                  T.C. Summary Opinion 2002-154



                     UNITED STATES TAX COURT



                MARCEL TOTO NGOSSO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13291-01S.              Filed December 11, 2002.



     Richard P. Rosenblatt, for petitioner.

     Nancy C. Carver, for respondent.



     PANUTHOS, Chief Special Trial Judge:     This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed.    The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.    Unless otherwise

indicated, subsequent section references are to the Internal
                               - 2 -

Revenue Code in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

     Respondent determined a deficiency in petitioner’s Federal

income tax of $12,161 and an accuracy-related penalty under

section 6662(a) of $784 for 1996.1     After concessions by

petitioner,2 the issues for decision are:     (1) Whether petitioner

failed to report income of $39,444; (2) whether petitioner is

entitled to the claimed dependency exemption deduction; and (3)

whether petitioner is liable for an accuracy-related penalty

under section 6662.

     Petitioner resided in Hyattsville, Maryland, at the time he

filed the petition.   Some of the facts have been stipulated and

are so found.   For convenience we combine our findings of fact

and conclusions.




     1
        Petitioner timely filed his 1996 tax return on or about
Apr. 15, 1997. The notice of deficiency at issue was mailed on
Aug. 15, 2001. We note that the general 3-year period of
limitations for the 1996 tax year expired on Apr. 15, 2000, but
petitioner has not pleaded that the period of limitations has
expired. Sec. 6501(a). As we conclude below, petitioner has
omitted from gross income an amount properly includable therein
which is in excess of 25 percent of the amount stated in the
return. Thus, if the statute of limitations were in issue, we
would conclude that the 6-year period of limitations under sec.
6501(e)(1)(A) is applicable.
     2
        Petitioner concedes that he is not entitled to the
claimed head-of-household filing status but is entitled to single
filing status, and that he is not entitled to the claimed earned
income credit.
                                 - 3 -

     During 1996, petitioner was employed part-time by a light

fixture store.   He reported $1,774 in wages received from his

employer.

     Petitioner also assisted a tax return preparer, Bakary

Diomande (Mr. Diomande), with the preparation of Federal income

tax returns; however, the exact nature and extent of petitioner’s

role in the preparation of tax returns is unclear.    Although he

testified that he was not a tax return preparer, petitioner also

explained at trial that for tax returns that are filed

electronically, “the tax preparer and the taxpayer have to sign

that * * *.   And if it’s me who has prepared his taxes, my

signature would appear there.”

     Petitioner testified that he received and cashed checks from

Mr. Diomande’s clients, which he then paid over to Mr. Diamonde,

because Mr. Diomande did not accept checks as payment from his

clients.    The record contains a money order and numerous checks

made payable to petitioner or a third party that petitioner

either cashed or deposited into his Chevy Chase Bank account.

For example, petitioner’s Chevy Chase Bank account statements

reflect that petitioner cashed in part and deposited in part a

U.S. Treasury refund check issued in 1996 to Somia Essomba Toto

Ngosso, and deposited a U.S. Treasury refund check issued in 1996
                                - 4 -

to Constance Njombua Toto Ngosso.3      Petitioner’s bank account

records, however, do not clearly indicate that petitioner

withdrew funds or wrote checks for the exact or similar amounts

to support his theory that he acted as a conduit for Mr.

Diomande.

     Petitioner reported $7,700 in gross income on Schedule C,

Profit or Loss From Business, attached to his Federal income tax

return for the 1996 tax year.   Petitioner reported “Income Tax

Prep” as the principal business.

     Petitioner, a native of the Republic of Cameroon, and Epee

Ndolo Emmanuel (Mr. Emmanuel), his uncle who lives in Yaoundé,

Cameroon, engaged in a series of transactions in which they

effectively exchanged U.S. dollars for Cameroonian francs (CFA

francs) for the benefit of friends, business associates, and

strangers.   Petitioner engaged in a “currency exchange

transaction” and explained it as follows:      Petitioner received a

sum of U.S. dollars in cash from an individual who desired to

send money to a third party in Cameroon; petitioner calculated

the equivalent amount of CFA francs using the exchange rate for

that day; petitioner either deposited the U.S. dollars he

received into one of two bank accounts or held the cash in his

house on behalf of Mr. Emmanuel; petitioner faxed the information


     3
        There is nothing in the record indicating that these
individuals are related to petitioner.
                               - 5 -

concerning the U.S. dollar-CFA franc exchange rate to both Mr.

Emmanuel and the designated recipient of the CFA francs in

Cameroon; Mr. Emmanuel then paid the designated recipient of the

CFA francs in Cameroon the equivalent amount of CFA francs in

cash; and petitioner later purchased various items in the U.S.,

such as cars and computers, and shipped them to Mr. Emmanuel.

     Petitioner asserts that he did not charge a fee for his

services.   Three witnesses testified on petitioner’s behalf that

they engaged petitioner’s services, free of charge, in the

exchange of U.S. dollars for CFA francs.   None of the witnesses

provided any documentary evidence to support the testimony.

     As an example of the final step in the currency exchange

transaction petitioner presented some documents and testimony of

items purchased and sent to Cameroon.   Petitioner purchased a

Jeep Cherokee in Virginia for approximately $20,000 in March or

April 1996.   He paid for the Jeep Cherokee with cash that he

either kept in his house or withdrew from one of his bank

accounts in increments of $2,000 or $3,000.   At trial petitioner

was unable to indicate which withdrawals or cash received from a

deposit reflected on his bank account statements were used to pay

for the Jeep Cherokee.   Petitioner produced a bill of lading

reflecting the shipping of the Jeep Cherokee from the U.S. to

Cameroon in November 1996.   Mr. Emmanuel’s name does not appear
                               - 6 -

on the bill of lading because the Jeep Cherokee was received by a

shipping agent.

     Petitioner did not produce receipts or shipping documents

for other items that he purchased for, and shipped to, Mr.

Emmanuel.   Petitioner did not produce other records from the

currency exchange transactions, such as the letters faxed to Mr.

Emmanuel or the designated recipient, because “there was no need

to keep it” once the transaction was over.    Petitioner explained

that he accounted for the U.S. dollars that he held on behalf of

Mr. Emmanuel by using his bank account statements.

     The record contains account statements from a Citibank

account that petitioner co-owned with two other individuals,

Ebenezer Soh Kengne and Daniel P. Fleret.    Petitioner did not

explain, and it is not clear from the record, who owned the funds

in the Citibank account.

     Respondent, utilizing a bank deposits methodology,

determined that petitioner underreported $39,444 of income.4

Respondent’s agent explained at trial that respondent first

examined petitioner’s income tax return for the 1996 tax year in

connection with a tax return preparer penalty.    Respondent

determined that petitioner had unexplained bank deposits of


     4
        Petitioner testified at trial that he received income
from his family in Cameroon and rental income from two houses
that he owns in Cameroon. Respondent did not make a
determination or a claim with respect to these two sources of
income. Therefore, such matter is not at issue.
                                 - 7 -

$104,239 in 1996.   From the unexplained bank deposits respondent

deducted the following amounts that were not includable in

petitioner’s income:

     Unexplained bank deposits                      $104,239
     Income tax refund checks            $21,726
     1997 receipts                         2,000
     Examiner error                        1,624
     Currency transactions                39,445
       Total                                          64,795
     Underreported income                             39,444

     Petitioner’s position is that the currency exchanges are

“net transactions” and that the money he received is not income

to him because he acted as a conduit for Mr. Emmanuel.

     Gross income means all income from whatever source derived.

Sec. 61.   When a taxpayer fails to provide adequate records

substantiating income, the Commissioner is authorized to

reconstruct the taxpayer’s income by using any reasonable method

that clearly reflects income, including an indirect method.          Sec.

446(b); Holland v. United States, 348 U.S. 121 (1954).         The

reconstruction need only be reasonable in light of all facts and

circumstances.   Clayton v. Commissioner, 102 T.C. 632, 643

(1994); Giddio v. Commissioner, 54 T.C. 1530, 1532 (1970).

     The Commissioner is authorized to use bank deposit records

to reconstruct a taxpayer’s income.        Clayton v. Commissioner,

supra at 645 (citing DiLeo v. Commissioner, 96 T.C. 858, 867

(1991), affd. 959 F.2d 16 (2d Cir. 1992)).         When a taxpayer keeps

no books or records and has large bank deposits, the
                                  - 8 -

Commissioner’s use of the bank deposits method is not arbitrary

or capricious.     Id.   Bank deposits are prima facie evidence of

income.    Id.   In calculating a taxpayer’s taxable income, the

Commissioner must take into account any nontaxable source or

deductible expense of which he has knowledge.      Id. at 645-646.

       Generally the taxpayer bears the burden of proof.    Rule

142(a)(1).    The burden of proving facts relevant to the

deficiency may shift to the Commissioner under section 7491 if

the taxpayer establishes compliance with the requirements of

section 7491(a)(2)(A) and (B) by substantiating items,

maintaining required records, and fully cooperating with the

Secretary’s reasonable requests.     Section 7491 also places the

burden of production upon the Secretary with respect to additions

to tax.    Sec. 7491(c).   Section 7491 is effective with respect to

court proceedings arising in connection with examinations by the

Commissioner commencing after July 22, 1998, the date of its

enactment by section 3001(a) of the Internal Revenue Service

Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat.

685.

       It is not clear from the record when respondent commenced

the examination of petitioner’s return; however, petitioner has

not alleged that section 7491 is applicable to this case.      Even

if section 7491 were to apply, petitioner has not established

that he complied with the requirements of section 7491(a)(2)(A)
                                - 9 -

and (B) to substantiate items, maintain required records, and

fully cooperate with respondent’s reasonable requests.

Therefore, the burden of proof remains with petitioner.    Further,

based on our findings and conclusion, the burden of proof does

not play a role with respect to the accuracy-related penalty

under section 6662.

     Respondent utilized the bank deposits method to reconstruct

petitioner’s income because petitioner did not present any books

and records reflecting the income reported on his return.    We

accept petitioner’s and the witnesses’ generalized testimony that

petitioner engaged in some currency exchange transactions, and

that a certain amount of the bank deposits is not income to

petitioner.   However, the documents and testimony are not

necessarily consistent with the amounts reported on the return,

and petitioner did not explain the flow of cash into and out of

his bank accounts.    Petitioner acknowledged at trial that he

failed to retain records of the currency exchange transactions.

As indicated above, respondent took into account $21,726 of

income tax refund checks issued to third parties and cashed by

petitioner on their behalf, and $39,445 of currency exchange

transactions with Mr. Emmanuel as nontaxable sources of income.

     Under these facts, we conclude that respondent’s

reconstruction of petitioner’s income was reasonable.    We are
                               - 10 -

satisfied that petitioner underreported income, and respondent is

sustained on this issue.

     The next issue for our decision is whether petitioner is

entitled to the claimed dependency exemption deduction.

Petitioner claimed a dependency exemption deduction for Shanita

Edwards (Shanita) on his return for 1996.    Shanita, who was born

in 1984, is the daughter of Barbara Nicholson (Ms. Nicholson),

who was petitioner’s girlfriend during the year at issue.

     Petitioner testified generally that he provided for all of

the food and shelter for Shanita, and that Ms. Nicholson provided

for only Shanita’s clothing.   Petitioner admitted that he did not

know whether Shanita’s father or any other relative provided any

of her support, and he did not know whether Ms. Nicholson

received any form of Government benefit.    Petitioner produced

copies of Shanita’s birth certificate and Social Security card.

     Petitioner alleges that Shanita, Ms. Nicholson, and Kimberly

Nicholson (Kimberly), also a minor and a daughter of Ms.

Nicholson, lived with him in his apartment in Silver Spring,

Maryland, during 1996.   Petitioner also alleges that Guy Behl

(Mr. Behl) lived in his apartment during 1996.

     A taxpayer may be allowed a deduction for a dependent over

half of whose support is provided by the taxpayer.    Secs.

151(c)(1), 152(a).   A dependent includes an individual who, for

the taxable year, has as her principal place of abode the home of
                                 - 11 -

the taxpayer and is a member of the taxpayer’s household.      Sec.

152(a)(9).    It is necessary that the taxpayer both maintain and

occupy the household.     Sec. 1.152-1(b), Income Tax Regs.   It is

not necessary that the dependent be related to the taxpayer.        Id.

     The term “support” includes food, shelter, clothing, medical

and dental care, education, and the like.     Sec. 1.152-1(a)(2)(i),

Income Tax Regs.     The amount of support that the claimed

dependent received from the taxpayer is compared to the total

amount of support the claimed dependent received from all

sources.     Id.   The total amount of support for each claimed

dependent furnished by all sources during the year in issue must

be established by competent evidence.      Blanco v. Commissioner, 56

T.C. 512, 514 (1971).

     Petitioner’s testimony that he provided Shanita’s food and

shelter lacks credibility, and we need not accept it.      Tokarski

v. Commissioner, 87 T.C. 74, 77 (1986).      Additionally, petitioner

did not provide any documentary evidence to support his

testimony.     We are not convinced that petitioner provided more

than half of Shanita’s support.     Moreover, it is not clear that

Shanita had petitioner’s apartment as her principal place of

abode during 1996.     Accordingly, the claimed dependency exemption

deduction for Shanita is denied.

     The next issue for our decision is whether petitioner is

liable for a penalty under section 6662.     Section 6662 provides
                              - 12 -

that if any portion of any underpayment required to be shown on a

return is due to negligence or disregard of the rules or

regulations, then a taxpayer will be liable for a penalty equal

to 20 percent of the underpayment of tax required to be shown on

the return that is attributable to the taxpayer’s negligence or

disregard of the rules or regulations.    Sec. 6662(a) and (b)(1).

“Negligence” includes any failure to make a reasonable attempt to

comply with the provisions of the Code.   Sec. 6662(c).

“Disregard” includes any careless, reckless, or intentional

disregard.   Id.

     The penalties provided for in section 6662 will not be

imposed with respect to any portion of an underpayment if it is

shown that there was reasonable cause for such portion and that

the taxpayer acted in good faith with respect to such portion.

Sec. 6664(c)(1).   Whether the taxpayer has acted with reasonable

cause and in good faith is determined by relevant facts and

circumstances, including the taxpayer’s own efforts to assess his

proper tax liability.   Stubblefield v. Commissioner, T.C. Memo.

1996-537; sec. 1.6664-4(b), Income Tax Regs.

     Respondent determined in the notice of deficiency that

petitioner is liable for an accuracy-related penalty of $784

under section 6662(a) for 1996 because of negligence or disregard

of rules or regulations.
                              - 13 -

     At trial petitioner was unable to provide detailed and

reliable testimony concerning the deposits in and withdrawals

from his bank accounts.   Petitioner’s testimony concerning his

income from tax return preparation and the currency exchange

transactions was, at best, vague and inconsistent, and his

testimony concerning support for Shanita was not credible or

supported by any documentary evidence.    He did not maintain

records or accurately report his gross income.     We are further

satisfied that respondent’s reconstruction of petitioner’s income

was reasonable.   We conclude that his underpayment is

attributable to negligence and disregard of the rules or

regulations, and petitioner has not shown reasonable cause or

that he acted in good faith with respect to the underpayments.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,


                                      Decision will be entered

                                 for respondent.
