T.C. Memo. 1998-96
UNITED STATES TAX COURT
LARRY L. BENNETT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8126-95. Filed March 9, 1998.
Larry L. Bennett, pro se.
Albert B. Kerkhove, for respondent.
MEMORANDUM OPINION
FAY, Judge: Respondent determined deficiencies in
petitioner's Federal income taxes and additions to tax as
follows:
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Additions to Tax
Sec. Sec.
Year Deficiency 6651(a)(1) 6654
1987 $15,678 $3,919.50 $841.61
1988 15,435 3,858.75 992.88
1989 16,301 4,075.25 1,102.42
1990 16,721 4,180.25 1,094.74
1991 17,410 4,352.50 994.99
1992 18,145 4,536.25 791.41
1993 19,059 4,764.75 798.56
All section references are to the Internal Revenue Code in
effect for the taxable years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
The issues for decision are: (1) Whether petitioner earned
income during the years 1987 through 1993 in the amounts deter-
mined by respondent; (2) whether petitioner is liable for self-
employment taxes as determined by respondent; (3) whether peti-
tioner is entitled to deductions in excess of those determined by
respondent; (4) whether petitioner is liable for the additions to
tax provided by section 6651(a)(1) for failure to timely file a
Federal income tax return; and, (5) whether petitioner is liable
for the additions to tax provided by section 6654(a) for failure
to make estimated tax payments.
Background
Some of the facts have been stipulated, and they are so
found. The stipulation of facts and attached exhibits are
incorporated herein by this reference. During the years at
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issue, petitioner did not file Federal income tax returns. At
the time the petition was filed, petitioner resided in Runnells,
Iowa.
During the years at issue, petitioner worked as a business
consultant. For a number of years during this period, petitioner
was paid by Larryann Hunt, Inc. for rendering consulting ser-
vices. The services provided to Larryann Hunt, Inc., primarily
consisted of bookkeeping functions. It is not clear how many
other clients petitioner worked for during these years, and
petitioner has not provided any documentary evidence relating to
the amount of consulting income that he earned from 1987 through
1993.
Petitioner is a general partner in Cedar Grove Limited
Partnership (Cedar Grove). Petitioner's four children are
limited partners in this partnership.1 Cedar Grove is the record
owner of a farm, and, from 1988 through 1993, this farm was
rented to an individual named Ken Cheers. Petitioner received
rental checks from Ken Cheers and deposited them into various
checking accounts. Petitioner maintained a number of checking
accounts in the name of Cedar Grove. At times, petitioner used
money from the accounts of Cedar Grove to pay his personal living
expenses. It is not clear whether all of the checks petitioner
1
It is not clear whether petitioner's wife is a general
partner or a limited partner of Cedar Grove Limited Partnership.
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received from Ken Cheers were deposited into the Cedar Grove bank
accounts.
Revenue Agent Pamela Reicks (Ms. Reicks) was assigned to
examine the tax liabilities of petitioner. Ms. Reicks first
obtained information and documents from within the Internal
Revenue Service through the information returns program. This
program compiles information on taxpayers based upon informa-
tional returns submitted to the IRS, such as Forms 1099 and Forms
W-2.
Ms. Reicks then contacted petitioner and requested
additional information. Petitioner responded that he believed
the current tax system was a voluntary system, and he had no
intention of volunteering and filing returns. Petitioner
therefore did not provide Ms. Reicks with the information she
requested. Ms. Reicks reviewed the materials she did possess and
concluded that she did not have enough information to determine
petitioner's income accurately.
In order to determine the amount of petitioner's income for
the years 1987 to 1993, respondent relied on data obtained from
the Bureau of Labor Statistics (BLS). This data detailed what it
would cost a family to live, given petitioner's profession as a
business consultant. Thus, using the BLS data, respondent
determined that petitioner earned income of $44,939, $46,747,
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$48,847, $51,436, $53,732, $56,169, $58,697 for the taxable years
1987 to 1993, respectively.
Discussion
Section 61 provides that gross incomes includes income
derived from a business and as compensation for services. This
income is subject to the tax imposed by section 1. Section 63(b)
provides that, in the case of an individual who does not elect to
itemize deductions, the term "taxable income" means gross income
minus the standard deduction and the deduction for personal
exemptions. Respondent allowed petitioner these deductions.
Taxpayers are required to maintain books and records
sufficient to establish the amount of their gross income. Sec.
6001. If the taxpayer fails to do this, then respondent is
entitled to reconstruct the taxpayer's income through the use of
any reasonable method. Holland v. United States, 348 U.S. 121
(1954). The reliance on BLS statistics in reconstructing a
taxpayer's income has been held to be reasonable. See Giddio v.
Commissioner, 54 T.C. 1530, 1533 (1970).
In this case, petitioner neither filed Federal income tax
returns nor provided respondent with any books and records
concerning his business income or compensation income. Respon-
dent has linked petitioner to income from his farm rental
activities and his consulting services. In these circumstances,
respondent has broad latitude to reconstruct petitioner's income
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using the BLS data. See id. We find that respondent's recon-
struction of petitioner's income using the BLS statistics was
reasonable under these circumstances.
Petitioner argues that respondent's determination is
arbitrary and excessive, and therefore respondent has the burden
of proving that he had taxable income. See Day v. Commissioner,
975 F.2d 534, 537 (8th Cir. 1992), affg. in part and revg. in
part T.C. Memo. 1991-140. Petitioner bears the burden of proving
that the determination is arbitrary and excessive. Id. While we
agree with some of petitioner's statements of the law, we
disagree with petitioner's conclusion as it applies to this
case.2
In certain cases, courts will not sustain a deficiency
determination unless there is some predicate evidence that the
taxpayer received income from an activity. United States v.
Janis, 428 U.S. 433, 441-442 (1976); Day v. Commissioner, supra
at 537; Anastasato v. Commissioner, 794 F.2d 884, 887 (3d. Cir.
1986), vacating T.C. Memo. 1985-101. The evidentiary foundation
2
Petitioner also argues that we lack subject matter juris-
diction because the notice of deficiency was invalid. See Scar
v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), revg. 81 T.C. 855
(1983). In this case, the notice of deficiency explains respon-
dent's determinations in detail, including the basis for, and
computation of, the income determinations. We therefore reject
this argument and conclude that the notice of deficiency is
valid. See Campbell v. Commissioner, 90 T.C. 110 (1988).
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need only be minimal. Weimerskirch v. Commissioner, 596 F.2d
358, 361 (9th Cir. 1979), revg. 67 T.C. 672 (1977).
Petitioner's primary contention is that respondent has the
burden of proof in this case because it involves an under-
reporting of income. However, as previously discussed, respon-
dent has successfully linked petitioner to several income-
generating activities. Therefore, the burden of proof rests
squarely with petitioner. Petitioner's testimony at trial was
vague, diffuse, and did not address the factual issues in
dispute. We conclude petitioner has not produced sufficient
evidence to carry his burden of proof. Accordingly, we sustain
respondent's notice of deficiency with respect to the unreported
income.
Respondent determined that petitioner was liable for self-
employment taxes under section 1401. On brief, petitioner failed
to address this issue. We treat this failure as, in effect, a
concession by petitioner. See subparagraphs (4) and (5) of Rule
151(e); Money v. Commissioner, 89 T.C. 46, 48 (1987).
Respondent also determined that petitioner was entitled to
the standard deduction and exemptions for himself and his wife.
The BLS table that respondent used to determine petitioner's
income indicates that the average family unit contains a child
under the age of 18. Under these circumstances, we are persuaded
that respondent should have allowed petitioner an additional
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exemption for a dependent child. Accordingly, we conclude that
petitioner is entitled to an additional exemption for each year
at issue.
Finally, respondent determined that petitioner is liable for
the addition to tax for failure to file a timely return under
section 6651(a)(1) and the addition to tax for failure to pay
estimated income tax under section 6654(a). Petitioner has not
put forth any evidence to indicate that his failure to file tax
returns was due to reasonable cause and not due to willful
neglect. Sec. 6651(a); United States v. Boyle, 469 U.S. 241
(1985). Further, petitioner has not shown that he satisfied any
of the exceptions under section 6654. Accordingly, we sustain
respondent's determinations on these issues.
To reflect the foregoing,
Decision will be entered
under Rule 155.