Feraco v. Commissioner

T.C. Memo. 2000-312

UNITED STATES TAX COURT

FRANK J. & ANN M. FERACO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

THOMAS M. FERACO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 1759-99, 1760-99. Filed October 3, 2000.

James L. McDonald, Sr., for petitioners.

Gwendolyn C. Walker, for respondent.

MEMORANDUM OPINION

PAJAK, Special Trial Judge: These cases have been

consolidated for trial, briefing, and opinion. Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the years in issue.
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Respondent determined the following deficiencies in Federal

income taxes and penalties:

Deficiency 6662(a) Penalty
Frank J. &
Ann M. Feraco
1993 $5,880 $1,176
1994 3,822 764

Thomas M. Feraco
1993 $2,226 $445
1994 2,058 412

This Court must decide: (1) Whether petitioners' pro rata

shares of income and loss from their S corporation must be taken

into account in computing their taxable income for 1993 and 1994;

specifically: Whether Frank J. and Ann M. Feraco's income should

be increased by $21,006 in 1993 and by $14,218 in 1994; whether

the income of Thomas M. Feraco (Thomas) should be reduced by

$10,695 in 1993 and $8,091 in 1994; and whether petitioners’

casualty loss in 1994 should be adjusted; (2) whether Thomas had

capital gain income of $15,714 and $15,040 from distributions in

excess of his basis in the S corporation during 1993 and 1994,

respectively; (3) whether Thomas had additional unreported income

of $1,700 in 1993; (4) whether Thomas is entitled to claim

Schedule C expenses of $3,546 for 1993; (5) whether Thomas is

liable for self-employment tax for 1993 and is entitled to the

corresponding deduction; (6) whether petitioners are entitled to

a reduction in their 1994 distributive income resulting from an

amended return filed by the S corporation; and (7) whether
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petitioners are liable for the accuracy-related penalties for

1993 and 1994.

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

Petitioners resided in Marietta, Georgia, at the time they filed

their petitions. For clarity, we have combined our findings of

fact and opinion.

Petitioner Frank J. Feraco (Frank) and his son, Thomas,

organized Southern Auto Brokers, Inc. (Southern Auto), a used car

dealership, in 1992, as a result of Frank’s desire to help his

son earn some money and have a business. Southern Auto was

organized as an S corporation. The Articles of Incorporation

authorized Southern Auto to issue 100,000 shares of common stock.

Ten shares were issued to Frank and Ann M. Feraco on June 1,

1992. (Consistent with the presentations of the parties and for

simplicity, we refer to the owner of these shares as Frank.) Ten

shares also were issued to Thomas on June 1, 1992. Prior to the

incorporation of Southern Auto, Frank and Thomas decided that

funding would come from Frank as an interest free “loan” and

would be paid back when the business was capable of running on

its own or at the dissolution of the business.

On August 24, 1993, a meeting was held and the shareholders

agreed to appoint Bob Butler (Bob) to the Board of Directors and

make him Vice President of Southern Auto. The Minutes stated:
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It was also agreed to issue 10 shares of common stock at
a par value of $.001 per share to Bob Butler effective
September 1, 1993. This would result in a three way
ownership of the three stockholders each owning a third
of the business. Also Bob Butler would loan over time,
$25,000 interest free to the business. For the
remainder of 1993 Bob would share any Profit/Loss on a
pro rata basis (One Third).

No stock certificate was issued to Bob. Bob “loaned”

Southern Auto $10,000, but did not “loan” the remaining $15,000

to Southern Auto.

Frank believed that initially Bob was able to handle the

responsibilities that he had at Southern Auto. However, within a

year Bob’s performance became unsatisfactory. Among other

things, Bob often failed to lock up the building, did sloppy

paperwork, and neglected to comply with sales requirements and

keep records. Bob’s performance never improved.

On January 9 and 10, 1995, Frank and Thomas, and Bob,

respectively, signed a Termination of Stock Purchase and/or Stock

Option Agreement between Southern Auto and Bob. None of Southern

Auto's employees signed such an agreement. The agreement states

in relevant part:

WHEREAS, on or about August 24, 1993, the Corporation
and Butler entered into an agreement in the nature of a
stock purchase and/or stock option agreement ("Stock
Purchase Agreement") by which Butler was to receive ten
shares of common stock (one-third of the total thirty shares
of common stock) of Corporation and, in consideration
thereof, was to make an interest-free loan to the
Corporation, over time, in the amount of Twenty-Five
Thousand Dollars ($25,000.00); and * * *
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WHEREAS, Butler has, to date, loaned only a portion of
the total loan commitment, that portion loaned being Ten
Thousand Dollars ($10,000.00); and

WHEREAS, Butler has not been given any certificates of
stock and, in fact, no transfer of stock to Butler has
occurred; and * * *

WHEREAS, the Corporation and Butler believe that it is
in the best interest of the Corporation and Butler to
terminate said Stock Purchase Agreement effective
immediately;

NOW THEREFORE, IT IS AGREED AS FOLLOWS:

1. TERMINATION DATE: The aforementioned Stock
Purchase Agreement is hereby terminated effective
immediately.

2. RELINQUISHMENT OF INTEREST: For valuable
consideration, the receipt of which is hereby acknowledged,
Butler hereby assigns, transfers, and conveys to the
Corporation all of his right, title, or interest in said
Corporation, along with all of his right or option to
purchase or receive common stock of the Corporation.

3. REFUND OF STOCK PURCHASE PRICE: In consideration
whereof, the Corporation shall contemporaneously refund to
Butler, the receipt of which is hereby acknowledged that
portion of his loan to the Corporation which has been
received by the Corporation to date, in the amount of Ten
Thousand Dollars ($10,000.00) with no interest to be paid;
and will pay all commissions due and owing to Butler for the
month of December of 1994.

As set forth in the August 24, 1993, Minutes of Southern

Auto, prior to the termination of the stock purchase agreement,

Frank, Thomas, and Bob, were to share any profit or loss of

Southern Auto on a pro rata basis, one-third each.

At trial, Frank claimed this agreement to share profits

meant they shared the gross profit on the cars, one-third each as
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commission. The gross profit from the cars was allegedly

determined after the expenses attributable to the cars were paid,

which included commissions paid to salespersons, but before

payment of expenses such as building expenses, rent, and salaries

of the administrative staff. Frank further testified that after

all expenses of the business were paid, the net profit would be

split by the shareholders. At trial, Frank claimed the

shareholders in 1993 and 1994 were Thomas and himself.

The testimony regarding the computation of the amounts paid

to Frank, Thomas, and Bob, the amounts that should have been paid

to each, and the number of shareholders was not consistent with

the written documentation. Further, Frank’s claim that the three

men split the gross profits from the sale of cars is questionable

because Southern Auto’s sole source of income was the sale of

cars and if all car profits were divided there would be nothing

left to pay the building and other administrative expenses.

In practice, Frank usually would not take his share because

of Southern Auto's cash-flow problems. He believed that Thomas

and Bob should take the money because they had no other source of

income to support their families. Apparently, Thomas and Bob

took money from the business as they needed it.

On Southern Auto's 1993 and 1994 tax returns, which were

signed under penalty of perjury, Frank, Thomas, and Bob were

listed as shareholders, with their shares of income, credits, and
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deductions shown, on Schedules K-1, Shareholder’s Share of

Income, Credits, Deductions, etc. Thomas Doran (Doran), a

C.P.A., prepared Southern Auto's tax returns for 1993 and 1994.

Doran said that the owners of Southern Auto provided the

information as to the percentages of stock ownership on the

Schedules K-1. Frank based the percentages on the dollar amounts

that each individual actually had been paid. According to an

undated memo to the file signed by Frank, Thomas, and Bob, “the

corporation profits would be dispersed to the shareholders (Tom,

Bob, and [Frank]) based upon the actual dollars received as a

percentage of the total.” This method of allocation was

presented to two accountants, at least one of whom was a

Certified Public Accountant, who told petitioners it was

acceptable to allocate the profit based on dollars received as a

percentage of the total dollars distributed.

According to Southern Auto's records, cash distributions to

Frank, Thomas, and Bob totaled $82,668 in 1993. Southern Auto's

distributive ordinary income as reported on the 1993 return was

$57,638. According to Southern Auto's records, cash

distributions to Frank, Thomas, and Bob totaled $135,529 in 1994.

Southern Auto's distributive ordinary income as reported on the

1994 return was $140,310.

The breakdown of the recorded cash distributions is set

forth under the heading of cash withdrawals. The percentage
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derived from distributions received over total distributions is

set forth under the heading of percentages. The amounts reported

on the Schedules K-1 (based on a multiplication of the

percentages times net earnings) are set forth under the heading

of income reported. The income reported was reported on

petitioners’ individual income tax returns.

1993

Frank Thomas Bob Totals

Cash withdrawals $6,000 $52,386 $24,282 $82,668

Percentages 8.0% 63.0% 29.0% 100%

Income reported $4,611 $36,312 $16,715 $57,638

1994

Frank Thomas Bob Totals

Cash withdrawals $29,000 $54,341 $52,188 $135,529

Percentages 23.2% 39.1% 37.7% 100.0%

Income reported $32,552 $54,861 $52,897 $140,310

Southern Auto had a casualty loss of $5,594 in 1994, which

petitioners again divided based on the percentages of actual

distributions they received.
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Respondent’s position is that the division of income should

be based on each individual's pro rata share of stock with the

result that income is increased or decreased in rounded numbers

as follows:

1993

Frank Thomas Bob Total

Owner: full year full year as of 9/1/93

½ share
Jan.-Aug. $19,213 $19,213 $ 0 $38,425*

1/3 share
Sept.-Dec. 6,404 6,404 6,404 19,213

Income $25,617 $25,617 $ 6,404 $57,638

Less income
reported (4,611) (36,312) *$1.00
difference
Increase/ due to
decrease $21,006 ($10,695) rounding

1994

Frank Thomas Bob Total

Owner: full year full year full year

1/3 share
Jan.-Dec. $46,770 $46,770 $46,770 $140,310

Income $46,770 $46,770 $46,770 $140,310

Less income
reported (32,552) (54,861)

Increase/
decrease $14,218 ($8,091)
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For 1994, Frank reported a casualty loss of $1,298 and

Thomas reported a casualty loss of $2,187. In the notices of

deficiency, respondent determined that the casualty losses were

to be adjusted.

Southern Auto filed an amended return for 1994 restating the

gross receipts. Doran, who prepared the return, believed the

1994 gross receipts had been overstated. A statement attached to

the amended return claims that “as a result of a prior year IRS

examination; A/R of $20,180 were included in 1993 income.

Subsequently, the actual collection of the same $20,180 occurred

in 1994 and was erroneously included in line 1 of gross sales.”

We observe that both the original return and the amended return

were reported on the modified accrual basis. Based on amended

Schedules K-1 from Southern Auto, petitioners filed amended

returns and claims for refunds. Respondent rejected petitioners’

claims for refund.

Respondent determined that Thomas received $15,714 and

$15,040 of capital gain income as the result of distributions

from Southern Auto in excess of his basis during 1993 and 1994,

respectively.

Respondent also determined that in 1993 Thomas had $1,700 of

unreported Schedule C income based on a bank deposits analysis.

In 1993, Thomas was going through a divorce. He had six

different checking accounts, and his wife was “bouncing” checks,
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so he covered checks by moving money from one account to another.

He claimed the $1,700 could have been a result of the transfers,

but he did not identify any such transfer.

Respondent also disallowed $3,546 of expenses claimed on

Thomas' Schedule C in 1993. Thomas testified that he incurred

these expenses on behalf of Southern Auto. He occasionally would

use his own money to have cars washed and to buy gas and parts

for cars. Thomas did not ask to be reimbursed because he knew

that Southern Auto had cash-flow problems.

Based on the additional Schedule C income of $1,700 and the

disallowance of $3,546 of Schedule C expenses, respondent also

determined that Thomas’ self-employment tax should be increased

by $741 and that he was entitled to an additional self-employment

tax deduction of $371.

Section 61 defines gross income as all income from whatever

source derived. With respect to an S corporation, section

1366(a) provides that in determining a shareholder's tax

liability, there shall be taken into account the shareholder's

pro rata share of the corporation's items of income and

deduction. A shareholder's pro rata share of any item for any

taxable year is the sum of the amounts determined by assigning an

equal portion of such item to each day of the taxable year, and

then by dividing that portion pro rata among the shares

outstanding on such day. Sec. 1377(a)(1).
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To determine whether a taxpayer is a shareholder of a

corporation for Federal income tax purposes, courts look to

beneficial ownership, and not merely to legal title. Pahl v.

Commissioner, T.C. Memo. 1996-176, affd. 150 F.3d 1124 (9th Cir.

1998). Because courts cannot successfully conjecture as to the

subjective intent of the parties when determining who had

beneficial ownership, the courts must rely on the objective

evidence of intent provided by the parties' overt acts. Pacific

Coast Music Jobbers, Inc. v. Commissioner, 55 T.C. 866, 874

(1971), affd. 457 F.2d 1165 (5th Cir. 1972). A taxpayer can own

an interest in a corporation without holding any physical

evidence thereof. Richardson v. Shaw, 209 U.S. 365 (1908);

Bonsall v. Commissioner, 317 F.2d 61, 63 (2d Cir. 1963), affg.

T.C. Memo. 1962-151.

Based on the facts of these cases, we find that Bob had

beneficial ownership in and was a shareholder of Southern Auto.

The August 24, 1993, Minutes of Southern Auto state that "It was

also agreed to issue 10 shares of common stock at a par value of

$.001 per share to Bob Butler effective September 1, 1993."

Contrary to petitioners' argument, the agreement was not an

option to purchase stock in the future. The stock was to be

issued on September 1, 1993. Bob also agreed to "loan over time,

$25,000 interest free to the business." However, the "loan" of

$25,000 was not a precondition before Bob became a shareholder.
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Rather, it was an entirely separate event. Moreover, there was

no specific time in which he was supposed to lend the money.

Bob was listed as a shareholder of Southern Auto on the

Schedules K-1 in 1993 and 1994. These Schedules K-1 were

attached to the Forms 1120S, U.S. Income Tax Return for an S

Corporation, which were signed under penalties of perjury by

Frank. Because there was no objection to such Schedules K-1 by

Thomas, we find these Schedules K-1 showed that both Frank and

Thomas believed Bob was a shareholder and treated him as such.

Bob performed different duties than did the salespeople.

Petitioners argued that Frank, Thomas, and Bob received

"commissions", but Frank never sold any cars and the three of

them took "commissions" on all of the sales by the salespeople.

Such sharing of earnings is typical of owners, not fellow

employees. Bob's position as Vice President and his appointment

to the Board of Directors are more typical of an owner than of an

employee. Cf. Pahl v. Commissioner, supra.

Petitioners stress that stock was never issued to Bob.

However, as stated above, beneficial ownership, not legal title,

is controlling. Pahl v. Commissioner, supra. Although Federal

tax law controls, we note that under Georgia law, shares of stock

need not be represented by certificates under section 14-2-626 of

the Official Code of Georgia Annotated. Ga. Code Ann. sec. 14-2-

625(a) (1999). Here, there were enough shares of stock of
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Southern Auto to be issued to Bob, and the board of directors

authorized the 10 shares of common stock to be issued on a

specific date. After August 24, 1993, and until termination of

the stock purchase agreement, Bob was consistently treated as if

he were a shareholder.

The termination agreement states that Bob was never a

shareholder, but this after-the-fact agreement, when weighed

against the other facts in these cases, is not persuasive. The

agreement states that it is a “Stock Purchase Agreement” and a

number of references are made to the term “stock purchase” in the

agreement. The agreement also states that Bob gave up all of his

right, title, or interest in Southern Auto. This statement would

be unnecessary if Bob were working solely for commission and had

no ownership interest. We believe this is an acknowledgment that

Bob was more than just an employee. Petitioners never had any of

their employees sign such a contract.

Bob was treated as a shareholder, and he received the

benefits of being a shareholder. We find he was a shareholder in

Southern Auto for the last third of 1993 and for all of 1994.

Under section 1366(a), Southern Auto's items of income,

deduction, and loss must be divided pro rata among Frank, Thomas,

and Bob as prescribed by section 1377(a)(1). Petitioners do not

contest respondent's calculations. Accordingly, we sustain

respondent's determinations as to the reallocation of Southern
 - 15 -

Auto's income in 1993 and 1994 and the casualty loss in 1994.

Thus, we hold that Frank’s income is increased by $21,006

and $14,218 in 1993 and 1994, respectively, and his casualty loss

is increased by $567 in 1994. Thomas’ income is reduced by

$10,695 and $8,091 in 1993 and 1994, respectively, and his

casualty loss should have been reduced by $322 in 1994. However,

with respect to Thomas’ casualty loss, respondent in the

applicable notice of deficiency erroneously concluded that

Thomas’ “taxable income is decrease [sic] by $1,865", and

compounded the error by subtracting the $1,865 from taxable

income instead of reducing his casualty loss from $2,187 to

$1,865 and thereby increasing taxable income by $322. In the

trial memorandum, respondent first states Thomas’ casualty loss

should be reduced by $1,865 and then states his loss is $1,865.

On brief, respondent states the adjustment should be “($1,865)”,

then states the loss should be increased by $1,865, and then

states his loss is $1,865. Respondent is obviously confused with

respect to this adjustment. In any event, we do not believe

respondent has standing to raise this issue for the first time in

a memorandum or on brief. Nash v. Commissioner, 31 T.C. 569, 574

(1958). Respondent did not amend the answer to increase the

deficiency over that determined in the notice of deficiency.

Accordingly, we sustain respondent’s determination on this issue

as set forth in the notice of deficiency.
 - 16 -

Respondent determined that Thomas received $15,714 and

$15,040 of capital gain income as the result of distributions

from Southern Auto in excess of his basis during 1993 and 1994,

respectively. Thomas did not address this issue at trial, nor

did he provide any evidence that he had a basis greater than that

determined by respondent. Section 1368(a) provides that a

"distribution of property made by an S corporation with respect

to its stock to which (but for this subsection) section 301(c)

would apply shall be treated in the manner provided in subsection

(b) or (c), whichever applies." Southern Auto did not have any

accumulated earnings and profits during 1993 and 1994. Section

1368(b) provides that if such a distribution is made by an S

corporation which has no accumulated earnings and profits, the

distribution shall not be included in gross income to the extent

that it does not exceed the adjusted basis of the stock, and the

amount of the distribution which exceeds the adjusted basis of

the stock shall be treated as gain from the sale or exchange of

property. In general, the shareholder's basis in the stock of an

S corporation is increased by the shareholder's pro rata share of

the corporation's income, decreased by the shareholder's pro rata

share of the corporation's losses and deductions, and decreased

by the amount of the distributions that are not includable in

income.
 - 17 -

In the notices of deficiency, respondent determined that

Thomas received distributions from Southern Auto of $41,331 in

1993 and $59,945 in 1994. These figures are different from the

figures in Southern Auto’s work papers introduced into evidence

at trial. One work paper indicates that in 1993 the distribution

was $52,386 and another that it was $54,480. For 1994, the

distribution was $54,341. On brief, respondent continues to

contend that the correct figures are $41,331 and $59,945.

Because petitioners did not explain or substantiate the figures

in the work papers, we base our rulings on the amounts determined

by respondent.

Thomas’ basis at the beginning of 1993 was zero. His 1993

pro rata share of the corporation’s income of $25,617 is to be

added to his basis under section 1367(a)(1)(A). The distribution

to Thomas was $41,331, which exceeds his adjusted basis by

$15,714. The $15,714 is taxable as capital gains. Sec. 1368(b).

Thomas’ basis at the beginning of 1994 was zero. His 1994 pro

rata share of the corporation's income of $46,770 is to be added

to his basis. His adjusted basis is then reduced by $1,865 for

his pro rata share of Southern Auto's casualty loss, for a total

adjusted basis of $44,905. Sec. 1367(a)(2)(B). The 1994

distribution of $59,945 exceeds this adjusted basis by $15,040.

The $15,040 is taxable as capital gains. Accordingly, we sustain
 - 18 -

respondent's determination that Thomas had capital gain income

which totaled $15,714 and $15,040 in 1993 and 1994, respectively.

Under section 6001, a taxpayer must maintain adequate books

and records of taxable income. In the absence of adequate

records, the Commissioner is authorized to reconstruct a

taxpayer's income by any reasonable method that clearly reflects

income. Sec. 446(b). A bank deposit is prima facie evidence of

income, and the Commissioner does not need to prove a likely

source of that income. Estate of Mason v. Commissioner, 64 T.C.

651, 656-657 (1975), affd. 566 F.2d 2 (6th Cir. 1977); Smith v.

Commissioner, T.C. Memo. 1993-460.

Respondent determined that Thomas had $1,700 of unreported

income in 1993 after an analysis of Thomas' bank deposits.

Thomas claimed that the payments may have been a transfer from

one of his other accounts. The burden of showing duplication is

on the petitioner. Estate of Mason v. Commissioner, supra at

657-659; Zarnow v. Commissioner, 48 T.C. 213, 216 (1967). Thomas

did not provide any records to support his position.

Accordingly, we conclude that Thomas had $1,700 of unreported

income in 1993. Respondent determined that this $1,700 was

Schedule C income. Petitioner did not prove otherwise.

Respondent’s determination is sustained.

Section 162 provides for a deduction for all ordinary and

necessary expenses paid or incurred during the taxable year in
 - 19 -

carrying on a trade or business. Section 62(a)(2) allows a

deduction for expenses paid or incurred by the taxpayer, in

connection with the performance of services as an employee, under

a reimbursement or other expense allowance arrangement with his

employer. Such expenses are deductible as miscellaneous itemized

deductions subject to the 2-percent of adjusted gross income

floor. Sec. 67.

Respondent disallowed $3,546, the total amount of expenses

claimed on Thomas' 1993 Schedule C, because Thomas did not

establish that the expenses were for an ordinary and necessary

business purpose. The notice of deficiency stated that the

"expenses are employee business expenses properly deductible as

miscellaneous deductions on Schedule A; however, you did not

itemize deduction[s] and the standard deduction is to your

advantage". At trial, Thomas testified that the amounts were

spent for car washes, gas, and parts for the cars owned by

Southern Auto. These amounts properly are deductible under

section 62(a)(2) as miscellaneous itemized deductions. However,

Thomas did not elect to itemize on his 1993 return. Accordingly,

we sustain respondent on this issue.

Because of the additional Schedule C income of $1,700 and

the disallowance of $3,546 of Schedule C expenses for 1993,

Thomas is liable for an increase in self-employment tax of $741
 - 20 -

and an increase of his self-employment deduction of $371 as

determined by respondent for 1993.

Southern Auto filed an amended 1994 Form 1120S, U.S. Income

Tax Return for an S Corporation, to reduce its ordinary income by

$20,180. Based on revised Schedules K-1 from Southern Auto,

petitioners filed claims for refund. Respondent’s position is

that these claims for refund are meritless because there was no

showing that the $20,180 actually was reported in more than 1 tax

year. No evidence was presented by petitioners to prove that

fact. In other words, petitioners did not establish that the

amount in question was reported in more than 1 tax year. We hold

that petitioners are not entitled to a reduction in their 1994

income.

Section 6662(a) provides for an accuracy-related penalty in

the amount of 20 percent of the portion of an underpayment of tax

attributable to, among other things, negligence or disregard of

rules or regulations. Sec. 6662(a), (b)(1). Section 6664(c)(1)

provides that no penalty shall be imposed if it is shown that

there was reasonable cause for the underpayment and that the

taxpayer acted in good faith. The determination of whether a

taxpayer acted with reasonable cause and in good faith depends

upon the facts and circumstances. Sec. 1.6664-4(b)(1), Income

Tax Regs. Reliance on the advice of an accountant may

demonstrate reasonable cause and good faith. United States v.
 - 21 -

Boyle, 469 U.S. 241, 250-151 (1985); sec. 1.6664-4(b)(1), Income

Tax Regs.

In this case, petitioners were completely inexperienced in

managing the financial affairs of a business and in operating

under the Subchapter S rules. The Board of Directors decided

that Southern Auto's profits should be dispersed to the

stockholders (Frank, Thomas, and Bob) based upon actual dollars

received as a percentage of the total. This allocation was then

presented to two different independent accountants, at least one

of whom was a Certified Public Accountant, who told petitioners

that this was acceptable and that the Board could allocate the

profit as a percentage of the actual distributions. Petitioners,

pursuant to this advice, provided the accountant with the actual

allocations of the distributions and the other financial

information from Southern Auto. We find that petitioners

reasonably relied upon the advice they received. Petitioners had

reasonable cause and acted in good faith. We find for
 - 22 -

petitioners as to the penalties.

To the extent we have not addressed any of the parties'

arguments, we have considered them and find them to be without

merit.

Decisions will be entered

for respondent as to the

deficiencies and for

petitioners as to the

penalties.