Murphy v. Commissioner

T.C. Memo. 1996-59

UNITED STATES TAX COURT

EARLE E. MURPHY, Petitioner v. COMMISSIONER
OF INTERNAL REVENUE, Respondent

Docket No. 18348-93. Filed February 15, 1996.

John H. Lavelle, for petitioner.

Tracy A. Murphy, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

RUWE, Judge: Respondent determined a deficiency in

petitioner's 1988 Federal income tax and additions to tax as

follows:
 - 2 -

Additions to Tax
1
Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6653(g)

$343,253 $15,446 $9,352 $187

1
The statutory notice of deficiency and all documents filed
by the parties have inadvertently referred to this addition to
tax as imposed by sec. 6653(g). The addition to tax is
actually imposed by sec. 6653(a)(1). Sec. 6653(g) merely
prescribes special rules for the application of the addition to
tax for underpayments resulting from the failure to show income
reported on Forms 1099.

The issues for decision are: (1) Whether petitioner's

receipt of money in exchange for his stock in Farmingdale Swim

and Recreation Club, Inc. (FSRC), constituted a liquidating

distribution; (2) whether petitioner had unreported interest

income of $13,370; (3) whether petitioner is liable for additions

to tax under section 6651(a)(1)1 and (2) for failure to file a

timely 1988 Federal income tax return and failure to timely pay

his 1988 income tax liability; and (4) whether petitioner is

liable for an addition to tax for negligence under section

6653(a)(1).

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 3 -

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts and attached exhibits are incorporated

herein by this reference. At the time the petition was filed,

petitioner resided in Lake Placid, New York.

Petitioner incorporated FSRC in 1963. FSRC acquired land in

Howell Township, New Jersey (the Township), upon which it

operated a camping and recreational business, known as Deep

Hollow Park. Business activities at Deep Hollow Park included

selling swimming memberships, renting recreational vehicles,

mobile homes, and trailers, and providing space for overnight

camping. Petitioner owned 49 of the 50 initial outstanding

shares of stock in FSRC, and petitioner's wife owned the

remaining share.2 The total number of shares outstanding

eventually increased to 100.3

On June 16, 1980, the board of directors of FSRC approved a

conditional purchase contract to purchase property adjacent to

Deep Hollow Park. The contract was subject to the corporation's

receiving the necessary approvals from the Township for its

2
In the mid-1970's, petitioner acquired his wife's share.
3
Petitioner testified that by 1988, he had given 90 shares
of FSRC stock to his daughters. However, he produced no
documentation of the transfer, he never filed any gift tax
returns with respect to the transfer of these shares, and he
reported that he had received the entire 1988 liquidating
distribution on his own return.
 - 4 -

expansion as well as the receipt of a zoning variance. FSRC

planned to operate the property as a fairgrounds.4 On August 4,

1980, petitioner and Howard Long incorporated Deep Hollow

Fairgrounds, Inc. (DHF), to facilitate and coordinate the

operation of the new fairgrounds with FSRC. DHF also operated

the recreational facilities at Deep Hollow Park, as well as

certain other assets owned by FSRC. FSRC and DHF agreed to

operate as a single entity and utilize a single corporate bank

account, with DHF's taking title only to the new fairgrounds if

and when the conditional purchase was completed.5 All the other

assets, including the Deep Hollow Park property and the corporate

bank account, were considered the property of FSRC. Petitioner

and Mr. Long each owned 50 percent of the stock of DHF.

In the 1970's, Howell Township began competing with Deep

Hollow Park by creating parks, purchasing a lakefront beach, and

adding swimming facilities, ball fields, and fairgrounds. The

Township also offered free swimming lessons and bargain access to

its facilities. In response to the competition, Deep Hollow Park

expanded its business to offer festivals, circuses, fairs,

rallies, and outdoor rock concerts (hereinafter collectively

referred to as "concert business") under a "recreational use"

4
This property will hereinafter be referred to as the "new
fairgrounds".
5
Unless otherwise indicated, the "single operating entity"
consisting of FSRC and DHF will be referred to as Deep Hollow
Park.
 - 5 -

variance, which Deep Hollow Park had obtained from the Township

in 1963.

The Township began an aggressive enforcement program against

Deep Hollow Park, which resulted in continuous litigation and

ultimately in an action by Deep Hollow Park against the Township

for harassment. For example, the Township issued many citations

against Deep Hollow Park for alleged violations of health,

building, and other municipal codes. Many of these citations

were subsequently overturned in municipal court actions. The

Township also denied Deep Hollow Park's conditional use permit

and site plan for the new fairgrounds, even though the Township

was advised by its counsel that its ordinances were insufficient

to deny the permits. This denial was subsequently overturned by

the State Superior Court of New Jersey. In addition, the

Township repeatedly attempted to disallow the use of Deep Hollow

Park for concert business under its 1963 "recreational use"

variance, and it retroactively amended its zoning ordinance to

redefine "recreational use" to prohibit such activities.

In December 1985, while all these legal actions were

pending, Shore Oaks, a local developer, announced plans to create

a $50 million housing development and golf course on land

adjacent to Deep Hollow Park. Because a portion of the proposed

site was designated a protected wetlands area, it became

necessary for Shore Oaks to acquire the Deep Hollow Park land in

order to complete the project. In addition to acquiring Deep
 - 6 -

Hollow Park, Shore Oaks would also need to obtain the necessary

approvals from the Township. Faced with the prospect of

protracted litigation, petitioner, as an officer and agent of

both FSRC and DHF, engaged in negotiations with Shore Oaks for

the sale of the Deep Hollow Park property. In the course of

these negotiations, Shore Oaks asserted that Township officials

strongly favored the golf course and that the Township was

determined to eliminate Deep Hollow Park's concert business.

Nevertheless, neither petitioner nor the other shareholders of

FSRC or DHF received any oral or written notice from a Township

official that eminent domain or condemnation proceedings were

being contemplated. In mid-1988, FSRC sold the Deep Hollow Park

property to Shore Oaks for $1,065,993. The sale was recited in

the minutes of a June 11, 1988, meeting of FSRC's board of

directors, along with the following statement: "Signed was [sic]

the intent to disolve [sic] both the above corporations

[referring to FSRC and DHF] to save taxes".

Prior to 1988, FSRC had acquired land in Lake Placid, New

York, upon which it planned to construct a ski lodge and related

recreational facilities. In mid-1989, Lake Placid Recreation

Co., Inc. (LPRC), was incorporated in New York. The proceeds

from the sale of the Deep Hollow Park property were reinvested

through petitioner in LPRC. The outstanding stock of LPRC was

owned as follows: Petitioner and Mr. Long each owned 1 share,

and petitioner's six daughters each owned 15 shares.
 - 7 -

On December 19, 1987, the board of directors of FSRC held a

special meeting. During this meeting, the board discussed the

accountant's advice regarding the liquidation of both FSRC and

DHF. The minutes state that "Mark Lotts, accountant [for both

FSRC and DHF] advised us to dissolve the corporation to save

taxes". Petitioner urged the creation of a New York corporation

because of a plan to move business operations to New York. The

board decided, however, that FSRC would not be liquidated so as

to preserve future legal actions against the Township. The

minutes state: "It was decided that until the Park and Fairground

business was cleared up and construction was completed in Lake

Placid, we would not dissolve the corporation and reorganize. At

which time all shares from the park and fairground will be

transferred to the Lake Placid Corporation."

The shareholders and board members of FSRC and DHF held a

special meeting on March 18, 1988. The minutes state that "The

Corporation's accountants have advised us to disolve [sic] the

corporations, reasoning [sic] being to save money on capital

gains and save on double taxation". The minutes also state that

"A new corporation would be formed in the State of New York and

the old corporations will be disolved [sic]."

On March 28, 1988, petitioner signed several standard

statements prepared by the corporations' accountant referring to

resolutions adopting a plan of complete liquidation and

dissolution for both FSRC and DHF for attachment to the
 - 8 -

corporations' 1988 Federal income tax returns. These statements

were entitled "Statement Re Liquidation Under IRC Section 337"

and contained the following representations: (1) A statement

that the board of directors adopted a resolution recommending the

complete liquidation and dissolution of each corporation in

accordance with "the Plan"; (2) a statement authorizing and

directing the holding of a special meeting of the shareholders to

vote on the Plan; (3) a statement that, following shareholder

adoption, the corporation will cease doing business and will sell

its assets, discharge its liabilities, and distribute the residue

pro rata to the shareholders; and (4) a statement that each

corporation was to be dissolved as soon thereafter as

practicable.

Petitioner filed a Form 966 (Corporate Dissolution or

Liquidation) for DHF but did not file a Form 966 for FSRC. The

certificate of dissolution for FSRC was filed on July 6, 1989.

LPRC paid the dissolution fee of FSRC. At trial, petitioner

conceded that he intended to liquidate DHF.

The 1988 Federal income tax returns for FSRC and DHF report

the sale of Deep Hollow Park property and the complete

liquidation of FSRC and DHF. FSRC and DHF each filed a Form 1099

for taxable year 1988 reporting a liquidating distribution to

petitioner in the amount of $1,206,351 and $2,943, respectively.

Neither corporation filed an amended return for that year.

Petitioner timely filed a Form 4868 (Application for Automatic
 - 9 -

Extension of Time to File U.S. Individual Income Tax Return) with

respect to the taxable year 1988, which automatically extended

petitioner's filing deadline until August 15, 1989. Petitioner

did not mail the return until September 2, 1989. Petitioner's

original individual income tax return for 1988 reported

petitioner's receipt of these liquidating distributions.

Petitioner's stock bases, as reported by him on his Schedule D

for 1988, were $6,225 in FSRC and $1,000 in DHF. Petitioner also

reported $97 in interest income on his original return. Neither

FSRC nor DHF reported any interest income on their 1988 income

tax returns. The Internal Revenue Service's records indicate,

however, that petitioner received several Forms 1099-INT, which

state that he received interest income in the total amount of

$13,467.6

On March 5, 1991, petitioner filed an amended return for the

1988 taxable year. On his amended return, petitioner reported

total income in the amount of $41,570. This amount reflects

$30,000 in business income and two items petitioner reported on

his original return: (1) $97 of interest income, and (2) $11,473

6
The $13,467 figure represents the $97 that petitioner
reported on his income tax return, plus the $13,370 interest
determined to be income to petitioner in the statutory notice of
deficiency. Paragraph 6 of the stipulation of facts incorrectly
states that the Service's records reflect a total interest figure
of $13,346. Petitioner did not object to the correction of this
error.
 - 10 -

in pension income. On his amended return, petitioner did not

report any liquidating distributions or capital gains.

OPINION

On Schedule D of his 1988 Federal income tax return,

petitioner reported that he received distributions from FSRC and

DHF in complete liquidation of both corporations. However,

petitioner later filed an amended tax return for 1988, which

reflected petitioner's new reporting position that the amounts

received from FSRC and DHF by petitioner did not constitute

liquidating distributions. Respondent determined that FSRC and

DHF were liquidated prior to January 1, 1989, and that the

distributions from each corporation were taxable to petitioner to

the extent they exceeded petitioner's adjusted stock basis.

Because petitioner conceded that he intended to liquidate DHF, we

will focus only upon whether petitioner received a liquidating

distribution from FSRC. Petitioner argues that he never intended

to liquidate FSRC and that his characterization of the amount

received from FSRC as a liquidating distribution on his tax

return was an error. Respondent's determination is presumed

correct, and petitioner bears the burden of proving otherwise.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Section 331(a) provides that "Amounts received by a

shareholder in a distribution in complete liquidation of a

corporation shall be treated as in full payment in exchange for
 - 11 -

the stock." Prior to the Tax Reform Act of 1986, section 337

provided that "If, within the 12-month period beginning on the

date on which a corporation adopts a plan of complete

liquidation, all of the assets of the corporation are distributed

in complete liquidation, less assets retained to meet claims,

then no gain or loss shall be recognized to such corporation from

the sale or exchange by it of property within such 12-month

period." Sec. 337(a). This nonrecognition provision was

repealed by the Tax Reform Act of 1986, Pub. L. 99-514, sec.

631(a), 100 Stat. 2085, 2269. However, a transitional rule

permitted certain small corporations to be eligible for section

337 nonrecognition if they distributed their assets in complete

liquidation before January 1, 1989. Both FSRC and DHF satisfied

the eligibility requirements for this transitional provision.

See Id., sec. 633(d)(1), 100 Stat. at 2278.

The terms "liquidation" or "complete liquidation" are not

defined in section 331 or in the regulations thereunder.

However, related section 1.332-2(c), Income Tax Regs., offers the

following standard:

A status of liquidation exists when the corporation
ceases to be a going concern and its activities are
merely for the purpose of winding up its affairs,
paying its debts, and distributing any remaining
balance to its shareholders. * * *

See also Wood v. Commissioner, 27 B.T.A. 162, 166-167 (1932)

(applying a similar definition). Whether a corporation has
 - 12 -

liquidated is a question of fact. Id. at 167; Olmsted v.

Commissioner, T.C. Memo. 1984-381. In determining whether a

corporation has liquidated, this Court has applied a three-part

test: (1) Whether there is a manifest intent to liquidate; (2)

whether there is a continuing purpose to terminate corporate

affairs and dissolve the corporation; and (3) whether the

corporation's activities are directed to such termination.

Estate of Maguire v. Commissioner, 50 T.C. 130, 142 (1968); T.T.

Word Supply Co. v. Commissioner, 41 B.T.A. 965, 980-981 (1940);

Wood v. Commissioner, supra at 166-167; Olmsted v. Commissioner,

supra. After reviewing the evidence, we are convinced that FSRC

was liquidated prior to the end of 1988.

First, the record in this case clearly supports a finding of

an intent to liquidate FSRC. Specifically, contemporaneous

corporate minutes from meetings of FSRC's board of directors

demonstrate that it was the intent of the board to liquidate.

The minutes of the December 19, 1987, board meeting set forth the

board's decision not to dissolve FSRC until matters were resolved

with the Township and construction was completed in Lake Placid.

It is clear from this decision that the board intended that

FSRC's activities be merely for the purpose of winding up its

affairs. The minutes of the March 18, 1988, board meeting

recount the advice of the accountant to liquidate FSRC to avoid

double taxation and produce capital gains at the shareholder

level upon receipt of the liquidating distributions. These
 - 13 -

minutes contain the following statement: "A new corporation

would be formed in the State of New York and the old corporations

will be dissolved." The minutes of the June 11, 1988, meeting

state: "Signed was [sic] the intent to disolve [sic] both the

above corporations to save taxes." In addition, petitioner's

individual return for 1988 and FSRC's corporate return indicate

that this intent was actually carried out. Furthermore, under

identical circumstances, petitioner has conceded that he intended

to liquidate DHF. Second, FSRC had a continuing purpose to

liquidate; i.e., its long-running feud with Howell Township made

it exceedingly difficult for FSRC to continue with its business.

Finally, FSRC's actions, including selling corporate property,

filing final returns, making liquidating distributions, and

dissolving under state law, all unequivocally demonstrate that

the corporation's activities were directed and confined to

liquidating the corporation.

Although he originally reported the transactions at issue as

liquidations, petitioner now seeks to disavow his original form.

Taxpayers are free to structure their transactions in a manner

that will result in their owing the least amount of tax possible.

This is the essence of effective tax planning. However, as the

Supreme Court observed in Commissioner v. National Alfalfa

Dehydrating & Milling Co., 417 U.S. 134, 149 (1974):

[W]hile a taxpayer is free to organize his affairs as
he chooses, nevertheless, once having done so, he must
 - 14 -

accept the tax consequences of his choice * * * and may
not the enjoy the benefit of some other route he might
have chosen to follow but did not. * * * [Citations
omitted.]

See also Higgins v. Smith, 308 U.S. 473, 477 (1940); Estate of

Durkin v. Commissioner, 99 T.C. 561, 571 (1992). "It would be

quite intolerable to pyramid the existing complexities of tax law

by a rule that the tax shall be that resulting from the form of

transaction taxpayers have chosen or from any other form they

might have chosen, whichever is less." Television Indus., Inc.

v. Commissioner, 284 F.2d 322, 325 (2d Cir. 1960), affg. 32 T.C.

1297 (1959). We have observed that "the taxpayer may have less

freedom than the Commissioner to ignore the transactional form

that he has adopted." Illinois Power Co. v. Commissioner, 87

T.C. 1417, 1430 (1986) (quoting Bolger v. Commissioner, 59 T.C.

760, 767 n.4 (1973)).

Petitioner contends that the corporate minutes from FSRC's

board meetings clearly indicate that petitioner intended to

reorganize the New Jersey business operations in Lake Placid.

The only reference to a reorganization is in the minutes of the

December 19, 1987, shareholders meeting, which state, in

pertinent part, that "until the Park and Fairground business was

cleared up and construction was completed in Lake Placid, we

would not dissolve the corporation and reorganize. At which time

[presumably when the Lake Placid development is completed] all

shares from the park and fairground will be transferred to the
 - 15 -

Lake Placid Corporation." However, minutes from meetings on

March 18 and June 11, 1988, make it clear that any future plans

of a reorganization were abandoned when the board decided to

follow the recommendation of Mr. Lotts, FSRC's accountant, and

liquidate in order to benefit from the transitional provisions

for small corporations in the Tax Reform Act of 1986.

Petitioner argues that he did not understand his

accountant's advice. Petitioner contends that he first learned

that Mr. Lotts had treated the transaction as a liquidation upon

receiving his 1988 Federal income tax return for filing.

Petitioner blames this mischaracterization of the transaction on

a lack of effective communication, Mr. Lotts' "urgency to

liquidate", and the fact that Mr. Lotts was unaware of

petitioner's intent to reorganize. However, the record reflects

that petitioner is a well-educated individual who ran a

successful business for many years.

There is nothing in the record, other than petitioner's

self-serving testimony, to indicate that Mr. Lotts did not follow

petitioner's instructions while preparing both his individual and

FSRC's corporate returns. Petitioner did not call Mr. Lotts to

testify about his tax advice or the circumstances surrounding the

preparation of petitioner's individual return or FSRC's corporate

return. Moreover, the record reflects that as early as December

19, 1987, Mr. Lotts advised FSRC's board to liquidate, and that

on June 11, 1988, petitioner signed forms reporting the
 - 16 -

corporation's intent to do so. Petitioner did not file his

amended return until March 5, 1991. Against this backdrop, it is

difficult to believe that petitioner did not intend to liquidate

FSRC. Rather, it appears that petitioner was searching for a way

to avoid the shareholder-level tax consequences of his decision

to liquidate and that his decision to file an amended return is

nothing more than ex post facto tax planning.

Accordingly, we find that petitioner liquidated FSRC in

1988. Having chosen to do so, petitioner must now accept the tax

consequences of his choice. Therefore, we sustain respondent's

determination that petitioner has long term capital gain to the

extent that the distribution he received exceeds his adjusted

basis in his stock. See secs. 331(a); 1001(a).

Petitioner argues that the transfer of FSRC's assets to LPRC

and its dissolution qualified as a tax-free reorganization under

section 368(a)(1). Having just determined that there was a

complete liquidation of FSRC, it necessarily follows that the

transaction cannot qualify as a reorganization under the

provisions of 368(a)(1), because a "liquidation is the antithesis

of reorganization." Mascot Stove Co. v. Commissioner, 120 F.2d

153, 156 (6th Cir. 1941) (emphasis added), affg. 40 B.T.A. 1057

(1939). Moreover, in order to qualify for tax-free treatment, a

shareholder must exchange his or her stock pursuant to a plan of

reorganization. Sec. 354(a)(1). The requirement of a plan of

reorganization "is to be taken as limiting the nonrecognition of
 - 17 -

gain or loss to such exchanges or distributions as are directly a

part of the transaction specifically described as a

reorganization in section 368(a)." Sec. 1.368-2(g), Income Tax

Regs. Rather than pointing to a plan of reorganization, the

evidence clearly indicates that FSRC adopted a plan of complete

liquidation.

Alternatively, petitioner contends that the transaction

qualifies for nonrecognition treatment under the involuntary

conversion provisions of section 1033. Section 1033 provides for

nonrecognition of gain if property is compulsorily or

involuntarily converted into property similar or related in

service or use to the property so converted. Sec. 1033(a)(1).

Included within this provision is property that is taken by the

Government by condemnation or that is sold by the taxpayer

pursuant to the threat or imminence of condemnation. Sec.

1033(a).

In order to qualify for nonrecognition treatment, however,

the taxpayer must have owned the property that was involuntarily

converted. In Fuchs v. Commissioner, 80 T.C. 506, 511 (1983), we

explained that "We have held previously that in the case of a

partnership, the election under section 1033 can be made only by

the partnership and not by the partners, individually." We see

no reason for a different result in the context of a corporation

and its shareholders. It is clear that FSRC owned Deep Hollow

Park. Therefore, although petitioner received all the corporate
 - 18 -

assets in a liquidating distribution, he is not entitled to elect

nonrecognition treatment under section 1033.7

Respondent also determined that petitioner had additional

interest income of $13,370. Gross income includes interest

income. Sec. 61(a)(4). On both his original and amended

returns, petitioner reported only $97 of interest income.

Petitioner's sole argument is that the interest income was

received by petitioner in his fiduciary capacity as an agent for

FSRC and, thus, was properly reportable by FSRC and not by

petitioner. The only evidence introduced by petitioner to

support this argument is his self-serving testimony that he

opened several bank accounts on behalf of FSRC and DHF. However,

petitioner did not even identify these accounts. Neither FSRC

7
Even if petitioner were acting as an agent of FSRC with the
intention of completing a sec. 1033 transaction, we still believe
that the provisions of sec. 1033 are inapplicable under these
facts. A threat of condemnation sufficient to invoke provisions
of sec. 1033 exists when a representative of a governmental body
or a public official authorized to acquire property for public
use informs the taxpayer, either orally or in writing, that such
body or such official has decided to acquire the taxpayer's
property. Tecumseh Corrugated Box Co. v. Commissioner, 94 T.C.
360, 376 (1990), affd. 932 F.2d 526 (6th Cir. 1991); Rainier Co.
v. Commissioner, 61 T.C. 68, 76 (1973), revd. on another issue by
unpublished order 538 F.2d 338 (9th Cir. 1975). The property
owner must also reasonably believe that condemnation will occur
if the owner does not sell the property voluntarily to a third
party. Id. In the instant case, the parties have stipulated
that "Neither petitioner nor the shareholders of FSRC or DHF
received any oral or written notice from a township official that
eminent domain or condemnation proceedings were contemplated."
Since petitioner received no communication from Howell Township
officials regarding the possibility of condemnation of the Deep
Hollow Park property, we are not persuaded that the property was
sold under threat of condemnation, and sec. 1033 is unavailable.
 - 19 -

nor DHF reported any interest income for 1988. We find that

petitioner has not met his burden of proof on this issue. See

Rule 142(a). Therefore, we sustain respondent's determination.

The next issue we must decide is whether petitioner is

liable for additions to tax pursuant to section 6651(a)(1) and

(2). Section 6651(a)(1) imposes an addition to tax for failure

to timely file a tax return, unless the taxpayer establishes that

the failure to file was due to reasonable cause and not willful

neglect. Section 6651(a)(2) imposes an addition to tax for

failure to timely pay a tax liability shown upon a return, unless

the taxpayer establishes that the failure was due to reasonable

cause and not willful neglect.

Petitioner received an automatic extension to file his 1988

return on or before August 15, 1989. Petitioner did not meet

this deadline, as he did not mail his return until September 2,

1989. At the time that he filed, petitioner failed to include

full payment of his reported income tax liability. On brief,

petitioner argues that he had no income tax liability for 1988,

because no liquidation occurred, and petitioner was simply an

agent of FSRC with respect to the sales proceeds reinvested in

LPRC. We have already concluded, however, that a liquidation, in

fact, occurred and that petitioner has income to the extent that

the distribution exceeds the adjusted basis in petitioner's

stock. Moreover, petitioner has not introduced any evidence that
 - 20 -

he satisfies the "reasonable cause" exception of section

6651(a)(1). Accordingly, we sustain respondent's determination.

Respondent also determined that petitioner is liable for the

addition to tax pursuant to section 6653(a). Section 6653(a)(1)

provides that if any part of an underpayment of tax required to

be shown on a return is due to negligence, there shall be added

to the tax an amount equal to 5 percent of the underpayment.

Section 6653(a)(3) defines negligence to include "any failure to

make a reasonable attempt to comply with the provisions of this

title". We have similarly defined negligence as the failure to

exercise the due care of a reasonable and ordinarily prudent

person under like circumstances. Neely v. Commissioner, 85 T.C.

934, 947 (1985). If a taxpayer fails to show amounts reported on

Forms 1099, section 6653(g) provides that such a failure shall be

treated as due to negligence for purposes of section 6653(a),

unless the taxpayer establishes the contrary by clear and

convincing evidence. Sec. 6653(g)(2).

Petitioner failed to include in income $13,370 of interest

that was reported on Forms 1099-INT. Petitioner has not proven

by clear and convincing evidence that such failure was not

negligent. Therefore, we sustain respondent's determination.

Decision will be entered

for respondent.