Tenney v. Commissioner

T.C. Memo. 1998-267

UNITED STATES TAX COURT

JOHN BOYD TENNEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13707-93. Filed July 21, 1998.

John Boyd Tenney, pro se.

S. Mark Barnes, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

SWIFT, 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. Sec.
Year Deficiency 6653(b)(1) 6653(b)(2) 6654
1984 $ 43,110 $21,555 * $ 2,710

1985 10,601 5,301 * 607

Sec. Sec.
6653(b)(1)(A) 6653(b)(1)(B)
1986 134,065 $100,549 * 6,487

1987 1,180,713 885,535 * 63,770

Sec.
6653(b)(1)
1988 62,861 $47,146 -- 4,023

Sec.
6651(f)
1989 56,139 $41,561 -- 3,744

* 50 percent of interest due on portion of
underpayment attributable to fraud.

Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

After settlement of some issues, the issues for decision

are: (1) Whether petitioner received unreported income;

(2) whether petitioner is entitled to certain claimed deductions;

and (3) whether petitioner is liable for the fraud and other

additions to tax.

For the years in issue, petitioner has not filed Federal

income tax returns. Because petitioner did not maintain adequate

books and records, respondent determined petitioner’s income
 - 3 -

under a combination of the specific item and bank deposits

methods of proof.

FINDINGS OF FACT

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

When the petition was filed, petitioner resided in Salt Lake

City, Utah.

During the years in issue, funds were transferred to

petitioner from relatives, friends, and others (hereinafter

jointly referred to as investors), and petitioner used the funds

to make numerous investments in publicly traded stock.

For each year in issue, the identity of most investors who

transferred funds to petitioner, the total amount of funds

transferred to petitioner, and the nature and purpose of funds

transferred to petitioner are not established in the record.

During 1984 through 1989, after receipt of funds from

investors, petitioner generally did not treat the funds received

from investors as the funds of the investors. Rather, petitioner

deposited the funds received from investors into his personal

bank accounts, and petitioner used the funds to enter into

numerous transactions for the purchase and sale of stock and

commodities on his own behalf.

With funds received from investors, petitioner also

participated in promotional and market manipulation of the stock

of a number of corporations, including Cellwest, Inc. (Cellwest),
 - 4 -

a publicly traded Utah corporation of which petitioner was

president.

When investors requested an accounting of funds transferred

to petitioner, petitioner did not provide such an accounting, and

petitioner did not otherwise disclose to investors the status of

the funds.

Because petitioner used the funds received from investors to

invest on his own behalf, specific, identifiable proceeds

realized on transactions petitioner entered into with the funds

constitute proceeds and specific items of capital gain or loss

realized by petitioner personally, adjusted for petitioner's tax

bases in the various transactions where his tax bases are

established in the record.

Also, petitioner realized additional items of specific,

identifiable income in the form of partnership distributions,

royalties, interest income, fees, and various checks that were

not deposited into petitioner’s bank accounts but that were

either made payable to petitioner or endorsed over to petitioner.

The following schedule summarizes, separately for each year

in issue and by category of income only, the total of the

specific items of income that petitioner realized, that were

determined by respondent, and that we sustain:1

1
The total income figures reflected in the schedule take into
account any tax basis in the various specific stock and commodity
investments that petitioner has established.
 - 5 -

Year Category of Income Amount Total
1984 Gain from sale of stock and commodities $ 86,914
Partnership distributions 11,324
Royalties 1,213
$ 99,451

1985 Gain from sale of stock and commodities $ 15,385
Interest 7,731
$ 23,116

1986 Loss from sale of stock and commodities $ (5,313)
$ (5,313)

1987 Loss from sale of stock and commodities $(64,130)
Interest 154
Checks not deposited into petitioner’s
bank accounts 145,430
$ 81,454

1988 Gain from sale of stock and commodities $ 27,226
Interest 71
Fees 15,000
Checks not deposited into petitioner’s
bank accounts 44,100
$ 86,397

1989 Gain from sale of stock and commodities $ 83,165
Fees 59,155
$142,320

Also, during the years in issue, petitioner maintained one

personal bank account at each of the two banking institutions

indicated below, and petitioner made total deposits into these

two personal bank accounts in the amounts indicated:

Total
Year Banking Institution Bank Deposits
1985 Deseret Fed Sav & Loan Assoc $ 7,736

1986 Deseret Fed Sav & Loan Assoc 189,773

1987 Deseret Fed Sav & Loan Assoc $1,149,642
Guardian State Bank 255,678 1,405,320

1988 Guardian State Bank 34,532
 - 6 -

Also, in 1986 and 1987, petitioner deposited funds in the

total amounts of $87,665 and $176,130, respectively, into a

corporate bank account at Zions First National Bank in the name

of ReCom, Inc., a company related to Cellwest. Petitioner was a

signatory on this corporate account.

In 1986, from funds deposited into a money market account at

Merrill Lynch in petitioner's name and from funds deposited into

his bank account at Guardian State Bank, petitioner paid the

following business expenses for various consulting services:

Year Consulting Services
1986 $ 17,488
1987 121,190
1988 30,100

In 1986, petitioner filed for bankruptcy, and in January of

1987, petitioner received a discharge of many of his debts.

Also, in 1987, after having pledged as collateral his personal

residence and stock that he owned to obtain a loan for a

corporation, petitioner lost his personal residence in

foreclosure of the loan.

Since 1987, petitioner and his family have lived in a rental

home.

Beginning in the late 1980's, a number of lawsuits were

filed against petitioner on behalf of investors to recover funds

transferred to petitioner.
 - 7 -

In 1993, petitioner was convicted in Utah State court of

securities fraud, of selling unregistered securities, and of

selling securities as an unregistered agent.

As indicated, petitioner did not maintain adequate books and

records relating to the income he realized on his investments, to

the various investor funds that were transferred to and received

by him, and to his business expenses.

For 1984 through 1989, petitioner did not make estimated tax

payments, and for those years, petitioner has never filed

individual Federal income tax returns. In fact, it appears that,

for at least 16 years (1978 through 1993), petitioner has failed

to file individual Federal income tax returns.

During respondent’s audit, petitioner was generally

uncooperative. For example, petitioner specifically denied to

respondent’s agent that he owned any bank accounts.

On audit and in the notice of deficiency for the years in

issue, using a combination of the specific item and bank deposits

methods of proof, respondent charged petitioner with total

unreported income for each year as follows:

Year Unreported Income
1984 $ 102,985
1985 34,459
1986 281,042
1987 3,072,219
1988 197,223
1989 173,946
 - 8 -

In respondent's determination for each year of additional

income to be charged to petitioner under the bank deposits method

of proof, it appears that respondent did not credit against total

unexplained bank deposits the specific items of income that

respondent charged to petitioner under the specific item method

of proof. Also, for lack of substantiation, respondent

disallowed the majority of the losses claimed by petitioner

during the audit relating to petitioner's investments.

For each of the years in issue, respondent also determined

that petitioner was liable for additions to tax for fraud and for

failure to pay estimated tax.

After trial, respondent made certain concessions and

adjustments. For 1984 through 1987, respondent adjusted downward

respondent's income determinations for petitioner to reflect

petitioner's tax basis that was established in many specific

transactions. For 1988 and 1989, without amending his answer,

respondent attempted to adjust upward respondent's income

determination for petitioner on the basis of deposits into two

additional checking accounts at Utah Central Credit Union that

respondent became aware of for the first time during trial.2

2
In respondent's brief, respondent asserts that for 1988 and
1989 petitioner received additional unreported income of $218,257
and $113,935, respectively, based on deposits into the two
additional accounts in petitioner's name at Utah Central Credit
Union.
 - 9 -

The schedule below reflects for each of the years in issue a

summary of the revised, posttrial total income charged by

respondent to petitioner on the basis of (1) categories of

specific items of income and loss determined by respondent and

(2) deposits into petitioner’s and ReCom’s bank accounts that

respondent treats as taxable income to petitioner, including the

additional deposits that respondent charges to petitioner, as

income after trial:

Year Category of Income and Bank Deposits Amount Total
1984 Gain from sale of stock and commodities $ 86,914
Partnership income 11,324
Royalties received 1,213
$ 99,451

1985 Gain from sale of stock and commodities $ 15,385
Interest 7,731
Bank deposits
Deseret Fed Sav & Loan Assoc 7,376
$ 30,492

1986 Loss from sale of stock and commodities $ (5,313)
Bank deposits
Deseret Fed Sav & Loan Assoc 189,773
Zions First National Bank 87,665
$ 272,125

1987 Loss from sale of stock and commodities $ (64,130)
Interest 154
Checks 477,859
Loss carryover from 1986 (17,431)
Bank deposits
Deseret Fed Sav & Loan Assoc 1,149,642
Guardian State Bank 255,678
Zions First National Bank 176,130
$1,977,902
 - 10 -

1988 Gain from sale of stock and commodities $ 27,226
Interest 71
Compensation 15,000
Checks 114,080
Judgments against petitioner (88,222)
Bank deposits
Guardian State Bank 34,532
Utah Central Credit Union 102,199
Utah Central Credit Union 116,058
$ 320,944

1989 Gain from sale of stock and commodities $ 83,165
Compensation 59,155
Judgments against petitioner (10,851)
Bank Deposits
Utah Central Credit Union 34,925
Utah Central Credit Union 79,010
$ 245,404

OPINION

Where a taxpayer fails to maintain adequate books and

records, respondent is entitled to reconstruct a taxpayer's

income by any reasonable method. Sec. 446(b); Erickson v.

Commissioner, 937 F.2d 1548, 1553 (10th Cir. 1991), affg. T.C.

Memo. 1989-552; Parks v. Commissioner, 94 T.C. 654, 658 (1990);

United Dressed Beef Co. v. Commissioner, 23 T.C. 879, 885 (1955).

Section 61 provides that gross income includes all income

from whatever source derived. Commissioner v. Glenshaw Glass

Co., 348 U.S. 426, 431 (1955). Income "constitutes taxable

income when * * * [a taxpayer] has such control over it that, as

a practical matter, * * * [the taxpayer] derives readily

realizable economic value from it." Rutkin v. United States, 343

U.S. 130, 137 (1952).
 - 11 -

Generally, for purposes of tax deficiencies determined in

respondent's notices of deficiency, bank deposits are treated as

prima facie evidence of receipt of taxable income, and respondent

need not prove a taxable source of the deposits. Parks v.

Commissioner, supra; Tokarski v. Commissioner, 87 T.C. 74, 77

(1986); Estate of Mason v. Commissioner, 64 T.C. 651, 657 (1975),

affd. 566 F.2d 2 (6th Cir. 1977).

As explained, respondent argues that petitioner should be

taxed (1) under the specific item method of proof on specific

items of income that the evidence indicates petitioner received

during the years in issue (including gain petitioner realized on

the sale of stock and commodities and on funds petitioner

received from checks that were not deposited into petitioner's

bank accounts but that were made payable to petitioner or

endorsed over to petitioner) and (2) under the bank deposits

method of proof on funds deposited into petitioner’s personal and

ReCom’s bank accounts.

Respondent contends that petitioner's participation on his

own behalf in numerous transactions for the purchase and sale of

stock and commodities and petitioner's treatment as his own of

funds received from investors constitute the primary taxable

source of bank deposits charged to petitioner as taxable income.

Petitioner contends that funds he received from investors

were all invested on behalf of investors, that gains realized on

the sale of stock and commodities should not be treated as
 - 12 -

taxable income to him, and that in any event, if the large losses

and business expenses he incurred over the years are allowed, it

will be clear that net losses, not gains, were realized from

petitioner's numerous investment and business activities.

On the evidence in this case, we have found that under the

specific item method of proof petitioner is to be charged with

the following total gains and allowed the following total losses

from the sale of stock and commodities for each year:

Specific Items of
Year Gain and Loss
1984 $ 86,914
1985 15,385
1986 (5,313)
1987 (64,130)
1988 27,226
1989 83,165

Petitioner has not substantiated tax bases in the above sale

transactions in excess of those allowed by respondent.

Also, as we have found, petitioner is to be charged with

totals of $12,537 for 1984, $7,731 for 1985, $154 for 1987,

$15,071 for 1988, and $59,155 for 1989 in additional ordinary

income with regard to specific items of partnership

distributions, royalties, interest income, and fees.

For 1987 and 1988, also under the specific item method of

proof, respondent treats bank checks in the totals of $477,859

and $114,080, respectively (that petitioner received but which

were not deposited into petitioner’s bank accounts), as
 - 13 -

additional specific items of taxable income to petitioner. Of

the above checks, checks in the totals of $145,430 and $44,100,

respectively for each year, were either made payable directly to

petitioner or endorsed over to petitioner. Petitioner claims

that these specific checks relate to a stock trading scheme

involving petitioner and other individuals who transferred the

same funds back and forth to manipulate the price of stock, and

therefore that these checks should not be treated as taxable

income to petitioner. Petitioner has not presented credible

evidence of this alleged stock manipulation scheme, and the above

checks are to be treated as specific items of taxable income to

petitioner.

Certain additional checks in the totals of $332,430 and

$69,980 that were not deposited into petitioner’s bank accounts

in 1987 and 1988, respectively, and that were charged by

respondent to petitioner as additional items of specific income

were not made payable to petitioner. They were not endorsed over

to petitioner, nor were they deposited into petitioner’s bank

accounts. Respondent’s theory for charging these checks to

petitioner as specific items of taxable income appears to be that

on some of the checks petitioner’s name was written on the memo

line. Petitioner is not the indicated payee on these checks, and

the evidence does not establish that these checks benefited

petitioner. Funds represented by these checks are not to be

treated as constituting specific items of income to petitioner.
 - 14 -

With regard generally to respondent's bank deposits analysis

of additional income received by petitioner, the evidence

indicates that petitioner realized substantial proceeds from the

sale of stock and commodities. Also, petitioner deposited funds

received from investors into his personal bank accounts, and

petitioner invested those funds for his personal benefit.

Accordingly, those funds are to be treated as converted to

petitioner’s personal use and as a taxable source of deposits

into petitioner's bank accounts. It is thus established that at

least two taxable sources existed for the large deposits made

into petitioner's personal bank accounts (namely, proceeds from

the sale of stock and commodities and investor funds converted to

petitioner’s personal use).

Under the bank deposits method of proof and for purposes of

the tax deficiencies at issue herein, we conclude that for 1985,

1986, 1987, and 1988, total deposits of $7,376, $189,773,

$1,405,320, and $34,532, respectively, into petitioner's personal

bank accounts are to be treated as taxable income to petitioner.

No credible evidence indicates that petitioner used those funds

for business purposes.

The funds, however, deposited in 1986 and 1987 into ReCom's

corporate bank account at Zions First National Bank in the total

amounts of $87,665 and $176,130, respectively, should not be

treated as taxable income to petitioner. No credible evidence
 - 15 -

indicates that petitioner used these funds deposited into this

corporate account for personal purposes.

Total deposits of $218,257 and $113,935, respectively for

1988 and 1989, into petitioner's accounts at Utah Central Credit

Union that respondent, on brief, seeks to add to his

determination of petitioner's additional income under the bank

deposits method of proof, were not properly raised by respondent

by answer or by motion, and we decline to allow respondent to

raise these deposits for the first time on brief. Rule 41.

Because specific items of income that we charge to

petitioner herein could have been the source of unexplained

deposits into petitioner's bank accounts, to the extent

respondent has not credited against total unexplained bank

deposits charged as income to petitioner the specific items of

income that we charge to petitioner under the specific item

method of proof (other than the $145,430 and $44,100 for 1987 and

1988, respectively, that we charge to petitioner as specific

items of income arising from checks not deposited into

petitioner's bank accounts), petitioner, in the Rule 155

computation, is to be given credit therefor.

With regard to petitioner's claim that he incurred

substantial additional losses and expenses in each year that the

Court should allow as additional business expenses, we have found

that petitioner has established that he paid $17,488 in 1986,

$121,190 in 1987, and $30,100 in 1988 in business expenses from
 - 16 -

funds deposited into his money market account at Merrill Lynch

and from his bank account at Guardian State Bank. Petitioner is

to be allowed these expenses as deductible business expenses.

Petitioner's claim to additional losses and expenses beyond those

allowed herein is not supported by the evidence and is denied.

We reject petitioner's general claim that over the years in

issue he never realized any bottom line net income and that he

realized over the years in issue total losses in excess of $20

million. No credible evidence supports the nature and amount of

petitioner's claim to total net losses in any of the years before

us.

Petitioner points to his bankruptcy filing and to the loss

of his residence, and petitioner argues that respondent should

have performed a net worth analysis of petitioner's income for

the years in issue. Petitioner alleges that such a net worth

analysis would have corroborated losses he claims to have

realized over the years. Respondent, in this case, is under no

obligation to make such a net worth computation. As indicated,

respondent is entitled to reconstruct petitioner's income by any

reasonable method. Erickson v. Commissioner, 937 F.2d at 1553;

United Dressed Beef Co. v. Commissioner, 23 T.C. at 885.

With the exceptions noted, we sustain respondent's

determination of petitioner's taxable income for each of the

years in issue under the specific item and the bank deposits

methods of proof.
 - 17 -

Fraud and Other Additions to Tax

For 1984 and 1985, if any portion of a tax underpayment is

attributable to fraud, the addition to tax for fraud under

section 6653(b)(1) equals 50 percent of the total underpayment of

tax, and increased interest under section 6653(b)(2) equals 50

percent of interest payable under section 6601 but only with

respect to that portion of the underpayment that is attributable

to fraud. Respondent has the burden of proving what portion of

the underpayment is attributable to fraud.

For 1986, 1987, and 1988, the addition to tax for fraud

under section 6653(b)(1) equals 75 percent of that portion of a

tax underpayment that is attributable to fraud, and for 1986 and

1987, increased interest under section 6653(b)(1)(B) equals 50

percent of interest payable under section 6601 with respect to

that portion of a tax underpayment that is attributable to fraud.

For 1986, 1987, and 1988, where respondent proves that any

part of a taxpayer's underpayment of income tax is due to fraud,

fraud is presumed with respect to the entire underpayment unless

the taxpayer proves otherwise by a preponderance of the evidence.

Sec. 6653(b)(2).

For 1989, if a taxpayer fraudulently fails to file a tax

return, the fraudulent failure to file addition to tax under

section 6651(f) provides for an addition to tax equal to

15 percent of the amount required to be shown as tax on the
 - 18 -

return for every month the return is late, but not to exceed 75

percent.

To establish fraud for each of the years in issue,

respondent has the burden to prove by clear and convincing

evidence that a taxpayer underpaid the taxpayer's correct tax

liability and that part of the underpayment was due to fraudulent

intent. Sec. 7454(a); Rule 142(b); Zell v. Commissioner, 763

F.2d 1139, 1142 (10th Cir. 1985), affg. T.C. Memo. 1984-152;

Clayton v. Commissioner, 102 T.C. 632, 646 (1994); Recklitis v.

Commissioner, 91 T.C. 874, 909 (1988).

Where allegations of fraud are intertwined with unreported

and indirectly reconstructed income, respondent is required to

establish a likely source for the alleged unreported income.

DiLeo v. Commissioner, 96 T.C. 858, 873 (1991), affd. 959 F.2d 16

(2d Cir. 1992); Parks v. Commissioner, 94 T.C. at 661.

With respect to the fraud addition to tax only, bank

deposits will not be treated as taxable income unless respondent

proves a likely taxable source of the bank deposits or disproves

nontaxable sources alleged by the taxpayer. Parks v.

Commissioner, supra at 661.

For fraud purposes, a taxpayer is generally required to

present probative evidence of deductions not previously claimed

before respondent bears any burden of proof with regard to

alleged additional deductions claimed by a taxpayer. See United
 - 19 -

States v. Bender, 218 F.2d 869 (7th Cir. 1955); Rivera v.

Commissioner, T.C. Memo. 1979-343.

With regard to fraudulent intent, respondent is required to

prove that a taxpayer intended to evade taxes by conduct intended

to conceal, mislead, or otherwise prevent the collection of

taxes. Parks v. Commissioner, supra at 661; Frazier v.

Commissioner, 91 T.C. 1, 12 (1988).

Generally, fraud is established by circumstantial evidence

because direct evidence of fraud is not available. Clayton v.

Commissioner, supra at 647; Rowlee v. Commissioner, 80 T.C. 1111,

1123 (1983). Courts have developed certain indicia of fraud,

including the following: (1) Understatements of income;

(2) inadequate books and records; (3) unfiled tax returns;

(4) lack of cooperation with tax authorities; (5) implausible or

inconsistent explanations of behavior; (6) concealed assets; and

(7) illegal activity. Bradford v. Commissioner, 796 F.2d 303,

307-308 (9th Cir. 1986), affg. T.C. Memo. 1984-601; Clayton v.

Commissioner, supra at 647; Petzoldt v. Commissioner, 92 T.C.

661, 699-700 (1989); Recklitis v. Commissioner, supra at 910.

As indicated, petitioner argues that for the years in issue

he realized large losses, that he had no Federal income tax

liability, and therefore that no underpayment of tax exists.

Petitioner also argues that respondent has not established that

he fraudulently failed to file income tax returns and

fraudulently underpaid his correct Federal income tax liability.
 - 20 -

Petitioner claims that he did not file income tax returns for the

years in issue because he received no salary or wages and because

he earned no income.

In our consideration of the fraud addition to tax, we must

consider petitioner’s taxability on the specific items of income

and on the deposits into his bank accounts and petitioner’s

claimed losses and expenses in light of the placement of the

burden of proof on respondent by clear and convincing evidence.

For 1984, 1985, 1987, 1988, and 1989, the specific items

that we have charged to petitioner as income are established by

clear and convincing evidence, and the large expenses and losses

that petitioner claims are not supported by any credible

evidence.

With regard to the income charged to petitioner under the

bank deposits method of proof, respondent has established likely

taxable sources of the bank deposits, and petitioner makes no

credible argument as to nontaxable sources of those deposits.

Accordingly, for fraud purposes, we treat all of the unexplained

bank deposits as additional income to petitioner.

In the schedule below and for purposes of analyzing the

imposition of the fraud addition to tax, we set forth our

calculations of petitioner’s net income for each year in issue,

reflecting all expenses and losses that are allowed by respondent

and that are allowed herein:
 - 21 -

Year Category of Income, Expenses and Losses Amount Total
1984 Gain from sale of stock and commodities $ 86,914
Partnership distributions 11,324
Royalties 1,213
$ 99,451

1985 Gain from sale of stock and commodities $ 15,385
Interest 7,731
Bank deposits
Deseret Fed Sav & Loan Assoc 7,376
$ 30,492

1986 Loss from sale of stock and commodities $ (5,313)
Bank deposits
Deseret Fed Sav & Loan Assoc 189,773
Business expenses (17,488)
$ 166,972

1987 Loss carryover from 1986 $ (17,431)
Loss from sale of stock and commodities (64,130)
Interest 154
Checks not deposited into petitioner’s
bank accounts 145,430
Bank deposits
Deseret Fed Sav & Loan Assoc 1,149,642
Guardian State Bank 255,678
Business expenses (121,190)
$1,348,153

1988 Gain from sale of stock and commodities $ 27,226
Interest 71
Fees 15,000
Checks not deposited into petitioner’s
bank accounts 44,100
Bank deposits
Guardian State Bank 34,532
Business expenses (30,100)
Judgments against petitioner (88,222)
$ 2,607

1989 Gain from sale of stock and commodities $ 83,165
Fees 59,155
Judgments against petitioner (10,851)
$ 131,469

Based on the above calculations, there exist substantial

understatements of income for each of the years 1984 through 1987
 - 22 -

and for 1989. For 1988, the understatement of $2,607 may, in

isolation, not be regarded as substantial, but it does constitute

an understatement, and taken together with those of the other

years it reflects a pattern of understatement for all of the

years.3

With regard to fraudulent intent, the evidence establishes

for each year in issue that petitioner realized significant

income that he failed to report, that petitioner failed to pay

significant tax liabilities, that petitioner failed to maintain

adequate books and records, that petitioner failed to file income

tax returns, and that petitioner did not cooperate with

respondent. Petitioner attempted to conceal assets and bank

accounts, and petitioner misled respondent's agents. Petitioner

did not file Federal income tax returns for the years in issue

during which he realized substantial income.

We conclude that for each of the years in issue respondent

has proven by clear and convincing evidence that petitioner

fraudulently intended to evade his correct Federal income tax

liabilities.

3
As explained supra p. 15, to the extent respondent has not
credited against total unexplained bank deposits charged as
income to petitioner the specific items of income that we charge
to petitioner under the specific item method of proof,
petitioner, in the Rule 155 computation, is to be given credit
therefor, and adjustments to the above calculations will
be necessary and may affect the amount of the understatements for
each year.
 - 23 -

For each year, we conclude that the increases to

petitioner's taxable income that we have sustained herein

relating to the specific items of income and to the bank deposits

are attributable to fraud.

Section 6654(a) provides for an addition to tax for failure

to make timely estimated income tax payments. Petitioner has not

proven that an exception applies, and for each year in issue

petitioner is liable for the section 6654 addition to tax.

To reflect the foregoing,

Decision will be entered

under Rule 155.