Sawyer v. Comm'r

T.C. Memo. 2015-55

UNITED STATES TAX COURT

JERRY A. SAWYER AND KATIE L. SAWYER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19412-12. Filed March 24, 2015.

Troy Renkemeyer, for petitioners.

Randall L. Eager, Jr., and Douglas S. Polsky, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

PARIS, Judge: By notice of deficiency (notice), respondent determined

deficiencies in Federal income tax of $89,006 and $60,286 and accuracy-related

penalties of $17,801 and $12,057 for petitioners’ tax years 2008 and 2009,

respectively.
 -2-

[*2] The parties have resolved most of the issues giving rise to the deficiencies.1

The issues remaining for decision are whether petitioners (1) underreported gross

receipts by $285,975 on Schedule C attached to their Form 1040, U.S. Individual

Income Tax Return, for tax year 2008, (2) are entitled to reduce Schedule C gross

receipts by $52,550 for costs of goods sold--labor for tax year 2008, and (3) are

liable for the section 6662(a)2 accuracy-related penalty for both years.

FINDINGS OF FACT

Petitioners, husband and wife, resided in Missouri at the time they filed

the petition.3 Petitioners are cash method taxpayers who make their return on the

calendar year basis.

1
By stipulation of facts, the parties have stipulated certain adjustments to
Mr. Sawyer’s 2008 expenses reported on Schedule C, Profit or Loss From
Business (Sole Proprietorship), set forth in greater detail infra. The parties have
also stipulated that there is a deficiency of $30,647 for tax year 2009.
2
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.
3
The parties stipulated that petitioners resided in Overland Park, Kansas, at
the time they filed the petition. In the petition, however, petitioners declared an
address in Buckner, Missouri. The Missouri address is the same address
petitioners used in their tax returns and is their address of record with the Court.
Overland Park appears to be the address of petitioners’ counsel. The Court will
disregard the stipulation as inconsistent with the petition. See Rule 91(a); see also
Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181, 195-196 (1989).
 -3-

[*3] During the years in issue Mr. Sawyer owned and operated an asphalt paving

business known as Alan’s Asphalt. Alan’s Asphalt is a sole proprietorship, the

income and expenses of which petitioners reported on Schedules C for the years in

issue. Mr. Sawyer’s full name is Jerry Alan Sawyer, and he seems to use either or

both names throughout the documents.

Alan’s Asphalt provided paving and repair services for businesses and

individuals. Mr. Sawyer managed business operations, including negotiation of

most of the contracts for projects and handling the company’s finances. Mr.

Sawyer performed much of the labor himself, particularly when it involved the use

of grading equipment and other heavy machinery but also hired day laborers. Mrs.

Sawyer, petitioners’ adult son, and Mr. Sawyer’s brother all routinely provided

assistance to the business as well.

Alan’s Asphalt serviced a wide geographic area including Florida and much

of the Midwest, and Mr. Sawyer traveled frequently for work. Consequently,

Alan’s Asphalt did not retain a permanent labor crew but instead hired day

laborers on a short-term basis whenever he arrived in a new city. These

individuals were paid in cash at the end of each day, usually $100 but not more

than $200, depending on their skills and the work involved in a given project.
 -4-

[*4] Alan’s Asphalt did not issue any Forms 1099-MISC, Miscellaneous Income,

to the laborers.

Clients of Alan’s Asphalt generally paid Mr. Sawyer by cash or check.

Petitioners’ banks did not maintain branches in many of the cities Mr. Sawyer

visited, but Mr. Sawyer frequently required cash on hand to pay laborers and other

business expenses incurred on the job. When a client paid Alan’s Asphalt by

check, Mr. Sawyer would take the check to a local bank, where he would convert

it into one or more cashier’s checks while retaining a portion of the funds as cash.

Mr. Sawyer would later deposit the cashier’s checks and any remaining cash into

his and Mrs. Sawyer’s personal bank accounts.

Petitioners filed a joint return for tax year 2008. On that return they

reported adjusted gross income of $43,605, zero taxable income, and total tax

owed of $6,628. Petitioners’ adjusted gross income consisted of taxable interest

of $12 and business income from Alan’s Asphalt of $46,907. On Schedule C for

Alan's Asphalt petitioners reported gross receipts or sales of $375,850 and cost of

goods sold totaling $205,890 and claimed business expense deductions totaling

$123,053. The cost of goods sold comprised claimed purchases of $153,340 and

labor costs of $52,550.
 -5-

[*5] Petitioners filed a joint return for tax year 2009 on which they reported

adjusted gross income of $45,284, zero taxable income, and total tax owed of

$6,883. Petitioners’ adjusted gross income consisted of taxable interest of $16 and

business income from Alan’s Asphalt of $48,710. On Schedule C for Alan’s

Asphalt petitioners reported gross receipts or sales of $266,867 and cost of goods

sold totaling $135,788 and claimed business expense deductions totaling $82,369.

Respondent’s revenue agent, Lisa DuPont (RA DuPont), examined

petitioners’ returns and, because she could not reconcile the amounts reported on

petitioners’ returns with the books and records of Alan’s Asphalt, requested copies

of petitioners’ bank records. RA DuPont reviewed petitioners’ bank records and

completed a bank deposits analysis based on her review of all of the deposits made

into petitioners’ bank accounts during the 2008 and 2009 tax years.

On the basis of the bank deposits analysis RA DuPont concluded that

petitioners had deposited $327,602 into their bank accounts during 2008 and that

those deposits constituted gross income derived from the business activities of

Alan’s Asphalt. RA DuPont also reviewed 27 customer invoices that Mr. Sawyer

had prepared on behalf of Alan’s Asphalt. The invoices reported amounts

received for paving jobs as follows:
 -6-

[*6] Date Customer Name Amount
Mar. 3, 2008 Lake House Inn $7,250
Mar. 4, 2008 Feweil’s Automotive 17,800
Mar. 20, 2008 Floyd Kurzwell 2,220
Apr. 1, 2008 Dirty Duck Bar and Grill 8,400
Apr. 3, 2008 Hwy 5 Storage 2,300
Apr. 8, 2008 Midwest Kennel 2,300
Apr. 9, 2008 Greg Miller 4,500
Apr. 14, 2008 Ernest Rogers 7,000
Apr. 15, 2008 Robert Brewington 5,000
Apr. 17, 2008 Melvin Phipps 2,000
May 2, 2008 Aspen Lawn & Landscape 9,140
June 7, 2008 Mary and Earl Weddel 13,000
June 11, 2008 Swim Things, Inc. 9,000
June 23, 2008 K&M Ranch House Restaurant 8,500
June 25, 2008 Harrell Ridley Farms 2,750
July 18, 2008 H&K Trucking, LLC 8,024
July 22, 2008 H&K Trucking, LLC 12,544
July 22, 2008 Metcalf Excavating 46,000
July 22, 2008 Dave Tonder 70,000
Aug. 12, 2008 Doug Teters 8,600
Aug. 14, 2008 Mervil Mullenay 4,900
Aug. 17, 2008 Louise Forster 19,300
Aug. 20, 2008 Western Implement Co., Inc. 31,380
 -7-

[*7] Aug. 22, 2008 n/a 3,000
Aug. 28, 2008 Smith Farms 28,800
Oct. 27, 2008 Jim Crowley 1,350
Oct. 27, 2008 Jim Crowley 4,366
Total 339,424

Because of Mr. Sawyer’s spotty recordkeeping and haphazard method of

depositing customer payments, with certain minor exceptions RA DuPont was

unable to link the invoices to specific entries on the bank deposits analysis.4 She

concluded that the amounts on the invoices represented separate items of income

and increased the gross receipts of Alan’s Asphalt by $334,224 for 2008. Adding

the gross receipts from the invoices to the $327,602 of deposited funds, RA

DuPont determined that Alan’s Asphalt received total gross receipts of $661,826

and that petitioners had therefore underreported Alan’s Asphalt’s gross receipts by

$285,975. RA DuPont also concluded that petitioners were not entitled to

deductions for a number of other items reported on the returns, including the

4
RA DuPont was able to link $1,000 of the proceeds from the Kurzwell
invoice and $3,600 of the proceeds from the Aspen Lawn & Landscape invoice to
specific deposits in her bank deposits analysis. The Lake House Inn invoice states
that $600 of the payment would be provided in the form of one month’s rent. RA
DuPont disregarded this amount on the grounds that petitioners would have been
entitled to a deduction for the same amount. The invoice total was reduced by
these amounts, and the gross receipts of Alan’s Asphalt was increased by the
remaining $334,224 instead of the original total of $339,424.
 -8-

[*8] $52,550 of labor costs for 2008. RA DuPont performed a similar analysis for

the 2009 tax year and determined that petitioners had underreported the gross

receipts of Alan’s Asphalt by $136,808 and had overstated certain other

deductions and costs for that year.

Following a review of RA DuPont’s adjustments to petitioners’ 2008 and

2009 income by the Internal Revenue Service Appeals Office, respondent issued

the notice. Respondent determined deficiencies of $89,006 and $60,286 for tax

years 2008 and 2009, respectively and section 6662(a) accuracy-related penalties

of $17,801 and $12,057 for 2008 and 2009, respectively. The deficiencies

reflected, among other adjustments, the determination that petitioners had

underreported the gross receipts of Alan’s Asphalt by $285,975 and the denial of

the claimed deductions for $52,550 of labor costs for tax year 2008.

Petitioners timely filed a petition with this Court. The parties have

stipulated that the following adjustments to petitioners’ 2008 Schedule C were

correct and proper:

Item Amount1
Office expenses $500
Insurance 5,170
Utilities 2,400
 -9-

[*9] Supplies (7,485)
Repairs 38
Travel 3,287
Car & truck 6,289
Cost of goods sold--purchases (60,718)
Advertising -0-
Rent/lease -0-
Other expenses -0-
Depreciation -0-
Meals & entertainment -0-

1
These figures represent downward adjustments to reflect respondent’s
disallowance of expenses and costs reported on Schedule C. The adjustments in
parenthesis are positive adjustments; that is, respondent agrees that petitioners
substantiated certain expenses in addition to those reported on the original return.

Because the parties have also stipulated that there is a deficiency in tax due from

petitioners of $30,647 for tax year 2009, matters from 2009 will not be discussed

any further.

OPINION

I. Unreported Income

A. Burden of Proof

Ordinarily, the burden of proof is upon the taxpayer. See Rule 142(a). This

case involves unreported income, however, and, in such case, we require the
 - 10 -

[*10] Commissioner to provide a minimal evidentiary foundation supporting his

determination of unreported income or else the burden of going forward with the

evidence with respect to the unreported income shifts to him. See, e.g., Day v.

Commissioner, 975 F.2d 534, 537 (8th Cir. 1992), aff’g in part, rev’g in part on

other grounds T.C. Memo. 1991-140; see also Mohler v. Commissioner, T.C.

Memo. 2014-90, at *4.

Respondent determined that the bank deposits and the amounts on the

invoices constitute separate items of income for 2008. Petitioners contend that

respondent should bear the burden of proof with respect to the unreported gross

receipts attributable to the invoices, arguing that respondent “has provided ZERO

evidence that any revenue related to the invoices/bids on its list was received other

than the amounts that are reflected in the deposit analysis.”

Petitioners are mistaken. Respondent has introduced evidence showing that

Mr. Sawyer routinely failed to deposit the proceeds from asphalt paving jobs. Mr.

Sawyer admitted at trial and petitioners admit on brief that Mr. Sawyer performed

nearly all of the asphalt paving jobs set forth in the invoices but that for many of

those jobs they failed to deposit some portion of the proceeds received.

Respondent has satisfied his burden to provide a minimal evidentiary foundation
 - 11 -

[*11] supporting his determination of unreported income. The burden of proof

remains upon petitioners.

B. Bank Deposits

Section 61(a)(2) defines gross income as all income from whatever source

derived, including gross income derived from business. Persons subject to tax are

required to keep records sufficient to establish gross income and deductions. See

sec. 6001; see also sec. 1.6001-1(a), Income Tax Regs. Where a taxpayer fails to

maintain adequate records, the Commissioner is authorized to compute the

taxpayer’s income by any method which clearly reflects income. See sec. 446(b);

see also Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989).

Respondent relied, in part, on the so-called bank deposits method to

reconstruct petitioners’ income. This Court has long recognized the bank deposits

method as a reasonable means of reconstructing a taxpayer’s income. See, e.g.,

Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). Deposits in a taxpayer’s bank

account are considered prima facie evidence of income. Id. The bank deposits

method assumes that all money deposited into a taxpayer’s bank account during a

particular period constitutes taxable income, and the taxpayer bears the burden of

showing that the deposits were not taxable income but were derived from a
 - 12 -

[*12] nontaxable source. Welch v. Commissioner, 204 F.3d 1228, 1230 (9th Cir.

2000), aff’g T.C. Memo. 1998-121.

Relying on RA DuPont’s bank deposits analysis, respondent determined that

petitioners had deposited $327,602 into their bank accounts during 2008 and that

those funds represent gross receipts attributable to Alan’s Asphalt. Petitioners do

not dispute respondent’s reliance on the bank deposits method. Petitioners

contend that one item listed in respondent’s analysis, a March 24, 2008, deposit of

$9,960, represents a dishonored check that was subsequently reissued and

deposited at a later date. Respondent concedes that the $9,960 deposit does not

represent taxable income. The Court accepts respondent’s concession and will

reduce petitioners’ gross income attributable to taxable deposits accordingly. The

Court finds that petitioners deposited $317,6425 into their bank accounts during

2008 and that those deposits represent gross receipts of Alan’s Asphalt.

C. Invoices

1. Overview

Respondent determined that, in addition to the $317,642 of gross receipts

represented by the bank deposits, Alan’s Asphalt received gross receipts totaling

$334,224 in connection with 27 customer invoices. Petitioners contend that

5
This amount reflects the bank deposits reduced by the dishonored check.
 - 13 -

[*13] respondent’s determination severely overstates in a variety of ways the gross

receipts that Alan’s Asphalt received during 2008.

First, petitioners argue that not all of the invoices represent actual asphalt

paving jobs for which Alan’s Asphalt was hired and paid. Specifically, petitioners

identify two invoices that should be excluded: the unsigned invoice dated August

22, 2008, for $3,000 and the Jim Crowley invoice dated October 27, 2008, for

$1,350. These invoices, petitioners contend, merely represent unsuccessful bids

for asphalt paving jobs. No work was performed in connection with the invoices,

and no money was received. Respondent does not dispute petitioners’ explanation

and concedes that Alan’s Asphalt did not receive payment with respect to those

two invoices. Accordingly, these amounts should not be included in the gross

receipts of Alan’s Asphalt.

With respect to the remaining 25 invoices, petitioners admit that Alan’s

Asphalt received payment as stated on the invoices. Consequently, the amount

stated in each of the remaining invoices constitutes gross receipts to Alan’s

Asphalt. See sec. 61(a). Petitioners contend, however, that Mr. Sawyer deposited

most of the proceeds of each asphalt paving job into petitioners’ bank accounts,

either in cash or cashier’s checks in the manner described. See supra p. 4. Thus,

petitioners argued that respondent has twice included the proceeds of those asphalt
 - 14 -

[*14] paving jobs in gross receipts: first by including the amounts stated in the

invoice and a second time by including the deposited funds in the bank deposits

analysis. Petitioners argue that where the proceeds of a given invoice were

deposited into one of the bank accounts, these funds have been duly accounted for

in respondent’s bank deposits analysis and should not be included in gross receipts

a second time.

The Court agrees that the proceeds from the asphalt paving jobs should not

be included in gross receipts twice, but we cannot simply disregard the invoices as

duplicative. Petitioners bear the burden of proof in this case. See supra part I.A.

Moreover, petitioners concede that Alan’s Asphalt received, but Mr. Sawyer failed

to deposit, significant amounts of cash in connection with the invoices.6 To the

extent that petitioners can demonstrate a link between the proceeds from an

invoice and a specific deposit in the bank deposits analysis, the Court agrees that

these funds have been duly accounted for and should not be included in gross

6
Petitioners argue that in any instance where cash was received in
connection with an invoice but not deposited into a bank account, those funds
were spent on labor costs or other expenses. Petitioners concede that those
proceeds should be included in gross receipts but argue that they are entitled to a
commensurate reduction for cost of goods sold or a business expense deduction.
The Court addresses the cost of goods sold issue separately. See infra part II.
 - 15 -

[*15] receipts a second time. The Court addresses each of these outstanding

invoices below.

2. Analysis of Invoices

a. Lake House Inn

Respondent determined that petitioners received unreported gross receipts

of $6,6507 in connection with the March 3, 2008, invoice issued to Lake House

Inn. Respondent concedes that petitioners have demonstrated that $6,000 of the

proceeds was deposited into their bank accounts. Petitioners admit that Alan’s

Asphalt received the remaining $650 in cash but did not deposit those funds.

Accordingly, the Court finds that Alan’s Asphalt received additional unreported

gross receipts of $650 in addition to the $6,000 that has already been accounted

for in respondent’s bank deposits analysis in connection with the Lake House Inn

invoice.

b. Feweil’s Automotive

Petitioners admit that Alan’s Asphalt received $17,800 in connection with

the March 4, 2008, invoice issued to Feweil’s Automotive. Respondent concedes

that petitioners have demonstrated that $16,460 of the proceeds was deposited into

7
This amount reflects the invoice amount of $7,250 reduced by the $600
rent credit.
 - 16 -

[*16] petitioners’ bank accounts. Petitioners admit that Alan’s Asphalt received

the remaining $1,340 in cash but did not deposit those funds into petitioners’ bank

accounts. Accordingly, the Court finds that Alan’s Asphalt received additional

unreported gross receipts of $1,340 in addition to the $16,460 that has already

been accounted for in respondent’s bank deposits analysis in connection with the

Feweil’s Automotive invoice.

c. Floyd Kurzwell

Petitioners admit that Alan’s Asphalt received $2,220 in connection with the

March 20, 2008, invoice issued to Floyd Kurzwell. Respondent concedes that

petitioners have demonstrated that $1,000 of the proceeds from that project was

deposited into petitioners’ bank accounts. Petitioners concede that Alan’s Asphalt

received the remaining $1,220 in cash but did not deposit those funds into

petitioners’ bank accounts. Accordingly, the Court finds that Alan’s Asphalt

received additional unreported gross receipts of $1,220 in addition to the $1,000

that has already been accounted for in respondent’s bank deposits analysis in

connection with the Kurzwell invoice.

d. Dirty Duck Bar and Grill

Petitioners admit that Alan’s Asphalt received $8,400 in connection with the

April 1, 2008, invoice issued to Dirty Duck Bar and Grill. Respondent concedes
 - 17 -

[*17] that petitioners have demonstrated that $8,300 of the proceeds from that

project was deposited into petitioners’ bank accounts. Petitioners admit that

Alan’s Asphalt received the remaining $100 in the form of food and drinks, which

Mr. Sawyer provided to the laborers. Petitioners concede that this receipt

constitutes bartered services income, see sec. 1.61-2(d)(1), Income Tax Regs., but

argue that they are entitled to a business expense deduction for meals and

entertainment in the same amount.

Respondent objects to the Court’s allowing the deduction. Respondent does

not allege that Alan’s Asphalt did not receive the food and drinks, nor does he

argue that Mr. Sawyer did not provide the refreshments to his laborers. Rather,

respondent contends that we should not consider petitioners’ argument because

they raised it for the first time in their opening brief. Respondent also argues that

the parties have stipulated the amount of meals and entertainment expenses to

which they were entitled for 2008.

As a general rule, this Court will not consider issues raised by a party for the

first time on brief when to do so will prevent the opposing party from presenting

evidence or arguments that might have been offered had the issue been timely

raised. See, e.g., Graham v. Commissioner, 79 T.C. 415, 423 (1982); Boehme v.

Commissioner, T.C. Memo. 2003-81, 2003 WL 1392720, at *4. Mr. Sawyer
 - 18 -

[*18] testified at trial that he received the refreshments as partial payment on the

Dirty Duck Bar and Grill invoice, and respondent has accepted Mr. Sawyer’s

testimony. Respondent had the opportunity to address the deductibility of the

refreshments in his reply brief but declined to do so. The Court does not believe

that respondent has been prejudiced by petitioners’ raising the matter on their

opening brief.

Nor does the Court believe that the parties’ stipulation precludes petitioners

from arguing that they are entitled to the deduction. Stipulations are treated “as

* * * conclusive admission[s] by the parties”. See Rule 91(e); Chapman Glen Ltd.

v. Commissioner, 140 T.C. 294, 317 (2013). Under Rule 91(e), the Court may

relieve parties of a stipulation if justice so requires. For example, the Court may

relieve parties of a stipulation which is contrary to the record. See Cal-Maine

Foods, Inc. v. Commissioner, 93 T.C. 181, 195 (1989); see also Crawford v.

Commissioner, T.C. Memo. 2014-156, at *17. Petitioners did not claim any

deduction for meals and entertainment expenses on Schedule C for Alan’s

Asphalt. The parties stipulated that respondent’s adjustments to the reported

Schedule C expenses, including no adjustment to the meals and entertainment

expenses, were correct. Petitioners introduced evidence that the stipulation was

plainly incorrect, and respondent does not dispute the validity of that evidence.
 - 19 -

[*19] The Court will therefore relieve petitioners of their stipulation for the

allowable $100 meals and entertainment expense for 2008.

Accordingly, the Court finds that Alan’s Asphalt received additional

unreported barter income of $100 in addition to the $8,300 that has already been

accounted for in respondent’s bank deposits analysis in connection with the Dirty

Duck Bar and Grill invoice. The Court also finds that Alan’s Asphalt is entitled to

an additional deduction for meals and entertainment expenses of $100.

e. Hwy 5 Storage

Petitioners admit that Alan’s Asphalt received $2,300 in connection with the

April 3, 2008, invoice issued to Hwy 5 Storage and that those funds were not

deposited into petitioners’ bank accounts. Accordingly, the Court finds that

Alan’s Asphalt received additional unreported gross receipts of $2,300 in

connection with the Hwy 5 Storage invoice.

f. Midwest Kennel

Petitioners admit that Alan’s Asphalt received $2,300 in connection with the

April 8, 2008, invoice issued to Midwest Kennel and that those funds were not

deposited into petitioners’ bank accounts. Accordingly, the Court finds that

Alan’s Asphalt received additional unreported gross receipts of $2,300 in

connection with the Midwest Kennel invoice.
 - 20 -

[*20] g. Greg Miller

Petitioners admit that Alan’s Asphalt received $4,500 in connection with the

April 9, 2008, invoice issued to Greg Miller. Respondent concedes that

petitioners have demonstrated that $3,825 of the proceeds from that project was

deposited into petitioners’ bank accounts. Petitioners concede that the remaining

$675 was not deposited into petitioners’ bank accounts. Accordingly, the Court

finds that Alan’s Asphalt received additional unreported gross receipts of $675 in

addition to the $3,825 that has already been accounted for in respondent’s bank

deposits analysis in connection with the Miller invoice.

h. Ernest Rogers

Petitioners admit that Alan’s Asphalt received $7,000 in connection with the

April 14, 2008, invoice issued to Ernest Rogers. Respondent concedes that

petitioners have demonstrated that $5,150 of the proceeds from that project was

deposited into petitioners’ bank accounts. Petitioners concede that Alan’s Asphalt

received the remaining $1,850 in cash but claim that those funds were not

deposited into petitioners’ bank accounts. Accordingly, the Court finds that

Alan’s Asphalt received additional unreported gross receipts of $1,850 in addition

to the $5,150 that has already been accounted for in respondent’s bank deposits

analysis in connection with the Rogers invoice.
 - 21 -

[*21] i. Robert Brewington

Petitioners admit that Alan’s Asphalt received $5,000 in connection with the

April 15, 2008, invoice issued to Robert Brewington. Respondent concedes that

petitioners have demonstrated that $4,800 of the proceeds from that project was

deposited into petitioners’ bank accounts. Petitioners admit that Alan’s Asphalt

received the remaining $200 in cash but that those funds were not deposited into

petitioners’ bank accounts. Accordingly, the Court finds that Alan’s Asphalt

received additional unreported gross receipts of $200 in addition to the $4,800 that

has already been accounted for in respondent’s bank deposits analysis in

connection with the Brewington invoice.

j. Melvin Phipps

Petitioners admit that Alan’s Asphalt received $2,000 in connection with the

April 17, 2008, invoice issued to Melvin Phipps. Petitioners acknowledge that the

proceeds from this project were paid in cash and that they did not deposit that cash

into their bank accounts. Accordingly, the Court finds that Alan’s Asphalt

received additional unreported gross receipts of $2,000 in connection with the

Phipps invoice.
 - 22 -

[*22] k. Aspen Lawn & Landscape

Petitioners admit that Alan’s Asphalt received $9,140 in connection with the

May 2, 2008, invoice issued to Aspen Lawn & Landscape. Respondent

determined that $3,600 of the proceeds from that asphalt paving job was deposited

into petitioners’ bank accounts. Petitioners contend that a check deposited on

May 5, 2008, for $1,450 and cash deposits of $3,000 on May 6, 2008, and $1,200

on May 16, 2008, are also attributable to the Aspen Lawn & Landscape invoice.

Petitioners did not provide any documentation or other evidence to support this

claim. Nonetheless, the Court is satisfied by petitioner’s testimony as well as the

timing and amount of the May 6 cash deposit that the $3,000 represents proceeds

attributable to the Aspen Lawn & Landscaping invoice. The Court finds that

petitioners have demonstrated that an additional $3,000 of the proceeds was

deposited into their bank accounts. Petitioners have failed to satisfy their burden

of proof with respect to the remaining funds, however, and the Court sustains

respondent’s determination as to the undeposited $2,540. Accordingly, the Court

determines that Alan’s Asphalt received additional unreported gross receipts of

$2,540 in addition to the $6,600 that has already been accounted for in

respondent’s bank deposits analysis.
 - 23 -

[*23] l. Mary and Earl Weddel

Petitioners admit that Alan’s Asphalt received $13,000 in connection with

the June 7, 2008, invoice issued to Mary and Earl Weddel. The invoice provides

that the funds were “[t]o be paid upon satisfactory completion” of the work. Mr.

Sawyer credibly testified at trial that he received payment in the form of a single

check, and petitioners contend on brief that the $13,000 check deposited into their

bank account on September 23, 2008, represents the proceeds of this project. The

Court is satisfied with petitioners’ explanation and finds that the proceeds of the

Weddel invoice were included in respondent’s bank deposits analysis. No further

adjustment to the gross receipts of Alan’s Asphalt with respect to the Weddel

invoice is appropriate.

m. Swim Things, Inc.

Petitioners admit that Alan’s Asphalt received $9,000 in connection with the

June 11, 2008, invoice issued to Swim Things, Inc., a company based in Blue

Springs, Missouri. At trial Mr. Sawyer testified that he was paid by check, which

he then converted to a cashier’s check and cash. Respondent’s bank deposits

analysis indicates two deposits on June 11, 2008, totaling $4,000, and the

annotation “cashier’s check from Alan to Alan from Bank of the West--Blue

Springs, MO.” Petitioner also deposited $1,000 in cash that same day. The Court
 - 24 -

[*24] finds these details sufficient to establish that the $5,000 petitioners

deposited into their bank accounts on June 11, 2008, was proceeds from the Swim

Things, Inc. invoice. Petitioners have failed to show that they deposited the

remaining $4,000 attributable to this project. The Court therefore sustains

respondent’s determination that Alan’s Asphalt received additional unreported

gross receipts of $4,000 in addition to the $5,000 that has already been accounted

for in respondent’s bank deposits analysis in connection with the Swim Things,

Inc. invoice.

n. K&M Ranch House Restaurant

Petitioners admit that Alan’s Asphalt received $8,500 in connection with the

June 23, 2008, invoice issued to K&M Ranch House Restaurant. At trial Mr.

Sawyer testified that he received payment in the form of four checks totaling

$5,739, plus cash of $2,600 (on brief petitioners asserted the cash retained was

$2,761). Petitioners admit on brief that the cash received in connection with the

K&M Ranch House invoice was not deposited. Petitioners assert, however, that

certain entries on respondent’s bank deposits analysis represent the four checks

allegedly received as payment from K&M Ranch House. Each of those entries

bears an annotation by RA DuPont, indicating the name of the maker of the check.

Notably, none of those names include K&M Ranch House or its owner Karolyn
 - 25 -

[*25] Lyon, and petitioners have provided no explanation for this discrepancy.

Petitioners have not satisfied their burden of proof. The Court sustains

respondent’s determination that Alan’s Asphalt received unreported additional

gross receipts of $8,500 with respect to the K&M Ranch House invoice.

o. Harrell Ridley Farms

Petitioners admit that Alan’s Asphalt received $2,750 in connection with the

June 25, 2008, invoice issued to Harrell Ridley Farms. The invoice bears a

handwritten note indicating that the invoice was “paid in full” by check. At trial

Mr. Sawyer testified that he received a wire transfer of $2,600, less $150 for

banking fees. On brief petitioners claimed that they received a wire transfer of

$2,600 on July 3, 2008, plus $150 in cash. In view of petitioners’ inconsistent

claims, neither of which is supported by documentation or other evidence, the

Court concludes that petitioners have not satisfied their burden of proof with

respect to the Harrell Ridley Farms invoice. The Court sustains respondent's

determination that Alan’s Asphalt received additional unreported gross receipts of

$2,750 with respect to the Harrell Ridley Farms invoice.

p. H&K Trucking, LLC

Alan’s Asphalt issued two invoices to H&K Trucking, LLC, during 2008.

The first invoice is dated July 18, 2008, and is for $8,024. The second, dated July
 - 26 -

[*26] 22, 2008, is for $12,544. The first invoice bears a handwritten note that it

has been “paid in full” and references a check number. The second, though

lacking a “paid in full” note, indicates that it was also paid by check. Petitioners

admit that they “[do] not recall the specifics” of these payments. Accordingly,

petitioners have failed to satisfy their burden of proof, and the Court sustains

respondent’s determination that Alan’s Asphalt received additional unreported

gross receipts of $8,024 and $12,544 in connection with the two H&K Trucking

invoices.

q. Metcalf Excavating

Petitioners admit that Alan’s Asphalt received $46,000 in connection with

the July 22, 2008, invoice issued to Metcalf Excavating reflecting Mike Metcalf as

owner. Mr. Sawyer testified that he received a check for $6,500 from Leroy

Latham as payment toward this invoice as well as eight cash payments totaling

$27,820 between July 17 and December 23, 2008. On brief petitioners altered

their explanation and claimed that they received three checks: the $6,500 check

from Mr. Latham plus a check from “Ritchie Bros--Lincoln, NE” for $5,720 and a

check from Jim Kauffman for $6,300. Petitioners’ claim is undermined by Mr.

Sawyer’s notes on the Metcalf Excavating invoice, which state that the invoice

was paid by two checks for $10,000 and $36,000, respectively. Respondent’s
 - 27 -

[*27] bank deposits analysis does not reflect that petitioners deposited checks in

those amounts during 2008. Petitioners have failed to satisfy their burden of proof

with respect to the Metcalf Excavating invoice, and the Court sustains

respondent’s determination that Alan’s Asphalt received additional unreported

gross receipts of $46,000 in connection with the Metcalf Excavating project.

r. Dave Tonder

Petitioners admit that Alan’s Asphalt received $70,000 in connection with

the July 22, 2008, invoice issued to Dave Tonder. According to Mr. Sawyer’s

handwritten notes on the invoice, Mr. Tonder paid by two checks: one for

$17,500 and, “upon satisfactory completion,” another for $52,500. Petitioners

identify a $17,575 deposit on respondent’s bank deposits analysis that they allege

represents Mr. Tonder’s downpayment, and the Court believes the evidence

supports petitioners’ claim. At trial Mr. Sawyer testified that the $52,500 balance

was actually paid in three installments over the course of the asphalt paving job

but was unspecific as to the amounts or the timing of the deposits. The Court is

unable to identify which deposits, if any, correspond with the remaining payments.

Consequently, petitioners have failed to satisfy their burden of proof as to the

$52,425 balance, and the Court sustains respondent’s determination that Alan’s

Asphalt received additional unreported gross receipts of $52,425 in addition to the
 - 28 -

[*28] $17,575 that has already been accounted for in respondent’s bank deposits

analysis in connection with the Tonder invoice.

s. Doug Teters

Petitioners admit that Alan’s Asphalt received $8,600 in connection with the

August 12, 2008, invoice issued to Doug Teters. Respondent concedes that

petitioners have demonstrated that $3,500 of the proceeds from that project was

deposited into petitioners’ bank accounts. Petitioners admit that the remaining

$5,100 was received as cash but was not deposited into petitioners’ bank accounts.

Accordingly, the Court finds that Alan’s Asphalt received additional unreported

gross receipts of $5,100 in addition to the $3,500 that has already been accounted

for in respondent’s bank deposits analysis in connection with the Teters invoice.

t. Mervil Mullenay

Alan’s Asphalt issued an invoice to Mervil Mullenay dated August 14,

2008, for $4,900. Petitioners admit that they “[do] not recall the specifics about

this deposit.” Accordingly, petitioners have failed to satisfy their burden of proof,

and the Court sustains respondent’s determination that Alan’s Asphalt received

additional unreported gross receipts of $4,900 with respect to the Mullenay

invoice.
 - 29 -

[*29] u. Louise Forster

Petitioners admit that Alan’s Asphalt received $19,300 in connection with

the August 17, 2008, invoice issued to Louise Forster. A handwritten note on the

invoice indicates that Ms. Forster initially paid $8,000 by check with the $11,300

balance due upon completion. Mr. Sawyer testified that the invoice was paid by

an $11,000 cashier’s check, a personal check from Edwin McElley for $6,400, and

cash of $1,200. The Court is satisfied that the October 29, 2008, deposit of

$11,000 represents proceeds from the Forster invoice and finds accordingly.

Petitioners’ claim with respect to the remaining $8,300 is inconsistent with the

invoice and unsupported by other evidence. Petitioners have therefore failed to

satisfy their burden of proof, and the Court sustains respondent’s determination

that Alan’s Asphalt received additional unreported gross receipts of $8,300 in

addition to the $11,000 that has already been accounted for in respondent’s bank

deposits analysis in connection with the Forster invoice.

v. Western Implement Co., Inc.

Petitioners concede that they received $31,380 worth of equipment as

payment for the August 20, 2008, invoice issued to Western Implement Co., Inc.,

and that that exchange constitutes taxable barter income under section 61(a). See

sec. 1.61-2(d), Income Tax Regs.
 - 30 -

[*30] Petitioners contend that they are entitled to a section 179 expense deduction

of $31,380 with respect to the equipment received. Section 179(a) permits a

taxpayer to elect to treat the cost of certain property as an expense for the taxable

year in which the property is placed in service. To claim the benefit of section

179, the taxpayer must, among other requirements, make an irrevocable election

on his or her tax return. See sec. 179(c). Petitioners raise this issue for the first

time brief and, in any event, did not make the requisite election. The Court will

deny the deduction.

Petitioners argue, in the alternative, that they are entitled to a depreciation

expense deduction for the cost of the equipment. This issue, too, petitioners raise

for the first time on brief and only in the most general terms. Moreover, the

parties have stipulated the amount of depreciation expenses to which petitioners

are entitled. The Court will not allow any further depreciation deduction.

Accordingly, the Court sustains respondent’s determination that Alan’s Asphalt

received additional unreported gross receipts of $31,380 in connection with the

Western Implement Co., Inc. invoice.

w. Smith Farms

Petitioners admit that Alan’s Asphalt received $28,800 in connection with

the August 28, 2008, invoice issued to Smith Farms. On brief petitioners contend
 - 31 -

[*31] that certain checks deposited into their bank accounts and included in

respondent’s bank deposits analysis were payments attributable to the Smith

Farms invoices. In the bank deposits analysis RA DuPont’s notes indicate that

those checks were issued by Go Rentals, Inc., Jim Kauffman, and James Valerio.

The Court does not find credible petitioners’ claims that those checks were paid by

or for the benefit of the owner Jerry Smith or Smith Farms. Petitioners have failed

to satisfy their burden of proof with respect to the Smith Farms invoice, and the

Court sustains respondent’s determination that Alan’s Asphalt received additional

gross receipts of $28,800 in connection with the Smith Farms invoice.

x. Jim Crowley

Petitioners admit that Alan’s Asphalt received $4,366 in connection with the

October 27, 2008, invoice issued to Jim Crowley and concede that they are unable

to identify the funds in respondent’s bank deposits analysis. The Court sustains

respondent’s determination that Alan’s Asphalt received additional gross receipts

of $4,366 in connection with the Crowley invoice. As previously discussed, the

second October 27, 2008, invoice issued to Jim Crowley for $1,350 was an

unsuccessful bid for an asphalt paving job and will not be included in the gross

receipts of Alan’s Asphalt.
 - 32 -

[*32] y. Total Undeposited Gross Receipts

On the basis of our review of the invoices, respondent’s bank deposits

analysis, Mr. Sawyer’s testimony at trial, and the parties’ briefs, the Court

concludes that Alan’s Asphalt received but failed to deposit additional gross

receipts totaling $232,264.

D. Conclusion

During tax year 2008 Alan’s Asphalt received gross receipts totaling

$549,906, which consists of $317,642 deposited into petitioners’ bank accounts

and an additional $232,264 in undeposited gross receipts. On their 2008 return

petitioners reported that Alan’s Asphalt received gross receipts of $375,850. The

Court concludes, therefore, that petitioners underreported the additional gross

receipts of Alan’s Asphalt by $174,056. Additionally, Alan’s Asphalt is entitled

to a business expense deduction for meals and entertainment of $100.

II. Costs of Goods Sold--Labor

On Schedule C of their tax return for 2008 petitioners claimed that Alan’s

Asphalt incurred cost of goods sold totaling $205,890. This amount comprised

purchases totaling $153,340 and labor costs of $52,550. In the notice respondent

determined that Alan’s Asphalt is entitled to an additional $60,718 for purchases

for 2008 but disallowed the claimed labor costs in their entirety. Respondent
 - 33 -

[*33] argues that petitioners are not entitled to the claimed labor costs because

they have failed to establish that the costs were paid or incurred during the 2008

tax year or that any labor could have been completed by Mr. Sawyer or his family

members without the assistance of any hired labor.

A taxpayer engaged in a manufacturing or merchandising business may

subtract cost of goods sold from gross receipts to arrive at gross income. Sec.

1.61-3(a), Income Tax Regs.; see also sec. 1.162-1(a), Income Tax Regs. Cost of

goods sold is the amount that the taxpayer expended to purchase or construct the

inventory sold during the year. Kazhukauskas v. Commissioner, T.C. Memo.

2012-191, 2012 WL 2848694, at *9. Cost of goods sold is an offset to gross

receipts for purposes of computing gross income, rather than a deduction, which is

subtracted from gross income in arriving at taxable income. Id. The taxpayer

bears the burden of substantiating the amount claimed as cost of goods sold, and it

is the taxpayer’s responsibility to maintain adequate books and records sufficient

to substantiate all items on the tax return, including cost of goods sold. See sec.

6001; see also Said v. Commissioner, T.C. Memo. 2003-148, 2003 WL 21205252,

at *3, aff’d, 112 Fed. Appx. 608 (9th Cir. 2004). Where a taxpayer does not have

adequate records, but the record indicates that he or she clearly incurred an offset

to gross income, the Court may estimate the offset on the basis of the evidence.
 - 34 -

[*34] Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); see also

Kazhukauskas v. Commissioner, 2012 WL 2848694 at *9. In estimating the

amount allowable, however, the Court bears heavily against taxpayers whose

inexactitude is of their own making. Cohan v. Commissioner, 39 F.2d at 544.

Mr. Sawyer admitted that the figure submitted on Schedule C of petitioners’

2008 return was an approximation. Mr. Sawyer testified that he typically hired

two to three laborers per day and paid them $100 to $200 in cash at the end of

each day. He did not maintain any records to track his costs, and petitioners did

not submit any evidence to corroborate this testimony.

The Court is not required to accept a taxpayer’s unsubstantiated testimony,

see Tokarski v. Commissioner, 87 T.C. at 77, and the Court is not convinced that

what Mr. Sawyer admits is an estimate is sufficient to prove the claimed costs.

Nevertheless, Mr. Sawyer provided credible testimony describing, inter alia, the

process of laying asphalt, the manpower required, and his method of recruiting day

laborers. On the basis of Mr. Sawyer’s testimony and the invoices in evidence, it

is clear that petitioners are entitled to some offset for labor costs.

The Court found credible Mr. Sawyer’s testimony that he hired two to three

laborers per day for most of the asphalt paving jobs listed in the invoices and that

he paid them cash at the end of the day. Keeping in mind the admonition in Cohan
 - 35 -

[*35] that we may bear heavily against the taxpayer whose inexactitude is of his

own making, the Court will accept the low end of that range. The Court will

therefore allow a labor cost reduction of two laborers at $100 per laborer per day.8

The Court is faced with some difficulty estimating the number of days for

which petitioners are entitled to the labor costs. Mr. Sawyer testified that Alan’s

Asphalt relied on the hired labor “[f]rom the end of March probably until the

weather gets bad”, which, on brief, petitioners appear to explain as referring to the

end of September. The Court accepts the period from March to September as the

starting point for our analysis, but we find petitioners’ assertion on brief that

Alan’s Asphalt hired laborers five days a week, every week, for six months to be

unsupported by the evidence. The Court believes petitioners’ estimate overstates

the number of days during which Alan’s Asphalt actually required labor and gives

no regard to other necessary business activities, such as travel, negotiation of

contracts, and other preparation.

8
Mr. Sawyer’s claim that he paid approximately $100 for 8 to 9 hours of
work per day is consistent with figures released by the Bureau of Labor Statistics
(BLS) for that period. BLS reports that in May 2008 the national median hourly
wage for construction laborers was $13.71 and the national median hourly wage
for paving, surfacing, and tamping equipment operators was $16. See May 2008
National Occupational Employment and Wage Estimates--United States, Bureau
of Labor Statistics, http://www.bls.gov/oes/2008/may/oes_nat.htm (last visited
Jan. 15, 2015).
 - 36 -

[*36] Our analysis of the invoices in evidence reveals that the dates on the

invoices generally tend to be clustered together, followed by periods during which

Alan’s Asphalt signed few to no new contracts. The Court surmises from this

pattern that Mr. Sawyer likely spent several days procuring asphalt paving jobs,

followed by a few weeks of performing those jobs. In the absence of additional

evidence, the Court concludes that Alan’s Asphalt did not incur any labor costs

during the periods during which Mr. Sawyer negotiated asphalt paving jobs. The

Court will therefore exclude from the estimate the weeks of March 3, March 31,

April 7, April 14, June 9, June 23, July 21, August 11, August 18, and August 25.

After eliminating those weeks during which Mr. Sawyer negotiated asphalt

paving jobs, the Court is left with approximately 105 days. The Court will also

exclude from the estimate certain invoices that provide for smaller asphalt paving

jobs. Specifically, the Court will not allow labor costs in connection with the

Kurzwell invoice, the Phipps invoice, the Hwy 5 Storage invoice, the Midwest

Kennel invoice, the Miller invoice, and the $4,366 Jim Crowley invoice. Each of

those invoices involved the paving of a relatively smaller area and required little to

no removal of existing material. The Court agrees with respondent that these tasks

could have been accomplished by Mr. Sawyer and his family members without the

assistance of additional hired labor. In the absence of evidence showing
 - 37 -

[*37] otherwise, the Court concludes that petitioners are not entitled to labor costs

with respect to those asphalt paving jobs and will remove one day from our

approximation for each of the six invoices.

Applying the principle set forth in Cohan, then, the Court estimates that

petitioners may claim a reduction against gross receipts for labor costs for two

laborers per day at $100 per laborer per day for 99 days. The Court will therefore

allow a reduction for labor costs of $19,800.

III. Section 6662(a) Penalties

Section 6662(a) and (b)(1) and (2) provides for an accuracy-related penalty

of 20% of the portion of any underpayment attributable to, among other things,

negligence or intentional disregard of rules or regulations (without distinction,

negligence) or any substantial understatement of income tax. The term

“negligence” includes “any failure to make a reasonable attempt to comply with

the provisions” of the Code or to exercise “ordinary and reasonable care in the

preparation of a tax return.” See sec. 1.6662-3(b)(1), Income Tax Regs.

Negligence also includes “any failure by the taxpayer to keep adequate books and

records or to substantiate items properly.” Id. The term “disregard” includes “any

careless, reckless, or intentional disregard.” Sec. 6662(c).
 - 38 -

[*38] Section 6664(c)(1) provides that the penalty shall not be imposed with

respect to any portion of an underpayment if the taxpayer shows that there was

reasonable cause for, and that he acted in good faith with respect to, that portion.

Section 1.6664-4(b)(1), Income Tax Regs., provides:

The determination of whether a taxpayer acted with reasonable cause
and in good faith is made on a case-by-case basis, taking into account
all pertinent facts and circumstances. * * * Generally, the most
important factor is the extent of the taxpayer’s effort to assess the
taxpayer’s proper tax liability. Circumstances that may indicate
reasonable cause and good faith include an honest misunderstanding
of * * * law that is reasonable in light of all the facts and
circumstances, including the experience, knowledge, and education of
the taxpayer. * * *

Respondent bears the burden of production with respect to the penalty. See

sec. 7491(c). The burden imposed by section 7491(c) is “‘only to come forward

with evidence regarding the appropriateness of applying a particular addition to

tax or penalty to the taxpayer.’” Cherry v. Commissioner, T.C. Memo. 2013-3, at

*14 (quoting Good v. Commissioner, T.C. Memo. 2008-245). Once that burden is

met, petitioners bear the burden of proving that they are entitled to relief under

section 6664(c)(1). See Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

Respondent determined that petitioners are liable for accuracy-related

penalties on the basis of underpayments attributable to negligence or substantial

understatements of income tax for 2008 and 2009. Respondent has met his burden
 - 39 -

[*39] of production with respect to petitioners’ negligence for both years. The

record shows that petitioners failed to report a large portion of the gross receipts of

Alan’s Asphalt on Schedule C and failed to maintain records adequately to

substantiate many of the business’ claimed costs and expenses. Petitioners admit

that their claimed labor costs were merely estimates. They have stipulated that

they did not accurately report expenses for many claimed deductions on their 2008

and 2009 returns and have agreed that there is a deficiency in tax of $30,647 for

2009. Thus, petitioners are liable for the section 6662(a) penalty on the ground of

negligence for both years unless they meet the section 6664(c) exception for

reasonable cause and good faith.9

Petitioners argue that they acted with reasonable cause and in good faith

because they relied on the advice of an accountant in preparing their tax return.

Reliance on the advice of a professional tax adviser does not necessarily

demonstrate reasonable cause and good faith. See sec. 1.6664-4(b)(1), Income

Tax Regs. Rather, reasonable cause may be found where the taxpayer selects a

competent tax adviser, supplies the adviser with all relevant information, and, in a

manner consistent with ordinary business care and prudence, relies on the

9
Because petitioners’ negligence is sufficient to sustain the penalty, the
Court need not address the applicability of the penalty based upon the ground of
substantial understatement of income tax.
 - 40 -

[*40] adviser’s professional judgment as to the taxpayer’s tax obligations. See

United States v. Boyle, 469 U.S. 241, 251 (1985); Neonatology Assocs., P.A. v.

Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002). The

professional’s advice must be based on all pertinent facts and circumstances; “if

the adviser is not versed in the nontax factors, mere reliance on the tax adviser

may not suffice.” Todd v. Commissioner, T.C. Memo. 2011-123, 2011 WL

2183767, at *9, aff’d, 486 Fed. Appx. 423 (5th Cir. 2012); see also Gould v.

Commissioner, 139 T.C. 418, 460 (2012), aff’d, 552 Fed. Appx. 250 (4th Cir.

2014).

Petitioners have not introduced any evidence regarding their accountant’s

qualifications. See Neonatology Assocs., P.A. v. Commissioner, 115 T.C. at 99.

Moreover, they have failed to demonstrate that they provided him with all relevant

information. Id. At trial Mr. Sawyer testified that the inaccurate figures reported

on the returns were derived from figures he himself added up and provided to

petitioners’ return preparer and that he did not provide the return preparer with the

underlying invoices or receipts. Mr. Sawyer also admitted that the claimed labor

cost was merely an estimate. Petitioners have failed to show that they are entitled

to relief under section 6664(c)(1). The Court sustains respondent’s imposition of

the section 6662(a) accuracy-related penalty for both years.
 - 41 -

[*41] IV. Conclusion

Petitioners are liable for the deficiency for tax year 2008 to the extent set

forth herein. Petitioners are liable for the section 6662(a) accuracy-related penalty

for both years as applied to the redetermined deficiencies. To reflect the

foregoing,

Decision will be entered

under Rule 155.