001-300466.

During the years at issue, petitioner conducted an unincorporated business from the 7373 Wells Avenue location named Newark Truck and Body (Newark T&B). ⁷ Newark T&B was engaged in the business of truck repair for petitioner's related businesses and for unrelated third parties. Petitioner was the sole owner of Newark T&B. Newark T&B had its own invoices and business cards. Newark T&B performed truck repairs work for which it received remuneration. Petitioner maintained a bank account at the Bank of Milpitas, account No. 512-001-300466, in the name of "George A. Maciel c/o Newark Truck & Body".

">*37 Petitioner garnered significant funds from the Newark T&B activity. ⁸ Petitioner did not report any of the moneys that Newark T&B received for repair services on his 1990, 1991, or 1992 returns. ⁹ Petitioner's accountants were not aware of Newark T&B until after the Internal Revenue Service (IRS) commenced its audit and investigation. Alviso/GMT's bookkeeper was also unaware of the Newark T&B business operations.

E. Petitioner's Racing Business

During the years at issue, petitioner maintained an unincorporated automobile racing business under the name "Alviso Rock/HK Racing". ¹⁰ Petitioner was the sole owner of this business. During the years at issue, petitioner maintained a bank account at the Bank of Milpitas, account No. 512-001-102605, in the name "Alviso Rock/HK">*38 Racing". During the years indicated, petitioner received the following amounts of racing income, which he deposited into the aforementioned bank account:

Description	1990	191	1992
Deposits	$ 16,811.57	$ 14,397	$ 31,493.96
Less:
1 nontaxables	(4,125.34)	(4,334)	(20,144.00)
Net racing
income	12,686.23	10,063	11,349.96

The funds">*39 were received from, inter alia, sponsors ¹¹ and/or winnings.

Petitioner did not report any of the above-listed deposited funds on his 1990, 1991, or 1992 returns. Furthermore, petitioner's accountants were not aware of this business activity until after the IRS commenced its audit and investigation. ¹²

F. Rental Property Income

During 1990, 1991, and 1992, petitioner owned and held numerous real properties for investment and lease. One such property was located at 41550 Boscell Road, Fremont, California (the Boscell property). In 1990, petitioner owned 50 percent of the Boscell property with Thomas Viviano. In May 1991, Thomas Viviano sold his 50-percent interest in the Boscell property to petitioner.

During the years at issue, the Boscell property was leased to two tenants. One tenant, PSB Trucking, rented space at">*40 the Boscell property for $ 8,400 per month. Petitioner reported rental income attributable to PSB Trucking of $ 50,400, ¹³ $ 79,800, and $ 100,800 for 1990, 1991, and 1992, respectively.

A portion of the Boscell property was also rented to P. J. Vierra & Sons (P. J. Vierra) for $ 500 per month. Petitioner did not report any of the rental income received from P. J. Vierra. ¹⁴

In addition">*41 to the Boscell property, petitioner held numerous other real properties for rent. One such property was located at 4842 Cabrillo Point, Byron, California. This property was leased to Daniel Parquette. Petitioner received and deposited rent payments from Daniel Parquette. Other properties that petitioner owned included those located at and described as: 1300 State Street, 1573 State Street, 1252 State Street, 1243 State Street, Basset Lot (Santa Clara), 1594 Wabash Street, 1598 Wabash Street, 7373 Wells Avenue, 37243 Filbert Street (Lot), and Liberty Avenue. In addition to the Boscell and 4842 Cabrillo Point properties, during 1990, 1991, and 1992, petitioner received and deposited into bank accounts over which he had signatory authority rental income from the following individuals and/or entities: Charles and Rose Lamb, Piazza Mobile Sweeping, BAMA Equipment, Louis and Marion Bewley, James Morrow, Stockton Semi Trailer, Daniel Parquette, Daniel Estacio, Sines Trucking Co., Linda Venture, Neil and Betsy Holets, Margaret and Kevin Deemer, P.J. Vierra & Sons, PSB Trucking, J.S.J. Pipeline, Michel K. Pipes, Dad's Enterprises, Linda Venture, Margret or Kevin Deemer, and Ricky and Ana Flores. ">*42 Petitioner claimed deductions on his Schedules E, Supplemental Income and Loss, for many of these real properties.

G. Petitioner's Bank Deposits

During 1990, 1991, and 1992, petitioner deposited significant sums of money into seven noncorporate bank accounts over which he had signatory authority. ¹⁵ The bank accounts were maintained in the following names: (1) Bank of Milpitas, account No. 512-001-200593 "George A. Maciel;" (2) Bank of Milpitas, account No. 512-001-300466 "George A. Maciel c/o Newark Truck & Body;" (3) Bank of Milpitas, account No. 512-001-303171 "GM Investments;" (4) Bank of Milpitas, account No. 512-001-102605 "Alviso Rock/HK Racing;" (5) Wells Fargo Bank, account No. 0108-363904 "George Maciel" and "Peter Viviano;" (6) Wells Fargo Bank, account No. 0500-325774 "George A. Maciel;" and (7) Wells Fargo Bank, account No. 6500-059183 "George Maciel." Generally, these deposits fall into one of four categories. The first category is checks made payable to either Alviso or GMT, yet endorsed and deposited into noncorporate bank accounts over which petitioner had signatory authority. An example is check No. 35286, made payable to Alviso for $ 7,500, the payor of which">*43 is Sutter Insurance Co. and check No. 426 for $ 13,000 made payable to GMT, the payor of which is Daniel Hernandez. Both of these checks are made payable to Alviso or GMT yet deposited into Bank of Milpitas account No. 512-001-300466. The second category represents workmen's compensation insurance refund checks made payable to Alviso or GMT and deposited into noncorporate bank accounts over which petitioner had signatory authority. For example, on or about July 31, 1992, Republic Indemnity Co., refunded Alviso $ 57,472, which petitioner deposited into Bank of Milpitas account No. 512-001- 300466. The third category is payments made to petitioner from his related entities. An example of such a payment is check No. 4153 for $ 2,476.06 made payable to petitioner from GMT. Lastly, there are substantial sums of cash and their equivalent deposited into noncorporate bank accounts over which petitioner had signatory authority. For example, on June 19, 1990, petitioner deposited $ 15,000 in traveler's checks into Bank of Milpitas account No. 512- 001-300466. Likewise, on July 18, 24, and 26, 1990, petitioner deposited cash into this same bank account in the respective amounts of $ 9,600, $ ">*44 9,700, and $ 9,800.

After depositing some of the aforementioned moneys, petitioner wrote checks to Alviso or GMT noting on the checks that these payments were loans. For example, on or about November 19, 1990, Transamerica Insurance Group issued a check payable to Alviso for $ 67,256. On December 13, 1990, petitioner deposited this check into Bank of Milpitas, account No. 512-001-300466. ¹⁶ On that same day, petitioner wrote a check from this account to GMT for $ 50,000 and indicated on the memo line "loan to GMT". The corporation's bookkeeper made a handwritten notation, which reads "Art [the accountant]-George put this money out of pocket -don't credit as income. We're going to pay our line of credit monthly out of this account, Yvonne" on GMT's bank statement for the account into which the $ 50,000 check was deposited.

">*45 Similarly, on or about June 28, 1991, Republic Indemnity Co. issued GMT a check for $ 42,887. On July 9, 1991, petitioner deposited this check into Bank of Milpitas, account No. 512-001- 300466. On that same day, petitioner wrote two checks from this bank account, one for $ 30,000 to GMT and one for $ 10,000 to Alviso. Petitioner wrote "loan" on the memo line of both checks. This same treatment occurred with a $ 57,472 check to Alviso received from Republic Indemnity Co. Petitioner also deposited this check into Bank of Milpitas account No. 512-001-300466. On or about June 4, 1992, petitioner wrote a check to GMT for $ 45,000, noting "Loan for Ins." on the memo line. ¹⁷

After making the above-described deposits, Alviso and GMT booked some of these "loans" as indebtedness owed to petitioner. The general ledger for Alviso/GMT for the fiscal year ending">*46 November 1992, shows the note payable balance to petitioner as $ 105,000, which consists of three of the four checks petitioner wrote to the corporations and designated as "loans". The $ 105,000 note payable balance consists of the following checks written on Bank of Milpitas, account No. 512-001-300466:

Date of check	Amount	Payee	Check No.
12/13/90	$ 50,000	GMT	Check
7/9/91	10,000	Alviso	159
6/4/92	45,000	GMT	195

Petitioner testified that the designation "loan" for the $ 50,000 check was placed on the check to dissuade his sister from filing a lawsuit against him questioning his ownership rights to the businesses. Petitioner testified that he artificially designated checks as loans to his corporations as a "smoke screen" to his sister. At trial, petitioner claimed he did not intend for many of his checks to be designated as loans for which he was to be repaid.

H. Bank Accounts and Reported Income

During the years at issue, funds were deposited">*47 into noncorporate bank accounts over which petitioner had signatory authority as follows: ¹⁸

1. Bank of Milpitas, account No. 512-001-200593, ¹⁹ in the name of "George A. Maciel":

   Year        Deposits

   1990      $ 105,340.39

   1991       106,995.75

   1992        94,272.80

2. Bank of Milpitas, account No. 512-001-300466, ²⁰ in the name of "George A. Maciel c/o Newark Truck & Body":

">*48    Year        Deposits

   1990      $ 516,524.02

   1991       241,243.77

   1992       509,494.83

3. Bank of Milpitas, account No. 512-001-303171, ²¹ in the name of "GM Investments":

   Year        Deposits

   1991       $ 49,811.07

   1992       121,885.27

4. Bank of Milpitas, account No. 512-001-102605, ²² in the name of "Alviso Rock/HK Racing":

   Year       Deposits

   1990      $ 16,811.57

   1991       14,397.00

   1992       31,493.96

5. Wells Fargo Bank, account No. 0108-363904, ²³">*49 in the names of "George Maciel" and "Peter Viviano":

   Year       Deposits

   1990      $ 76,463.54

6. Wells Fargo Bank, account No. 0500-325774, in the name of "George A. Maciel":

   Year        Deposits

   1990        $ 4.72

7. Wells Fargo Bank, account No. 6500-059183, in the name of "George Maciel":

   Year        Deposits

   1990        $ 340.51

   1991         67.17

   1992         40.08

The parties stipulated the above sums for the years at issue. Additionally, the parties agreed that the above-described deposits included $ 328,286.83, $ 74,180.81, and $ 407,639.68 of nontaxable items for 1990, 1991, and 1992, respectively. ²⁴ Thus, the total deposits and agreed nontaxable deposits ²⁵ for the years at issue were:

">*50              1990      1991      1992

             ____      ____      ____

Total deposits    $ 715,484.75  $ 412,514.76  $ 757,186.94

Nontaxable deposits  (328,286.83)   (74,180.81)  (407,639.68)

  Net         387,197.92   338,333.95   349,547.26

The following chart illustrates the total amount and categories of moneys that petitioner received and reported on his returns:

                1990      1991      1992



                ____      ____      ____

Net wages ¹          $ 59,642.28  $ 59,590.17  $ 54,653.28

Taxable interest        16,872.00   16,131.00    6,595.00



Taxable refunds of state



  and local income taxes    3,985.00    1,499.00     --



Gross rents, royalties,



  etc.             93,423.00   125,683.00   140,600.00

Other income ²          6,000.00     --       --

  Total            179,922.28   202,903.17">*51   201,848.28

Petitioner also wrote checks made payable to "cash" from his noncorporate bank accounts over which he had signatory authority. For example, in 1990, petitioner wrote the following checks to cash from Bank of Milpitas, account No. 512-001- 300466:

   Date of Check   Check No.     Amount

     3/20/90      109     $ 9,645.00

     4/17/90      112      9,741.50

     4/27/90      118      8,697.50

     4/27/90      117      9,750.00

   Total               37,834.00

At trial, petitioner could not recall the purpose for, or use of, these funds. ²⁶

">*52 I. Petitioner Pled Guilty to Criminal Charges

On September 23, 1998, petitioner was charged with two counts of knowingly filing false Federal income tax returns for 1991 and 1992 in violation of 26 U.S. C. sec. 7206(1) (2000). ²⁷ On January 13, 1999, petitioner entered a guilty plea to the aforesaid charges and was sentenced to, inter alia, 36 months of probation. In pleading guilty, petitioner admitted that he "willfully" made and signed his 1991 and 1992 individual tax returns that he "did not believe" [were] "true and correct" [and] "willfully omitted true and correct information concerning" [his] "income, knowing then that" he "had additional reportable income" of $ 78,454 and $ 75,587 for 1991, and 1992, and that there was additional tax due and owing on this additional income of $ 19,299 and $ 10,377 for 1991 and 1992, respectively.

">*53 J. Significant Events in Petitioner's Life

Before and during the years at issue, petitioner encountered a series of stressful events. These events included the following: Two of his friends/employees died; his and his girlfriend's child was stillborn; his friend and financial adviser broke his neck and became a quadriplegic; his former brother-in-law died in a motorhome fire outside of petitioner's office; he was sued in connection with an accident between one of petitioner's trucks and a police officer; and his mother was diagnosed with lung cancer.

                OPINION

Respondent determined that during 1990, 1991, and 1992, petitioner engaged in a scheme to divert income from his business activities and thereby failed to report substantial earnings on his income tax returns in order to fraudulently evade the payment of tax. Petitioner does not dispute that he underreported income. Petitioner's argument centers on his state of mind and that "any inaccuracies in his tax returns were caused by extraordinary stresses and distractions he experienced, not an intent to evade taxes." For the reasons detailed below, we uphold respondent's deficiency">*54 determinations, with some modifications, and find that petitioner fraudulently intended to evade the payment of his tax liabilities for 1990, 1991, and 1992.

The first question we address is whether there is a deficiency. The Commissioner's determination of tax liability is presumptively correct, and the taxpayer bears the burden of showing that the determination is erroneous. ²⁸692 F.2d 28"> Zack v. Commissioner, 692 F.2d 28 (6th Cir. 1982), affg. T.C. Memo. 1981-700; see DiLeo v. Commissioner, 96 T.C. 858">96 T.C. 858, 96 T.C. 858">871 (1991), affd. 959 F.2d 16">959 F.2d 16 (2d Cir. 1992); Nicholas v. Commissioner, 70 T.C. 1057">70 T.C. 1057, 70 T.C. 1057">1064 (1978). ²⁹

">*55 A. The Amount of the Deficiency

1. Unreported Income

Section 61(a)defines gross income as "all income from whatever source derived". Every person liable for any tax must maintain books and records sufficient to establish the amount of his gross income. Sec. 6001; 96 T.C. 858"> DiLeo v. Commissioner, supra at 867. The Secretary is authorized to reconstruct income in accordance with any reasonable method that accurately reflects actual income. Secs. 446(b), 6001; Petzoldt v. Commissioner, 92 T.C. 661">92 T.C. 661, 92 T.C. 661">687 (1989); Meneguzzo v. Commissioner, 43 T.C. 824">43 T.C. 824, 43 T.C. 824">831 (1965). The reconstruction of a taxpayer's income need only be reasonable in light of all surrounding facts and circumstances. Giddio v. Commissioner, 54 T.C. 1530">54 T.C. 1530, 54 T.C. 1530">1533 (1970); Schroeder v. Commissioner, 40 T.C. 30">40 T.C. 30, 40 T.C. 30">33 (1963).

To reconstruct petitioner's gross income, respondent utilized both the specific items and bank deposits methods. The specific items and bank deposits methods of income reconstruction have long been sanctioned by the courts. Clayton v. Commissioner, 102 T.C. 632">102 T.C. 632, 102 T.C. 632">645 (1994); Estate of Mason v. Commissioner, 64 T.C. 651">64 T.C. 651, 64 T.C. 651">656 (1975),">*56 affd. 566 F.2d 2">566 F.2d 2 (6th Cir. 1977). "If the taxpayer feels that the Government's method of computation is unfair or inaccurate, the burden is on him to show such unfairness or inaccuracy." 96 T.C. 858"> DiLeo v. Commissioner, supra at 871.

 (a) Specific Items of Unreported Income From

     Petitioner's Sale of Tri-City Truck Parts and Newark

     Wreckers

Petitioner held his interests in Tri-City and Newark Wreckers under the name M& V Investments. As found above, petitioner sold his interest in M& V Investments on April 27, 1990. Respondent calculated petitioner's income from the sale of M& V Investments for 1990, using the specific items method of income reconstruction. To the extent that petitioner deposited proceeds from this sale to bank accounts over which he had signatory authority, those deposits were treated as nontaxable in respondent's bank deposits analysis.

Respondent calculated petitioner's basis and gain on the sale of the interest as follows:

Calculation of Adjusted Basis     Newark Wreckers    Tri-City

_____________________________     _______________    ________

 Original cost   ">*57            $ 25,000      $ 75,000

Addl. Capital Contributed

or Withdrawn

   1987                  --         5,000

   1988                  --        (5,000)

   1989                  --        110,231

   1990                  --        (2,667)

Petitioner's Share of Pship. Income/(Loss)

   1987                  --       (22,603)

   1988                  --       (78,505)

   1989                  --       (115,377)

   1990                  --        (5,881)

   1990 (stipulation) ¹                  41,105

   Subtotal               25,000       1,303

Petitioner's share of pship. debt             n

                  Calculation">*58 of Amount

 Description of Item         Recognized on Sale

 Cash from Viviano            $ 200,000

 Relief from pship. debt          101,000

 Total amount realized           301,000

   Less total basis           (127,303)

 Amount recognized             173,697

">*59 One difference between petitioner's and respondent's calculation of unreported income from this sale is whether the inclusion of petitioner's relief from partnership debt under the sales agreement should be included as part of the sale proceeds. We believe that respondent, in contrast to petitioner, correctly includes, as an amount realized, that portion of the liability of which petitioner is relieved by virtue of the sales agreement. ³⁰"If a partnership interest is sold or exchanged, the reduction in the transferor partner's share of partnership liabilities is treated as an amount realized under section 1001 and the regulations thereunder." Secs. 1.752-1(h), 1.1001-2(a), Income Tax Regs. ("the amount realized from a sale or other disposition of property includes the amount of liabilities from which the transferor is discharged as a result of the sale or disposition").

">*60 Petitioner also alleges that he made $ 56,450 in loans/advances to Tri-City and Newark Wreckers for which he was never reimbursed. In support thereof, he introduced copies of checks made payable to the two entities that he alleges were unpaid "loans". Petitioner's business partner, Thomas Viviano, testified that each partner would periodically advance/lend funds to the entities on a short-term basis. There were no formal loan agreements made between the businesses and their owners. Mr. Viviano testified that it was the practice of the entities to immediately payback these "loans" as the entities earned income, usually within a few months. Petitioner, on the other hand, testified that at the time he sold his interests to Mr. Viviano, he was owed $ 16,200 from Tri-City and $ 40,250 from Newark Wreckers.

We find Mr. Viviano to be credible. Tri-City's 1989 Form 1065 shows that advances from partners went from $ 62,938 at the beginning of 1989 to $ 0 at the beginning of 1990. Thus, we find petitioner was not owed $ 16,200 from Tri-City at the time he sold his interest. Newark Wreckers is a different story. The 1989 and 1990 Forms 1120 for Newark Wreckers show a beginning and an ending">*61 balance of advances by shareholders of $ 24,482 and $ 36,741, and $ 36,741 and $ 117,604, respectively. Petitioner submitted checks showing payments of $ 40,250 to Newark Wreckers. Most of these checks were written well before the sale transaction and according to Mr. Viviano would have been repaid. Two of the checks, however, were written on February 21 and March 16, 1990, for $ 2,500 and $ 5,000, respectively. Considering Mr. Viviano's testimony that the companies repaid shareholder advances within a few months of borrowing, we find it reasonable that Newark Wreckers owed petitioner $ 7,500 at the time of the sale. Thus, we find that respondent's determination of petitioner's income from this sale should evidence that in 1990, petitioner was still owed $ 7,500 from Newark Wreckers. However, we do not, in light of trial testimony, find it reasonable that Newark Wreckers owed petitioner the balance, $ 32,750.

     (b). Petitioner's Income Reconstructed From Bank

     Deposits

Bank deposits constitute prima facie evidence of income. Tokarski v. Commissioner, 87 T.C. 74">87 T.C. 74, 87 T.C. 74">77 (1986). This method of determining a taxpayer's income assumes that all">*62 the money deposited into a taxpayer's bank accounts during a specific period constitutes taxable income. Price v. United States, 335 F.2d 671">335 F.2d 671, 335 F.2d 671">677 (5th Cir. 1964). Of course, "the Government must take into account any non-taxable source or deductible expense of which it has knowledge." Id. Furthermore, "The fact that the Commissioner was not completely correct does not invalidate the method employed." DiLeo v. Commissioner, 96 T.C. 858">96 T.C. 868.

Respondent determined tax deficiencies for 1990, 1991, and 1992 in the respective amounts of $ 172,655, ³¹ $ 71,337, and $ 56,075. These deficiency amounts are attributable to respondent's reconstruction of petitioner's income for the years at issue. In utilizing the bank deposits method, respondent calculated petitioner's unreported income as follows: ³²

">*63 Bank Acct. Deposits ¹      1990      1991      1992

___________________       ____      ____      ____



Milpitas acct. 200593   $ 105,340.39  $ 106,995.75   $ 94,272.80



Milpitas acct. 300466    516,524.02   241,243.77   509,494.83



Milpitas acct. 102605     16,811.57    14,397.00    31,493.96



Milpitas acct. 303171      --      49,811.07   121,885.27

Wells Fargo 363904      76,463.54     --       --

Wells Fargo 325774         4.72     --       --

Wells Fargo 059183        340.51      67.17      40.08

             ___________   __________   ___________



 Total deposits       715,484.75   412,514.76   757,186.94



Add: Funds Not Deposited



Cash back from deposits



 -acct. 200593        1,571.77     --       500.00



Cash back from deposits



 -acct. 300466        14,200.00   $ 2,887.00    6,500.00



Cash back from deposits

 -acct. 102605          --       --     ">*64   160.00

Boscell rent deposited



 into unknown acct.     62,300.00    61,300.00      --



              __________   __________   __________



Total funds avail.      793,556.52   476,701.76   764,364.94



Less:  Nonincome Items Deposited

Nontaxable deposits ²    (328,286.83)  (74,180.81)  (407,639.68)

Boscell rents



 allocable to



 Viviano          (49,200.00)   (22,250.00)      --



             ____________  _____________  ____________



             (377,486.83)   (96,430.81)   (407,639.68)



Taxable deposits       416.069.69   380,270.95    356,707.26



             ____________  _____________  ____________



Less: Deposits Resulting



From Reported Income



Net wages           59,642.28    59,590.17    54,653.28



Interest income        16,872.00    16,131.00     6,595.00



State tax refund        3,985.00    1,499.00      --



Gross rental income      93,423.00   125,683.00    140,600.00

Other">*65 income          6,000.00     --       --

              __________   __________    __________



 Total           179,922.28   202,903.17    201,848.28



Additional unreported



 income           236,147.41   177,367.78    154,858.98

              __________   __________    __________

In arriving at the above stated figures, respondent used bank records, including deposit slips and checks showing that these amounts were deposited into petitioner's bank accounts. Generally, petitioner does not dispute these deposits, and respondent has established, by clear and convincing evidence, that petitioner underreported his income during the taxable years at issue. However, petitioner claims that he is entitled to adjustments in order to determine taxable income. Petitioner bears the burden of proof to show any">*66 adjustments which would offset unreported income. Barragan v. Commissioner, T.C. Memo. 1993-92, affd. without published opinion 69 F.3d 543">69 F.3d 543 (9th Cir. 1995).

2. Petitioner's Adjustments to Unreported Income Determined

   by Bank Deposits

In attacking respondent's income reconstruction, generally, petitioner argues that he is entitled to adjustments for unclaimed deductions of expenses and unreimbursed loans/advances with respect to his various business activities. ³³ He contends that these unclaimed adjustments substantially offset the income that respondent reconstructed.

(a) Petitioner's Alleged Loans/Advances

Petitioner argues that one of the">*67 primary adjustments to the amount of reconstructed income is unreimbursed loans/advances that he made to Alviso and GMT. ³⁴

Petitioner alleges that when he deposited insurance refund checks payable to Alviso and GMT into his personal bank accounts, he transferred portions of those refunds back to those corporations. While this is true, as far as it goes, petitioner characterized the transfers back as "loans" to his corporations. ">*68 Petitioner did not report the receipt of the refunds as income, and because he characterized the transfer of these amounts to the corporations as loans, they would not be recorded as corporate income. And given that these transfers were characterized as loans, petitioner would be entitled to receive these amounts back from the corporations as nontaxable loan repayments. Under these circumstances, petitioner is not entitled to reduce his omitted income by the amounts that he recorded as "loans".

Petitioner also alleges that he advanced his personal funds to purchase parts and equipment for use by Alviso or GMT. ³⁵ In support thereof, petitioner provides the Court with photocopies of checks made from bank accounts over which he had signatory authority. ³⁶ In all, petitioner alleges that during the 3-year period, he advanced Alviso and GMT more than $ 120,000 for which he was never reimbursed. However, according to petitioner's brief, he is not absolutely sure of the purposes for some of these expenditures. ³⁷ Additionally, some of the copies of checks that petitioner provided are made payable to "cash" for significant sums of money. ³⁸

">*69 Petitioner also alleges that he purchased vehicles for the benefit of Alviso and GMT with his personal funds for which he was not reimbursed. However, he fails to provide copies of the titles or any documentation which would demonstrate in whose names the alleged vehicles were purchased.

Petitioner provides no evidence that he advanced/lent substantial amounts of money to Alviso or GMT except copies of canceled checks and his trial testimony. ³⁹ No payee testified as to these expenditures. There is no evidence of a repayment schedule, maturity date, special rights and duties of the parties, written memorialization of the debtor-creditor relationship, etc. On this record, we find that petitioner failed to show that these "advances" constituted expenditures giving rise to bona fide indebtedness. But even if such expenditures were construed as loans to Alviso or GMT, they would not be deductible by petitioner or offset his income.

">*70 (b) Unclaimed Expenses

Generally, ordinary and necessary expenses paid or incurred in the carrying on of a trade or business are deductible by such individual engaged in the trade or business. Sec. 162(a); sec. 1.162-1(a), Income Tax Regs. The expenditure must be "directly connected with or pertaining to the taxpayer's trade or business". Sec. 1.162-1(a), Income Tax Regs. "The determination of whether an expenditure satisfies the requirements of section 162 is a question of fact." Shea v. Commissioner, 112 T.C. 183">112 T.C. 183, 112 T.C. 183">186 (1999). The taxpayer has the burden of proving that he is entitled to deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79">503 U.S. 79, 503 U.S. 79">84, 117 L. Ed. 2d 226">117 L. Ed. 2d 226, 112 S. Ct. 1039">112 S. Ct. 1039 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435">292 U.S. 435, 78 L. Ed. 1348">78 L. Ed. 1348, 54 S. Ct. 788">54 S. Ct. 788, 1 C.B. 194">1934-1 C.B. 194 (1934).

All deductible expenses are subject to substantiation. Secs. 274(d), 6001. The general substantiation requirement is set forth in section 6001 and provides in pertinent part: "Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records * * * and comply with such rules and regulations as the Secretary may from time to time prescribe." ⁴⁰">*71 The regulations provide that "any person subject to tax * * * shall keep such permanent books of account or records, * * * as are sufficient to establish the amount of * * * deductions". Sec. 1.6001-1(a), Income Tax Regs.

In the event that a taxpayer establishes that a deductible expense has been paid, but he is unable to substantiate the precise amount, the Court may estimate the amount of such deduction bearing heavily against the taxpayer. ⁴¹ Cohan v. Comm'r, 39 F.2d 540">39 F.2d 540, 39 F.2d 540">543-44 (2d Cir. 1930). However, the Court cannot make such an estimate unless the taxpayer presents sufficient evidence to provide a reasonable basis upon which the estimate is made. Vanicek v. Commissioner, 85 T.C. 731">85 T.C. 731, 85 T.C. 731">743 (1985).

">*72         (i). Deductibility of Petitioner's Alleged

        Expenses

          (A). Newark T&B Expenses

Petitioner claims that no expenses relating to Newark T&B were claimed as deductions. Petitioner's argument centers on the real property he bought to conduct Newark T&B's business operations and the expenses that he alleges are associated with this activity. ⁴² These expenses include, inter alia, telephone and utility bills. The record shows that petitioner, in contradiction to his argument, did deduct expenses associated with this property. For example, petitioner deducted $ 6,639, $ 11,699, and $ 11,392 in connection with the real property as listed on Schedule E for his 1990, 1991, and 1992 returns, respectively. Indeed, petitioner provided no invoices to substantiate any of the expenses he alleges that he paid on Newark T&B's behalf. Furthermore, petitioner failed to offer evidence that these expenses were paid by Newark T&B and not by Alviso or GMT. ⁴³

">*73 (B) Petitioner's Racing Business

Petitioner also argues that he did not claim as deductions any expenses associated with his racing business. He alleges that he incurred expenses of $ 17,847.23, $ 15,065.23, and $ 30,283.07 for 1990, 1991, and 1992, respectively. In support thereof, petitioner proffers copies of checks from the "Alviso Rock/HK Racing" bank account, copies of bank account statements, and invoices. No one other than petitioner testified about this endeavor or the purported expenses. From the evidence provided, we are unable to determine whether the expenses detailed in the invoices were for the benefit of petitioner's racing business or for one of his related businesses. Nearly all the invoices are made to "Alviso Rock".

        (ii). Petitioner Does Not Sustain His Adjustments

        to Reconstructed Income

We are unable to sustain petitioner's alleged unclaimed expense deductions to the income that respondent reconstructed. Petitioner fails to provide sufficient evidence to support the expense deductions he claims for the years at issue. Petitioner failed to offer the testimony of any of the payees of his checks to support his">*74 allegations. The only evidence he has provided are photocopies of checks, some invoices, and his trial testimony. We find petitioner's testimony self-serving, vague, and not persuasive. "It is well settled that we are not required to accept petitioner's self-serving testimony in the absence of corroborating evidence." Jacoby v. Commissioner, T.C. Memo. 1994-612 (citing Lerch v. Commissioner, 877 F.2d 624">877 F.2d 624, 877 F.2d 624">631-632 (7th Cir. 1989), affg. T.C. Memo. 1987-295); see Geiger v. Commissioner, 440 F.2d 688">440 F.2d 688, 440 F.2d 688">689 (9th Cir. 1971), affg. per curiam T.C. Memo 1969-159; Niedringhaus v. Commissioner, 99 T.C. 202">99 T.C. 202, 99 T.C. 202">212 (1992); Tokarski v. Commissioner, 87 T.C. 74">87 T.C. 77 ("Under all the circumstances, we are not required to accept the self-serving testimony of petitioner").

Furthermore, we are unable, given the record before us, to determine which expenses are associated with which business activity, be it petitioner's corporations or his unincorporated businesses. The record unequivocally demonstrates that petitioner failed to follow and respect business formalities. ">*75 Instead, the record evidences the inflows and outflows of substantial sums of money by and between petitioner and his related businesses. The books and records of petitioner's affiliated corporations and businesses were not offered as evidence. ⁴⁴

3. Taxable Income and Earnings and Profits

Petitioner argues, for the first time on brief, that respondent failed to demonstrate that there were sufficient earnings and profits (E&P) to deem funds that petitioner received from GMT and Alviso as taxable dividends. ⁴⁵ Additionally, petitioner alleges that respondent failed to demonstrate that any amounts received from Alviso and GMT exceeded his basis therein.

">*76 Generally, gross income includes net accessions to wealth from whatever source derived. Sec. 61; Han v. Comm'r, T.C. Memo 2002-148 (citing Commissioner v. Glenshaw Glass Co., 348 U.S. 426">348 U.S. 426, 348 U.S. 426">431, 99 L. Ed. 483">99 L. Ed. 483, 75 S. Ct. 473">75 S. Ct. 473, 1 C.B. 207">1955-1 C.B. 207 (1955)). Section 301, however, places a restriction on the definition of gross income. Barnard v. Comm'r, T.C. Memo 2001-242. Generally, that section provides that funds distributed by a corporation over which the shareholder has dominion and control are taxed under the auspices of section 301(c). Id. Pursuant to section 301(c), a constructive dividend ⁴⁶ is taxed as ordinary income only to the extent of the distributing corporation's E&P; ⁴⁷ any excess is nontaxable return of capital to the extent of the taxpayer's basis; and any remaining amount received is taxable as capital gain from the sale or exchange of a capital asset. Sec. 301(c)(1),(2), and (3); Truesdell v. Commissioner, 89 T.C. 1280">89 T.C. 1280, 89 T.C. 1280">1295-1298 (1987); Barnard v. Commissioner, supra.

">*77 "It is well established that when controlling shareholders divert corporate income to themselves, it is proper to treat such diverted funds as constructive dividends for tax purposes." DiLeo v. Commissioner, 96 T.C. 858">96 T.C. 883. As stated more fully above, the Commissioner's deficiency determination is presumptively correct, and the taxpayer bears the burden of showing that determination is erroneous. See Rule 142(a); Zack v. Commissioner, 692 F.2d 28">692 F.2d 28 (6th Cir. 1982); 96 T.C. 858"> DiLeo v. Commissioner, supra at 871. Respondent's deficiency determination included those amounts diverted from Alviso and GMT. Under these circumstances, petitioner bears the burden of showing that Alviso and GMT did not have sufficient E&P to deem the subject "distributions" to be constructive dividends. DiZenzo v. Commissioner, 348 F.2d 122">348 F.2d 122, 348 F.2d 122">125-127 (2d Cir. 1965)(burden is on taxpayers to establish corporation did not have sufficient E&P), revg. T.C. Memo. 1964-121; 89 T.C. 1280"> Truesdell v. Commissioner, supra; Zalewski v. Commissioner, T.C. Memo. 1988-340; Delgado v. Commissioner, T.C. Memo. 1988-66; see Price v. United States, 335 F.2d 671">335 F.2d at 677">*78 ("It is the burden of the taxpayer to demonstrate a non-taxable source for this cash."). Here, petitioner failed to provide any proof that Alviso and GMT did not have sufficient E&P to determine the distributions as taxable, constructive dividends. Likewise, petitioner offered no evidence of his adjusted bases. ⁴⁸

">*79 Accordingly, we find that petitioner has untimely raised the E&P and basis issues and, otherwise, has failed to meet his burden. ⁴⁹

   4. Respondent's Deficiency Determinations Are Not

   Erroneous

We find that respondent has produced substantial evidence demonstrating that petitioner received unreported income. Delaney v. Commissioner, 743 F.2d 670">743 F.2d 670, 743 F.2d 670">671 (9th Cir. 1984), affg. T.C. Memo. 1982-666; see Bradford v. Commissioner, 796 F.2d 303">796 F.2d 303, 796 F.2d 303">305 (9th Cir. 1986), affg. T.C. Memo. 1984-601. Furthermore, we find that petitioner has failed to establish by a preponderance of the evidence that respondent's determinations were arbitrary or erroneous. Rapp v. Commissioner, 774 F.2d 932">774 F.2d 932, 774 F.2d 932">935 (9th Cir. 1985),">*80 Larsen v. Commissioner, 765 F.2d 939">765 F.2d 939, 765 F.2d 939">941 (9th Cir. 1985); 743 F.2d 670"> Delaney v. Commissioner, supra at 671. Accordingly, we sustain, subject to the aforesaid ⁵⁰ and the concessions of the parties, respondent's deficiency determinations for the years herein at issue.

B. Fraud Penalties

The Commissioner bears the burden of proving by clear and convincing evidence that an "underpayment exists for the years in issue and that some portion of the underpayment is due to fraud." Temple v. Commissioner, T.C. Memo. 2000-337 (citing sec. 7454(a); Rule 142(b); Niedringhaus v. Commissioner, 99 T.C. 202">99 T.C. 210); affd. 62 Fed. Appx. 605">62 Fed. Appx. 605 (6th Cir. 2003); see Baumgardner v. Commissioner, 251 F.2d 311">251 F.2d 311 (9th Cir. 1957), affg. T.C. Memo. 1956-112; Hebrank v. Commissioner, 81 T.C. 640">81 T.C. 640, 81 T.C. 640">642 (1983). Thus, respondent must establish that petitioner underpaid">*81 his taxes for each year in issue and that some part of the underpayment for each year is due to fraud. 96 T.C. 858"> DiLeo v. Commissioner, supra at 873.

1. Clear and Convincing Evidence of Underpayment

"To prove an underpayment, the Commissioner is not required to establish the precise amount of the deficiency determined by him." Id.; see Otsuki v. Commissioner, 53 T.C. 96">53 T.C. 96, 53 T.C. 96">105 (1969). "However, he cannot discharge his burden by simply relying on the taxpayer's failure to prove error in his determination of the deficiency." 96 T.C. 858"> DiLeo v. Commissioner, supra at 873. The Commissioner need only establish that the taxpayer received unreported income and that the nondisclosure resulted in a tax deficiency. United States v. Campbell, 351 F.2d 336">351 F.2d 336, 351 F.2d 336">338 (2d Cir. 1965); Elwert v. United States, 231 F.2d 928">231 F.2d 928, 231 F.2d 928">931 (9th Cir. 1956); United States v. Bender, 218 F.2d 869">218 F.2d 869, 218 F.2d 869">871-72 (7th Cir. 1955); Langworthy v. Commissioner, T.C. Memo. 1998-218.

When the allegations of fraud are intertwined with unreported and indirectly reconstructed income, the Commissioner can satisfy his burden of proving the underpayment in one of two">*82 ways: (1) By proving a likely source of the unreported income; or (2) where the taxpayer alleges a nontaxable source, the Commissioner may meet his burden by disproving the taxpayer's alleged nontaxable source. 96 T.C. 858"> DiLeo v. Commissioner, supra at 873-874. In this case, there is no question of the origin of the unreported income. The parties have also agreed that some deposits were from nontaxable sources. Petitioner admits on brief that he willfully omitted $ 78,454 and $ 75,587 of income from his 1991 and 1992 returns. In his written guilty plea in his criminal case, petitioner admitted that he willfully omitted reportable income of $ 78,454 and $ 75,587 and that there was additional tax due on this omitted income of $ 19,299 and $ 10,377 for 1991 and 1992, respectively. And, as previously explained, there is clear and convincing evidence that he failed to report additional amounts of income for each of the years at issue.

During the 3-year period at issue, more than $ 1.8 million flowed through his bank accounts. Petitioner does not dispute this, but instead argues that much of this money is nontaxable reimbursements for moneys advanced to and/or expenses incurred for the">*83 benefit of his various business activities. When bank deposits make out a prima facie case of underreported income, the taxpayer has the burden of proving additional expenses that he did not claim on his returns. Morse v. Commissioner, T.C. Memo. 2003-332 (citing Siravo v. United States, 377 F.2d 469">377 F.2d 469, 377 F.2d 469">473-474 (1st Cir. 1967); 231 F.2d 928"> Elwert v. United States, supra at 933). As previously explained, petitioner has failed to do so.

There is also clear and convincing evidence that petitioner failed to report substantial income from the sale of his interest in Tri-City and Newark Wreckers in 1990.

Accordingly, we are convinced that respondent has proven by clear and convincing evidence that petitioner underpaid his income taxes due and owing for the years at issue.

2. Intent To Defraud

As previously explained, the Commissioner bears the burden of proving fraud by clear and convincing evidence. Sadler v. Commissioner, 113 T.C. 99">113 T.C. 99, 113 T.C. 99">102 (1999); Posnanski v. Commissioner, T.C. Memo. 2001-26; see Henson v. Commissioner, 887 F.2d 1520">887 F.2d 1520 (11th Cir. 1989), affg. in part and revg. in part on another ground T.C. Memo. 1986-303;">*84 Temple v. Commissioner, supra. "Where fraud is determined for each of several years, respondent's burden applies separately for each of the years." Temple v. Commissioner, supra; see Cefalu v. Commissioner, 276 F.2d 122">276 F.2d 122 (5th Cir. 1960), affg. T.C. Memo. 1958-37; 251 F.2d 311"> Baumgardner v. Commissioner, supra.

"Fraud is the intentional wrongdoing on the part of a taxpayer to evade a tax believed to be owing." Temple v. Commissioner, supra; see DiLeo v. Commissioner, 96 T.C. 858">96 T.C. 874; Prof. Serv. v. Commissioner, 79 T.C. 888">79 T.C. 888, 79 T.C. 888">930 (1982). "The required state of mind is one which, 'if translated into action, is well calculated to cheat or deceive the government.'" Zell v. Commissioner, 763 F.2d 1139">763 F.2d 1139, 763 F.2d 1139">1143 (10th Cir. 1985), affg. T.C. Memo. 1984-152 (quoting 10 Mertens, Law of Federal Income Taxation, sec. 55.10, at 46 (1984)). A taxpayer's background and the context of the events in question may be considered in determining fraudulent intent. Plunkett v. Commissioner, 465 F.2d 299">465 F.2d 299 (7th Cir. 1972), affg. T.C. Memo. 1970-274; see Temple v. Commissioner, supra ">*85 (a taxpayer's level of education and his prior history of filing income tax returns are relevant to the inquiry).

Because it is difficult to prove fraudulent intent by direct evidence, fraud can be inferred from various kinds of circumstantial evidence. Courts describe these "badges of fraud" as including the following: (1) Understatement of income; ⁵¹ (2) failing to maintain adequate records; (3) failure to file tax returns; (4) implausible or inconsistent explanations; (5) concealment of assets; (6) failure to cooperate with tax authorities; (7) the filing of false documents; (8) making of false and inconsistent statements to revenue agents; (9) concealing income from a taxpayer's tax preparer; and (10) extensive dealings in cash. Bradford v. Commissioner, 796 F.2d 303">796 F.2d at 307; Parks v. Commissioner, 94 T.C. 654">94 T.C. 654, 94 T.C. 654">664 (1990); Temple v. Commissioner, T.C. Memo. 2000-337. No single factor is necessarily dispositive, but a combination of several factors is persuasive circumstantial evidence of fraud. Petzoldt v. Commissioner, 92 T.C. 661">92 T.C. 699. "A pattern of consistent underreporting of income, particularly when accompanied by other circumstances">*86 exhibiting an intent to conceal, justifies the inference of fraud." Posnanski v. Commissioner, supra; see Holland v. United States, 348 U.S. 121">348 U.S. 121, 348 U.S. 121">137, 99 L. Ed. 150">99 L. Ed. 150, 75 S. Ct. 127">75 S. Ct. 127, 2 C.B. 215">1954-2 C.B. 215 (1954).

Petitioner consistently underreported large sums of money. See Marcus v. Commissioner, 70 T.C. 562">70 T.C. 562, 70 T.C. 562">577 (1978), affd. without published opinion 621 F.2d 439">621 F.2d 439 (5th Cir. 1980). Petitioner's failure to substantiate adequately his alleged advances and expenses makes it impossible to verify his allegations. This Court has found in a similar case that the "inadequacy">*87 of petitioners' records, under the circumstances, constitutes a significant indicia of fraud." Otsuki v. Commissioner, 53 T.C. 96">53 T.C. 110 (citing Galant v. Commissioner, 26 T.C. 354">26 T.C. 354, 26 T.C. 354">365 (1956)).

Petitioner cannot rely upon events that occurred in his life before, during, and after the relevant periods in issue. While we are sympathetic with petitioner's personal problems, we cannot condone his failure to report significant sums of income over a 3- year period merely because his mind was not on business. ⁵² We find petitioner's defense of personal tragedy misplaced. Petitioner was sufficiently focused and cognizant to, inter alia, open and operate numerous businesses during the relevant period, engage in significant investment activities, engage the assistance of trained accounting professionals, and earn and deposit significant sums of money into his numerous bank accounts.

">*88 In support of our finding of fraud, we outline pertinent portions of the record:

(1) Petitioner sold his interest in Tri-City and Newark Wreckers for which he received $ 200,000 and was relieved of substantial indebtedness. To this day, petitioner has failed to report this transaction. ⁵³

">*89 (2) Petitioner diverted substantial amounts of money from his related corporations, Alviso and GMT. To hide the character of these funds petitioner gave a portion of these diverted funds back to his corporations, labeling those funds as loans. To that end, petitioner purposely misled his accountants as to the true nature of these funds. For example, on one of GMT's bank statements for the account into which a $ 50,000 check was deposited, there is a handwritten notation that the corporation's bookkeeper made which reads "Art [the accountant] -- George put this money out of pocket -- don't credit as income. We're going to pay our line of credit monthly out of this account, Yvonne."

(3) Petitioner garnered significant funds over a 3-year period from his solely owned, unincorporated business Newark T&B, and he failed to report any income earned therefrom. Petitioner characterized this endeavor on his income tax returns Schedules E as a "lot". Furthermore, petitioner failed to maintain proper books and records for this business.

(4) Petitioner maintained an automobile racing business, which also earned him substantial sums of income. Again, petitioner failed to report any of these">*90 earnings or maintain adequate books and records for this business.

(5) Petitioner owned and operated for income and investment at least 12 parcels of real property. Although petitioner apparently did report much of the income he received from these properties, he failed to report all the income. When questioned about this failure, petitioner explained: "I just don't really have an explanation." However, petitioner did claim expense deductions for these properties. Again, petitioner failed to maintain adequate books and records for this significant business endeavor.

(6) During the relevant period, petitioner dealt in significant sums of cash or its equivalent for which he has no explanation. For example, during 1990, petitioner wrote four checks made payable to cash for the total sum of $ 37,834. At trial, petitioner could not recall the purpose for, or use of, these funds. Likewise, petitioner deposited large sums of cash and its equivalent into his bank accounts. We infer significant dealings in cash without a definite explanation as an indicia of fraud. See Parks v. Commissioner, 94 T.C. 654">94 T.C. 654 (1990).

(7) Petitioner failed to inform his accountants (and his bookkeeper) ">*91 of Newark T&B and his racing business. Both of these businesses earned income for the years at issue, none of which was reported.

(8) Petitioner's admission that he purposely mislabeled checks to his corporation as loans is also evidence of his willingness to defraud. See Solomon v. Commissioner, 732 F.2d 1459">732 F.2d 1459 (6th Cir. 1984), affg. T.C. Memo. 1982-603; Afshar v. Commissioner, 692 F.2d 751">692 F.2d 751 (4th Cir. 1982), affg. without published opinion T.C. Memo. 1981-241.

The record before the Court clearly and convincingly demonstrates a pattern of consistent underreporting of income. The record clearly and convincingly shows that petitioner intentionally concealed significant business operations from his accountants and bookkeeper. Petitioner's vague testimony buttresses our finding. There can be little doubt that petitioner's failure to keep adequate records of all earnings and expenses is material evidence of fraud. See Otsuki v. Commissioner, 53 T.C. 96">53 T.C. 109. "To hold otherwise would, as the Supreme Court stated in United States v. Johnson, 319 U.S. 503">319 U.S. 503, 319 U.S. 503">518, 87 L. Ed. 1546">87 L. Ed. 1546, 63 S. Ct. 1233">63 S. Ct. 1233, 1943 C.B. 995">1943 C.B. 995 (1943) 'be tantamount to holding that skillful concealment">*92 is an invincible barrier to proof.'" 53 T.C. 96"> Id. at 109. The insufficiency of petitioner's records, under these circumstances, constitutes a significant indicia of fraud. 53 T.C. 96"> Id. at 110.

3. Petitioner's Conviction and Collateral Estoppel

We find petitioner's guilty plea of knowingly filing false returns for 1991 and 1992 is additional evidence, which ensures us that the imposition of the fraud penalty in this case is justified. ⁵⁴ In his written guilty plea, petitioner admitted that he "willfully" made and signed his 1991 and 1992 individual tax returns that he "did not believe" [were] "true and correct" [and] "willfully omitted true and correct information concerning" [his] "income, knowing then that" he "had additional reportable income" of $ 78,454 and $ 75,587 for 1991, and 1992, and that there was additional tax due and owing on this additional income of $ 19,299 and $ 10,377 for 1991 and 1992, respectively.

">*93 Petitioner's conviction for filing false tax returns for 1991 and 1992, although not dispositive of the fraud issue, is a factor to be considered in determining fraud. See Wright v. Commissioner, 84 T.C. 636">84 T.C. 636, 84 T.C. 636">643-44 (1985). Petitioner admits that he is estopped to deny that he willfully omitted $ 78,454 and $ 75,587 of income for 1991 and 1992, respectively, but contends that he is not estopped to deny the fraud penalty for those years. Petitioner concedes that his conviction is relevant evidence on the issue of fraud.

The doctrine of collateral estoppel precludes the relitigation of any issue or fact that was actually litigated and necessarily determined by a valid and final judgment. Peck v. Commissioner, 90 T.C. 162">90 T.C. 162 (1988), affd. 904 F.2d 525">904 F.2d 525 (9th Cir. 1990); 84 T.C. 636"> Wright v. Commissioner, supra at 639; Wilson v. Commissioner, T.C. Memo. 2002-234. Of course, this doctrine "must be confined to situations where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged." Commissioner v. Sunnen, 333 U.S. 591">333 U.S. 591, 333 U.S. 591">599-600, 92 L. Ed. 898">92 L. Ed. 898, 68 S. Ct. 715">68 S. Ct. 715 (1948).">*94 "A prior conviction will estop a party from contesting in a later civil suit any element necessarily established in the criminal trial." ⁵⁵ Considine v. United States, 683 F.2d 1285">683 F.2d 1285, 683 F.2d 1285">1286 (9th Cir. 1982).

As the Court of Appeals for the Ninth Circuit concluded, the intent to avoid tax under section 7206(1) and the filing of a false return does not require a fraudulent intent. 683 F.2d 1285"> Id. at 1287; see 84 T.C. 636"> Wright v. Commissioner, supra at 641 (overruling a Tax Court decision and following the Court of Appeals' holding and reasoning in Considine). "Because section 7206(1) does not require a willful attempt to evade tax, a conviction under section 7206(1), without more, does not establish fraudulent intent." ⁵⁶683 F.2d 1285"> Considine v. United States, supra at 1287. However, "a conviction for willful falsification, ">*95 under section 7206(1), while not dispositive, will be one of the facts to be considered in a trial on the merits." 84 T.C. 636"> Wright v. Commissioner, supra at 643-644 (emphasis added).

Petitioner argues that comments the judge made during his criminal sentencing colloquy are "highly persuasive" to whether he fraudulently evaded the payment of taxes. We disagree with petitioner's argument that statements the judge made during his criminal sentencing hearing are in some way persuasive on the issue of whether petitioner fraudulently evaded the payment of tax. ⁵⁷ See N.Y. v. Julius Nasso Concrete Corp., 202 F.3d 82">202 F.3d 82 (2d Cir. 2000); SEC v. Monarch Funding Corp., 192 F.3d 295">192 F.3d 295 (2d Cir. 1999);">*96 United States v. Barnette, 10 F.3d 1553">10 F.3d 1553 (11th Cir. 1994). We do not know what evidence that court had before it when making those comments. Suffice it to say, the record in this case clearly and convincingly leads us to the conclusion that petitioner intended to fraudulently evade the payment of his taxes for 1990, 1991, and 1992.

">*97 Petitioner also argued that assessment is barred by section 6501(a), as the period of limitations for assessing tax had expired. Since we have held that respondent has established by clear and convincing evidence that petitioner underpaid his tax liabilities for 1990, 1991, and 1992 and that such underpayments were due to fraud, the statute of limitations does not bar respondent's assessment and collection activities. See sec. 6501(c)(1); Plunkett v. Commissioner, 465 F.2d 299">465 F.2d 299 (7th Cir. 1972), affg. T.C. Memo. 1970-274; DiLeo v. Commissioner, 96 T.C. 858">96 T.C. 880.

Decision will be entered under Rule 155.

            [Appendices omitted]

---

Footnotes

• 1. Unless otherwise indicated, all 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 of Practice and Procedure.↩

• 1. The notice of defocoency for 1990 states the amounts listed above. In his answer, respondent decreased the deficiency amount and fraud penalty for 1990 to $ 172,655 and $ 129,491.25,espectively.↩

• 2. Respondent concedes that for 1990, petitioner is entitled to deduct $ 64,679 in expenses associated with the Tri-City Truck Parts partnership, and petitioner concedes that his distributive share of income from Tri-City Truck Parts is $ 41,105. Respondent concedes that the sec. 6663 penalty for 1990 does not apply to the tax attributable to the Tri-City Truck Parts and Equipment (Tri-City) adjustment of $ 41,105. Additionally, respondent concedes petitioner's entitlement to a partnership loss deduction for the BAMA Equipment partnership of $ 26,046 for 1991 and a loss deduction of $ 8,777 for 1992. Similarly, petitioner agrees that he is not entitled to a casualty loss deduction of $ 25,020 on his Schedule A, Itemized Deductions, for 1992. Respondent agrees that the fraud penalty does not apply to tax attributable to this adjustment.

  At trial, the parties stipulated that petitioner's share of the rental income from PSB Trucking with regard to the Boscell Road property for 1990 is $ 46,200, rather than the amount petitioner reported, $ 50,400. On brief, respondent concedes that petitioner is entitled to a capital loss of $ 3,000 for 1992, with respect to the BAMA Equipment partnership.↩

• 3. Petitioner's racing business is discussed in detail below.↩

• 4. The parties characterize petitioner's relationship with Mr. Viviano as a "limited partnership". However, there is no indication that the parties entered into a formal limited partnership or that partnership returns were filed for the years at issue.↩

• 5. The Escrow Statement, Bulk Transfer Escrow Instructions, and Security Agreement list petitioner's and Mr. Viviano's indebtedness to Mr. Giarrusso as $ 200, 000. The 1990 Schedule L, Balance Sheet, for Tri-City lists the indebtedness as $ 202, 000. Respondent describes petitioner's indebtedness as being $ 101,000. We assume respondent used the $ 101,000 as opposed to the $ 100,000 on the basis of Tri-City's 1990 Schedule L. We further assume a scrivener's error on the part of Tri-City's tax return preparer for 1990 and assign no substantive significance to this discrepancy.↩

• 6. Petitioner did, however, attach a statement to his 1990 income tax return which states:

     THE ABOVE NAMED TAXPAYER WAS INVOLVED IN A PARTNERSHIP FOR PART

     OF THE 1990 TAX YEAR. THE PARTNERSHIP WAS TRI-CITY TRUCK PARTS.

     THE TAXPAYER DID NOT RECEIVE HIS SCHEDULE K-1 (SHARE OF

     PARTNERSHIP INCOME & DEDUCTIONS) FOR 1990. SEVERAL ATTEMPTS WERE

     MADE TO REACH THE DESIGNATED PARTNER OF TRI-CITY TRUCK PARTS

     (PETER VIVIANO). ALL ATTEMPTS WERE UNSECCESSFUL [sic]. AS A

     RESULT THE ABOVE NAMED TAXPAYER WAS UNABLE TO REPORT HIS SHARE

     OF THE PARTNERSHIP'S ACTIVITY FOR THE 1990 TAX YEAR.

  The date listed next to petitioner's signature on his 1990 income tax return is Aug. 14, 1991. The date listed on Tri-City's 1990 tax return is Dec. 21, 1991. There is no indication in the record that petitioner filed an amended return for 1990. There is no indication that petitioner has ever reported this sale of his interest. Petitioner testified that he believed that he had reported the sale.↩

• 7. Petitioner initially characterized Newark T&B as an "activity". At trial, petitioner admitted this "activity" was a business.↩

• 8. On brief, petitioner concedes that total deposits attributable to Newark T&B for the 3-year period were $ 123,953.77.↩

• 9. Petitioner argues that unclaimed expense deductions and advances/loans substantially offset income that Newark T&B earned.↩

• 10. Initially, petitioner characterized this endeavor as an "operation", but he admitted at trial that this "operation" was a business.↩

• 1. The parties stipulted the above nontaxable deposits.↩

• 11. Petitioner's related businesses, Alviso, GMT, and BAMA, were among the sponsors.↩

• 12. Petitioner argues that if unclaimed expense deductions are considered, his racing business lost money.↩

• 13. At trial, the parties stipulated that petitioner's share of the rental income from PSB Trucking with regard to the Boscell Road property for 1990 is $ 46,200, rather than the amount petitioner reported, $ 50,400. Respondent concedes that petitioner reported his proportionate share of the rental income attributable to PSB Trucking for 1991 and 1992.↩

• 14. At trial, petitioner could not explain why the rental income received from P. J. Vierra was not reported.↩

• 15. The record reflects deposits of more than $ 1.8 million for the 3-year period; that is, $ 715,484.75, $ 412,514.76, and $ 757,186.94, for 1990, 1991, and 1992, respectively.↩

• 16. Petitioner testified that $ 17,000 of this money was used to purchase truck parts from a third party, Peterbilt. The truck parts were purchased in the name of Newark T&B.↩

• 17. Petitioner testified that he was not sure whether by depositing the Alviso check he was reimbursing himself for a loan to the corporation for the insurance.↩

• 18. Attached hereto and incorporated herein are appendices A, B, C, D, and E, which detail the described deposits as agreed by the parties. Additionally, attached hereto and incorporated herein as appendix F is a stipulated schedule listing nontaxable deposit items.↩

• 19. Appendix A details the deposits made into this bank account for the years at issue.↩

• 20. Appendix B details the deposits made into this bank account for the years at issue.↩

• 21. Appendix C details the deposits made into this bank account for the years at issue.↩

• 22. Appendix D details the deposits made into this bank account for the years at issue.↩

• 23. Appendix E details the deposits made into this bank account for the year at issue.↩

• 24. See supra note 18.↩

• 25. In the stipulation, petitioner reserved the right to present additional evidence regarding nontaxable items deposited.↩

• 1. "Net wages" was calculated by reducing gross wages by Federal income tax withheld, Social Security tax withheld, and State and local income taxes withheld.↩

• 2. This amount was reported in Statement 1 as "Cabrillo Point" on petitioner's 1990 return.↩

• 26. Petitioner included copies of the checks as part of his exhibits. Since petitioner cannot recall for what these amounts were expended, he is not now claiming them as adjustments to reconstructed income.↩

• 27. In United States of Am. v. George Maciel, case No. 98-20085-JF, U.S. District Court for the Northern District of California, petitioner was charged with willfully making a return he did not believe to be true and accurate; he willfully omitted the correct amount of income from his return, understating his income by $ 78,454 and $ 75,587 for 1991 and 1992, respectively. The information alleged he understated his income tax liability by $ 19,299 and $ 10,377 for 1991 and 1992, respectively.↩

• 28. "This presumption of accuracy does not change merely because the case requires a subsidiary inquiry into the question of fraud." Zack v. Commissioner, 692 F.2d 28">692 F.2d 28, 692 F.2d 28">29 (6th Cir. 1982), affg. T.C. Memo. 1981-700↩.

• 29. Petitioner disputes respondent's calculations of how much income he failed to report. He argues also that to the extent he omitted income, he is entitled to decrease his taxable income by the amount of unclaimed deductions and adjustments.↩

• 1. On brief, the parties explained that respondent audited and initially disallowed all expense deductions for Tri- City's 1990 taxable year. The parties stipulated that petitioner's income inclusion from Tri-City for 1990 was $ 41,105.

  We agree that this inclusion of income increased petitioner's basis. Subch. K of the Code governs basis in a partnership. Sec. 705 details how to calculate basis. Specifically, a partner's basis in his partnership interest is increased by, inter alia, the amount of his distributive share of taxable income. Sec. 705. Thus, to the extent petitioner recognized additional income as a result of the adjustment to Tri-City, he is also entitled to an upward adjustment of his basis in Tri-City. Respondent's and petitioner's calculations correctly incorporate the increase in basis due to the additional income inclusion.

  n2See supra note 5. The inclusion of the "extra" $ 1,000 is irrelevant, since it increases the basis and likewise increases the amount realized.↩

• 30. Petitioner argues that respondent incorrectly included petitioner's relief from indebtedness as an amount realized in the sale. It is clear that the amount of the indebtedness from which petitioner is relieved is included as an amount realized in the sale transaction, and likewise, petitioner's basis in partnership is increased by his proportionate share of the partnership liability. See secs. 705, 722, 752↩. Thus, the amount realized is equally offset by the basis increase.

• 31. See supra page 2.↩

• 32. On brief, petitioner admits that because of his criminal conviction he "is estopped to deny that he willfully omitted $ 78,454.00 and $ 75,587.00 of income from his 1991 and 1992 returns, respectively."↩

• 1. See appendices A, B, C, D, and E.↩

• 2. See appendix F.↩

• 33. "[I]t is well settled- 'that evidence of unexplained receipts shifts to the taxpayer the burden of coming forward with evidence as to the amount of offsetting expenses, if any.'" Franklin v. Commissioner, T.C. Memo. 1993-184 (quoting Siravo v. United States, 377 F.2d 469">377 F.2d 469, 377 F.2d 469">473↩ (1st Cir. 1967)).

• 34. However, it appears he was reimbursed for many of these alleged loans. For example, compare petitioner's check No. 1086 from Bank of Milpitas, account No. 512-001-200593, dated Dec. 19, 1989, for $ 999 made payable to "DMV" and GMT's check No. 3895 dated Dec. 27, 1989, for $ 1,000 made payable to petitioner which states on the memo line "Reimburse for DMV fees". Furthermore, petitioner's bookkeeper testified that petitioner's businesses customarily repaid such loans. Additionally, petitioner testified that some of the checks he offered were not loans but represented his personal expenses.↩

• 35. For example, petitioner claims that in May 1990, he purchased a hood for $ 2,000 using his personal American Express card to pay for it. For support, petitioner presents only a photocopy of a check for $ 4,260 made payable to American Express. Petitioner admitted at trial that he wrote "Hood ? 2000" on the memo line of the check after the check had cleared his bank.↩

• 36. For example, on Aug. 10, 1989, petitioner paid $ 321 to "DMV"; on Apr. 8, 1992, he paid $ 900 to "Rux Onito"; and on Aug. 3, 1992, he paid $ 1,250 to "Steve Micheles".↩

• 37. On brief, petitioner concedes that, to the extent he does not know the purpose for the expenditure, he is not now arguing that such expenditure is an adjustment to reconstructed income.↩

• 38. For example, check No. 109 dated Mar. 20, 1990, for $ 9,645; check No. 112 dated Apr. 17, 1990, for $ 9,741.50; check No. 119 dated Apr. 30, 1990, for $ 9,847.00; check No. 118 dated Apr. 27, 1990, for $ 8,697.50; and check No. 117 dated Apr. 24, 1990, for $ 9,750.00. Despite providing the Court with copies of the aforesaid checks, petitioner is now not claiming these checks represent either advances or any other deductible business expense.↩

• 39. The record indicates that petitioner did not make any such advances to Alviso or GMT. The balance sheets included with their 1990, 1991, and 1992 returns list "Loans from Stockholders" as $ 0.↩

• 40. Strict substantiation is required for specific classes of expenses, including "listed property" described in sec. 280F(d)(4). See sec. 274(d)↩.

• 41. The Court's ability to reasonably estimate the amount of a deduction is curtailed in the case of certain classes of expenses. Sec. 274(d) limits the Court's estimating ability. Sanford v. Commissioner, 50 T.C. 823">50 T.C. 823, 50 T.C. 823">827 (1968), affd. per curiam 412 F.2d 201">412 F.2d 201 (2d Cir. 1969); see Golden v. Commissioner, T.C. Memo. 1993-602↩.

• 42. On brief, petitioner claims he is entitled to unspecified amounts of deductions for depreciation. However, there is insufficient evidence in the record with which we can calculate any depreciation to which petitioner might be entitled.↩

• 43. "The rule is well established that the failure of a party to introduce evidence within his possession and which, if true, would be favorable to him, gives rise to the presumption that if produced it would be unfavorable." Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158">6 T.C. 1158, 6 T.C. 1158">1165 (1946), affd. 162 F.2d 513">162 F.2d 513↩ (10th Cir. 1947). "This is especially true where, as here, the party failing to produce the evidence has the burden of proof or the other party to the proceeding has established a prima facie case." Id.

• 44. For example, the invoices that petitioner submitted in support of his entitlement to deductions for expenses associated with his racing business are made to "Alviso". Without the books and records of Alviso, it is impossible to determine if these invoices represent expenses of Alviso, for which deductions have already been taken.↩

• 45. "This Court generally will not consider issues that are raised for the first time on brief, particularly where the belated claim would prejudice a party." Han v. Comm'r, T.C. Memo 2002-148; Rules 34(b)(4), 41(a) and (b); Foil v. Commissioner, 92 T.C. 376">92 T.C. 376, 92 T.C. 376">418 (1989), affd. 920 F.2d 1196">920 F.2d 1196 (5th Cir. 1990); Markwardt v. Commissioner, 64 T.C. 989">64 T.C. 989, 64 T.C. 989">997 (1975); see also Bob Wondries Motors, Inc. v. Commissioner, 268 F.3d 1156">268 F.3d 1156 (9th Cir. 2001), affg. Toyota Town, Inc. v. Commissioner, T.C. Memo. 2000-40. This Court has held on numerous occasions that it will not consider issues not pleaded. See, e. g., Estate of Mandels v. Commissioner, 64 T.C. 61">64 T.C. 61 (1975); Estate of Horvath v. Commissioner, 59 T.C. 551">59 T.C. 551, 59 T.C. 551">556 (1973); Frentz v. Commissioner, 44 T.C. 485">44 T.C. 485, 44 T.C. 485">491 (1965), affd. 375 F.2d 662">375 F.2d 662↩ (6th Cir. 1967).

• 46. "The crucial concept in a finding that there is a constructive dividend is that the corporation has conferred a benefit on the shareholder in order to distribute available earnings and profits without expectation of repayment." Truesdell v. Commissioner, 89 T.C. 1280">89 T.C. 1280, 89 T.C. 1280">1295 (1987) (citing Noble v. Commissioner, 368 F.2d 439">368 F.2d 439, 368 F.2d 439">443 (9th Cir. 1966), affg. T.C. Memo. 1965-84↩).

• 47. The determination of earnings and profits is governed by sec. 316↩ and the regulations promulgated thereunder.

• 48. In United States v. Miller, 545 F.2d 1204">545 F.2d 1204, 545 F.2d 1204">1215 (9th Cir. 1976), the court explained:

     In holding that the constructive distribution should not

     automatically be applied, it is not herein asserted that

     diverted funds could never be a return of capital. However, to

     constitute the latter, there must be some demonstration on the

     part of the taxpayer and/or the corporation that such

     distributions were intended to be such a return. To hold

     otherwise would be to permit the taxpayer to divert such funds

     and if not caught, to later pay out another return of capital;

     or if caught, to avoid the conviction by raising the defense

     that the sums were a return of capital and hence non-taxable.↩

• 49. Additionally, petitioner failed to demonstrate that the distributions from his wholly owned corporations and employers were not additional remuneration for the management services he provided. The record reflects that Alviso and GMT each paid petitioner a salary during the years at issue.↩

• 50. As previously stated, the computation under Rule 155↩ shall evidence that petitioner was owed $ 7,500 from Newark Wreckers. See supra page 26.

• 51. "The consistent understatement of large amounts of income for a number of years is evidence of willful intent to evade." Otsuki v. Commissioner, 53 T.C. 96">53 T.C. 96, 53 T.C. 96">108 (1969). In Holland v. United States, 348 U.S. 121">348 U.S. 121, 348 U.S. 121">139, 99 L. Ed. 150">99 L. Ed. 150, 75 S. Ct. 127">75 S. Ct. 127, 2 C.B. 215">1954-2 C.B. 215 (1954), "the Supreme Court declared that 'evidence of a consistent pattern of underreporting large amounts of income' will support 'an inference of willfulness'". 53 T.C. 96"> Otsuki v. Commissioner, supra at 108↩.

• 52. In 53 T.C. 96"> Otsuki v. Commissioner, supra at 110↩, the taxpayer advanced, and we rejected a similar argument. The taxpayer was too busy and too tired to maintain adequate business records.

• 53. Petitioner admits on brief, that he failed to report a net gain from the sale of between $ 17,247 and $ 118,247. This, of course, is after inclusion of $ 41,105 in additional income for 1990, which accordingly, increased his basis in the Tri-City partnership. Thus, before respondent's examination and redetermination of Tri-City's 1990 income, it was reasonable for petitioner to assume that he had substantially more net gain (at least $ 41,105 more) from the sale of Tri-City, which he never reported.

  Petitioner seeks solace in a statement that his accountant prepared, which he attached to his 1990 return. We find this statement, given the specific circumstances of this case, at the very least vague and ill-informing. This statement speaks only to petitioner's inability "TO REPORT HIS SHARE OF THE PARTNERSHIP'S ACTIVITY FOR THE 1990 TAX YEAR." The statement does not communicate that in 1990 petitioner received at least $ 300,000 of value in exchange for his interest, a transaction which is clearly not a "partnership activity". Furthermore, the statement refers only to Tri-City and not to Newark Wreckers.↩

• 54. On brief, petitioner agrees that his "conviction for 1991 and 1992 may be considered relevant on the issue of fraud."↩

• 55. "[T]he question is whether the issue under section 6653(b) is 'identical in all respects' to that decided under section 7206(1)." Wright v. Commissioner, 84 T.C. 636">84 T.C. 636, 84 T.C. 636">639↩ (1985).

• 56. The Court of Appeals for the Ninth Circuit did determine that the prior conviction did estop the taxpayer from contesting that the return was willfully false and resulted in an underpayment of tax; proof of falsity is a necessary element of sec. 7206(1). Considine v. United States, 683 F.2d 1285">683 F.2d 1285, 683 F.2d 1285">1287↩ (9th Cir. 1982).

• 57. Judge Fogel stated:

     But I don't think the conduct looked at in its totality suggests

     that the reason * * * [petitioner] diverted the money was to

     avoid paying money to the Internal Revenue Service. I think

     that's the finding that the Court would have to make. So I think

     we're looking at the lower of the two [sentencing] calculations.

             *   *   *   *   *   *   *

     The Court has considered the entire 1990, 1991, 1992, but that

     there is no intent to evade that's established convincingly by

     the record. So I would find this is a [sentencing] guideline

     level 6 which gives the Court an opportunity or gives the Court

     the discretion, rather, to impose anywhere from zero to six

     months incarceration.↩

Case Details

Case Name: Maciel v. Comm'r

Court Name: United States Tax Court

Date Published: Feb 4, 2004

Citation: 2004 Tax Ct. Memo LEXIS 29

Docket Number: No. 7802-00

Court Abbreviation: Tax Ct.