                          T.C. Memo. 2004-2



                       UNITED STATES TAX COURT



             HOWARD H. THOMPSON, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17514-99.               Filed January 5, 2004.



     Howard H. Thompson, Jr., pro se.

     Robert M. Fowler, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:   Respondent determined the following defi-

ciencies in, additions under section 6651(a)(1)1 to, and

accuracy-related penalty under section 6662(a) on petitioner’s


     1
      All section references are to the Internal Revenue Code in
effect for the years at issue. All Rule references are to the
Tax Court Rules of Practice and Procedure.
                                - 2 -

Federal income tax (tax):

                                               Accuracy-Related
   Year    Deficiency      Additions to Tax         Penalty
   1994      $25,531           $6,243.25               --
   1995       38,555               --                $7,711
   1996       89,571           22,304.75               --

     The issues remaining for decision are:2

     (1) Does petitioner have certain unreported income for each

of the years 1995 and 1996?    We hold that he does.

     (2) Is petitioner liable for 1996 for an addition to tax

under section 6651(a)(1)?    We hold that he is.

                           FINDINGS OF FACT

     Most of the facts have been deemed established pursuant to

Rule 90(c) and pursuant to the Court’s Order under Rule 91(f)

dated February 11, 2003.

     At the time he filed the petition in this case, petitioner

resided in Minnetonka, Minnesota.

     During each of the years at issue, Uptime Nutrition, Inc.

(Uptime Nutrition), employed petitioner.

     On September 1, 1994, petitioner opened a checking account

(petitioner’s checking account) in the name of Norwest Realty,

Inc., of Minnetonka (Norwest Realty) at First Bank in Edina,

     2
      In addition to the issues remaining for decision listed
below, there are other questions relating to certain determina-
tions in the notice of deficiency (notice) that are computational
in that their resolution flows automatically from our resolution
of the remaining issues that we address herein and from the
concessions of the parties.
                                - 3 -

Minnesota (First Bank).    During each of the years at issue,

petitioner used petitioner’s checking account as his personal

account, making personal deposits into, and writing personal

checks on, that account.    Norwest Realty has never filed a tax

return.

Weavewood, Inc.

     In 1947, petitioner’s father, Howard Thompson, Sr. (Mr.

Thompson), who died in 1991, founded Weavewood, Inc. (Weavewood),

a closely held corporation located in Minneapolis, Minnesota

(Minneapolis).    At all relevant times, Weavewood engaged in the

business of manufacturing wood products, such as bowls and trays.

At such times, Weavewood maintained a checking account

(Weavewood’s checking account) at Norwest Bank in Minneapolis

(Norwest Bank-Minneapolis).

     Beginning in 1947 and continuing throughout each of the

years at issue, various members of petitioner’s family managed

Weavewood.   From August 1995 until July 12, 1996, petitioner

served as president, secretary, treasurer, and chairman of the

board of directors (board) of Weavewood.    Weavewood did not

compensate petitioner for serving in those positions.

     Weavewood’s Company Vehicle

     On February 16, 1996, petitioner signed a $10,000 check

(Weavewood’s February 16, 1996 check) payable to an individual

named Paul Robinson (Mr. Robinson) and drawn on Weavewood’s
                                 - 4 -

checking account.   Weavewood’s February 16, 1996 check repre-

sented a partial payment for a Cadillac that Weavewood purchased

to use as its company vehicle.    Petitioner’s mother, Virgene

Thompson (Ms. Thompson), among others, drove that Cadillac in

connection with Weavewood business.

     Weavewood’s Termination of Petitioner

     A letter dated July 10, 1996, from Ms. Thompson to peti-

tioner stated in part as follows:

     Pursuant to the authority vested to me as Personal
     Administrator of the Estate of Howard H. Thompson
     * * *. Please be advised that in the best interests of
     Weavewood, Inc. you are being removed, effective imme-
     diately, from any and all positions that you now may
     have at Weavewood, Inc. * * *

     Effective immediately, you will no longer have any
     physical access to the offices of Weavewood, Inc. or
     access to the financial accounts of Weavewood, Inc. If
     you attempt physical access to Weavewood, Inc. or its
     financial accounts, the proper authorities will be
     contacted and you will be removed immediately and
     procedures for a Restraining Order will be commenced.

     Minutes of a Weavewood board meeting held on July 12, 1996,

stated in part as follows:

     Present at the meeting were Virgene Thompson, Vice
     President, Gail Thompson Mosley, Barbara Thompson
     Meyer, and Peter Meyer.

     It was discussed that a decision had been reached by
     Virgene Thompson to formally remove Howard Thompson,
     Jr., from all corporate matters of Weavewood, Inc.,
     including but not limited to: the offices held as
     Chariman [sic] of the Board, President, Secretary, and
     Treasurer. Howard Thompson, Jr., was also removed as
     the signer for the Corporate Bank Account at the
     Norwest Bank and any other financial decision making in
     regards to Weavewood, Inc. A new corporate bank ac-
                              - 5 -

     count was established by Virgene Thompson, naming Gail
     Thompson Mosley and Barbara Thompson Meyer as the only
     signers.

     New officers were appointed as follows:

     Chairman of the Board - Virgene Thompson
     President - Gail Thompson Mosley
     Vice President - Virgene Thompson
     Secretary - Barbara Thompson Meyer
     Treasurer - Barbara Thompson Meyer

     Appointments were duly voted upon and passed unani-
     mously.

     Howard Thompson, Jr., left the Weavewood premises in
     the corporate car, a 1992 Cadillac Allante convertible,
     taking with him the contents of the corporate safe,
     neither of which he is entitled to.

     John Caylor remains as the Weavewood corporate accoun-
     tant.

     On July 12, 1996, Ms. Thompson, acting as vice president of

Weavewood, removed petitioner from holding any positions at

Weavewood and from having any authority with respect to

Weavewood, including any signing authority that petitioner had

had over Weavewood’s checking account.

     Weavewood’s Litigation Against Petitioner

     On a date not disclosed by the record on or before July 15,

1996, Weavewood, Ms. Thompson, and petitioner’s sister Gail

Thompson Mosley (Ms. Mosley) (collectively, the plaintiffs in

Weavewood’s litigation against petitioner) filed a motion for a

temporary restraining order against petitioner.   On July 15,

1996, the District Court, Fourth Judicial District, County of

Hennepin (County District Court) issued an order that stated in
                                - 6 -

part as follows:

          The above entitled matter came on for hearing
     * * * pursuant to Plaintiffs’ Motion for a Temporary
     Restraining Order against Defendant [petitioner].
     Plaintiffs Gail Mosley Thompson and Virgene Thompson
     appeared by and through their attorney Michael L.
     Puklich; Plaintiff Weavewood Inc, by and through Samuel
     Dalluge and Defendant through his attorney William
     Skolnick.

          Based upon the   argument of counsel, the Affidavits
     and Complaint filed   herein, and being duly advised in
     the premises, it is   hereby ordered that Defendants
     [sic] shall be, and   hereby are:

          1.   Temporarily restrained and enjoined:

          a.   From moving, removing, any property off the
               premises of Weavewood * * *;

          b.   From entering the premises of Weavewood * * *
               and;

          c.   From writing checks out of the corporation’s
               corporate checking account * * *;

          2.   Further, Defendant is ordered and directed to
     provide to the Court under seal all books and records
     of Weavewood Inc. which defendant has in his possession
     during the Court’s regular hours * * *

          3.   Further, Defendant is ordered and directed to
     immediately return all property owned by Weavewood Inc.
     which Defendant has in his possession to the office of
     the attorney for plaintiffs * * * to be held until
     further order of this Court, not to be returned to or
     reviewed by plaintiffs personally until further order
     of the Court.

          4.   The next hearing on this matter is scheduled
     to be held on Monday, July 22, 1996 at 12:00 noon.

          This Order shall be in effect until further order
     of this Court. * * *

     On July 17, 1996, Weavewood, one of the plaintiffs in
                               - 7 -

Weavewood’s litigation against petitioner, filed in the County

District Court what was identified as a notice of motion and

motion (motion).   That motion stated in part as follows:

          PLEASE TAKE NOTICE that on the 22nd day of July,
     1996 at 12:00 p.m. of said day * * * the undersigned
     will move the Court for an Order as follows:

          1. Temporarily restraining and enjoining Howard
     Thompson from the following:

               a. From moving, removing, any property off
     the premises of Weavewood, Inc. * * *

               b. From entering the premises of Weavewood,
     Inc. * * * and;

               c. From writing checks out of the corpora-
     tion’s corporate checking account * * *

          2. Further, Defendant is ordered and directed to
     provide to the Court under seal all books and records
     of Weavewood, Inc. which Defendant has in his posses-
     sion during the Court’s regular hours * * *

          3. Further, Defendant is ordered and directed to
     immediately return all property owned by Weavewood,
     Inc. which Defendant has in his possession to the
     office of the attorney for plaintiff’s * * * to be held
     until further order of this Court, not to be returned
     to or reviewed by plaintiff’s personally until further
     order of this court.

          This Motion is based upon the Order from this
     Court dated July 15, 1996 and upon all of the files,
     records and proceedings herein.

     On July 22, 1996, in preparation for a hearing that the

County District Court scheduled on that day with respect to the

temporary injunction that Weavewood sought against petitioner,

Weavewood, one of the plaintiffs in Weavewood’s litigation

against petitioner, filed a memorandum of law (Weavewood’s
                               - 8 -

memorandum of law).   Weavewood’s memorandum of law stated in part

as follows:

          This memorandum of law is submitted in support of
     Plaintiff’s Motion for a Temporary Injunction prevent-
     ing Plaintiff’s former President, Board of Director and
     Secretary Treasurer, Defendant from continuing to use
     certain equipment, financial documents and corporate
     funds that he has misappropriated from Plaintiff,
     Weavewood, and requiring Defendant to return the equip-
     ment, corporate funds and financial documents and
     preventing Defendant access to the premises of
     Weavewood, Inc.

                               FACTS

          Plaintiff, Weavewood, Inc. is a family run busi-
     ness and has been in the business of making wood prod-
     ucts since the 1940's. In 1991 the sole shareholder of
     the company, Howard Thompson, Sr. past [sic] away and
     his estate is currently in probate. Pursuant to his
     Last Will and Testament he appointed his wife Virgene
     Thompson as personal administrator and also gave her
     the authority to make all of the decisions regarding
     the business. * * * Approximately one year ago she
     appointed Howard Thompson, Jr. her son to the positions
     of President, Chairman of the Board and Secretary/
     Treasurer, he was also the only signor on the corporate
     checking account. * * *

     Thereafter the business suffered financially, bills
     were not being paid, taxes were not being paid, stocks
     which the company had owned for decades were being sold
     and corporate funds were being used by Howard Thompson,
     Jr. for non-business purposes. * * * Based on these
     findings, Virgene Thompson removed Howard Thompson, Jr.
     from his corporate officer positions on July 12, 1996.
     * * * A board meeting followed appointing new officers.

        *       *       *       *       *       *       *

          The company has since learned from Norwest Bank
     that at approximately 5:00 p.m. on July 12, 1996 after
     Howard Thompson had been removed from his officer
     positions, he wrote a check to himself from the
     Weavewood account in the amount of $16,000.00. * * *
                              - 9 -

          Since this court’s order of July 15, 1996, Defen-
     dant has written at least two checks on the Weavewood
     checking account for non-business purposes. Defendant
     was taken off as signor on the account on Monday July
     15 and on Tuesday the account was closed. On Tuesday,
     Defendant attempted to cash another check made payable
     to himself from the corporate account in the amount of
     $16,750.00. $10,000 in a cashiers check and $6,750.00
     in cash. Norwest was able to stop payment on the
     cashiers check but because of a mistake made by the
     bank Defendant did receive $6,750.00 in cash. * * *

        *       *       *       *       *       *       *

          Regarding the computer equipment. Defendant has
     acknowledged to Virgene Thompson in a conversation that
     he would return the computer equipment. However, this
     has not happened. * * * Ironically, the computer which
     is currently missing was taken while we were at the
     hearing on Monday, July 15, 1996. * * *

          Regarding past misappropriation of corporate
     funds. Weavewood has retained the services of John D.
     Caylor, C.P.A. to review certain financial documents it
     still had in its possession. It is the opinion of Mr.
     Caylor that corporate funds have been misappropriated
     by Defendant. * * * [Reproduced literally.]

     Attached to Weavewood’s memorandum of law were two affida-

vits by Ms. Thompson (Ms. Thompson’s affidavit and Ms. Thompson’s

supplemental affidavit, respectively), an affidavit by Ms. Mosley

(Ms. Mosley’s affidavit), and an affidavit by Weavewood’s accoun-

tant John Caylor (Mr. Caylor’s affidavit).

     Ms. Thompson’s affidavit, dated July 15, 1996, stated in

part as follows:

          I, Virgene Thompson being first duly sworn, do
     hereby state and depose as follows:


          1.   That your affiant was the wife of Howard
     Thompson Sr. and the personal administrator of Howard
                        - 10 -

Thompson’s estate and has been involved in the opera-
tion of Weavewood, Inc., for approximately 40 years and
accordingly is familiar with the facts and circumstance
[sic] surrounding this motion for a temporary restrain-
ing order. * * *

     2.   That on Friday, July 12, 1996, a board of
directors meeting was held at the corporate offices of
Weavewood, Inc. * * *

   *       *       *       *       *       *       *

     4.   During the board of directors meeting it was
resolved that Howard Thompson Jr. was to be removed as
the Chairman of the Board, President, Secretary and
Treasurer of Weavewood, Inc. and that said removal was
effective July 12, 1996. That on July 12, 1996, Howard
Thompson was personally served with a letter of termi-
nation/removal. The termination/removal letter was
written by your Affiant * * *.

     5.   That on July 12, 1996, after receiving the
letter of termination/removal, Howard Thompson made the
following threats:

          a.   to take corporate funds by writing a
corporate check to himself;

          b.   to take corporate equipment;

          c.   to take/remove corporate documents from
the corporation;

          d.   to move corporate operations to a dif-
ferent site;

          e.   to sell the corporate automobile and;

          f.   threatened that the corporate building
“would not be standing” inferring that he was going to
burn it.

     6.   That on Friday, July 12, 1996, after Howard
Thompson had been removed he (Howard Thompson) changed
the door locks at Weavewood, Inc.

     7.   That on Friday, July 12, 1996, your affiant
witnessed Howard Thompson remove corporate documents
                             - 11 -

     from the corporation.

     Ms. Thompson’s supplemental affidavit, which was undated,

stated in part as follows:

          I, Virgene Thompson, being first duly sworn, do
     hereby state and depose as follows:

          1. That this is a supplemental affidavit to * * *
     [Ms. Thompson’s affidavit]

          2. That approximately 1 year age [sic] your
     affiant appointed the defendant Howard Thompson to the
     positions of President, Chairman of the Board, Secre-
     tary/Treasurer and he was also the only signor on the
     Weavewood bank account with Norwest.

          3. That the Cadillac owned by Weavewood, Inc. has
     been returned to Anderson Cadillac * * *.

          4. That Howard Thompson has acknowledged to your
     affiant that he would return the computer equipment
     that was taken, however, to the best of your affiant’s
     knowledge this equipment has not been returned. That
     during the same meeting your affiant served the Tempo-
     rary Restraining Order on Defendant [petitioner] and
     * * * advised Defendant that he had to appear at the
     hearing scheduled for Monday July 22, 1996. Defendant
     told your affiant that he “did not have [to] be at any
     hearing.”

          5. That your affiant has not received any corpo-
     rate monies in the form of a corporate distribution or
     otherwise since approximately August of 1995. That
     your affiant has never received the proceeds indicated
     by the attached checks,[3] particularly the check for
     $20,000.00. Your affiant also does not remember en-
     dorsing any checks for deposit into your affiant’s


     3
      The checks attached to Ms. Thompson’s supplemental affida-
vit included the following three checks (discussed below) that
were payable to her, drawn on Weavewood’s checking account, and
signed by petitioner: a $20,000 check dated Feb. 15, 1996, a
$5,000 check dated Feb. 20, 1996, and a $1,000 check, the date of
which is not shown in the Court’s copy of the attachments to Ms.
Thompson’s supplemental affidavit.
                               - 12 -

     personal checking account.

     Ms. Mosley’s affidavit, dated July 15, 1996, stated in part

as follows:

          I, Gail Thompson Mosley being first duly sworn, do
     hereby state and depose as follows:

          1.   That your affiant is the daughter of Howard
     Thompson Sr. and Virgene Thompson and is the newly
     appointed President of Weavewood, Inc. and accordingly
     is familiar with the facts and circumstances surround-
     ing this motion for a temporary restraining order.

          2.   That your affiant was an employee of
     Weavewood, Inc., for approximately 13 years.

          3.   That on Friday, July 12, 1996, a board of
     directors meeting was held at the corporate offices of
     Weavewood, Inc. * * *

        *        *       *        *      *       *       *

          5.   During the board of directors meeting it was
     resolved that Howard Thompson Jr. was to be removed as
     the Chairman of the Board, President, Secretary and
     Treasurer of Weavewood, Inc. and that said removal was
     effective July 12, 1996. That on July 12, 1996, Howard
     Thompson was personally served with a letter of termi-
     nation/removal * * *.

          6.   That prior to July 12, 1996, Howard Thompson
     threatened to take corporate funds by writing a corpo-
     rate check to himself.

          7. That on July 12, 1996, after receiving the
     letter of termination/removal, Howard Thompson made the
     following threats:

            a.   to take corporate equipment

          b.   to take/remove corporate documents from the
     corporation

            c.   to move corporate operations to a different
     site
                              - 13 -

          d.   to sell the corporate automobile

          e.   threatened that the corporate building “would
     not be standing” inferring that he was going to burn
     it;

          8.   That on Friday, July 12, 1996, Howard Thomp-
     son changed the door locks at Weavewood, Inc.

           9.  That on Friday, July 12, 1996, your Affiant
     called the Golden Valley Police Department to have Mr.
     Thompson removed and that the Golden Valley Police
     ordered the parties to leave and took the keys to the
     building pending an order from the Court releasing the
     keys.

          10. That at 12:00 p.m. today [July 15, 1996] an
     employee of Weavewood called your affiant and reported
     that Howard Thompson had some how [sic] gained access
     to the building and was at the corporate offices.

     Mr. Caylor’s affidavit, dated July 22, 1996, stated in part

as follows:

          I, John D. Caylor, being first duly sworn, do
     hereby state and depose as follows:


           1. That your affiant is a certified public ac-
     countant licensed to practice in the State of Minne-
     sota.

          2. That your affiant has been the accountant for
     Weavewood, Inc. since August 24, 1995 and is accord-
     ingly familiar with the tax and financial affairs of
     Weavewood, Inc.

          3. For purposes of this hearing, your affiant has
     been retained to review certain financial documents of
     Weavewood, Inc. including but not limited to:

               a.   Canceled checks

               b.   Bank statements

               c.   Computerized check ledger
                              - 14 -

               d.   Investment Broker Statements

          4. That your affiant has also reviewed certain
     American Express Credit Card statements of an individ-
     ual named Paul Robinson.

          5. That it is the professional opinion of your
     affiant that corporate funds belonging to Weavewood
     have been misappropriated by the Defendant Howard
     Thompson. Your affiants [sic] opinion is based on the
     following findings:

               a. That to the best of your affiant’s knowl-
     edge, since August of 1995, Howard Thompson was never
     an employee of Weavewood or in a compensated officer
     position of the Company. However, after reviewing
     certain canceled checks and bank statements your
     affiant has discovered that Howard Thompson had been
     writing checks from the Weavewood account to himself.
     The most recent of these incidents occurred on Friday
     July 12, 1996, and Tuesday July 16, 1996. * * * Your
     affiant has also discovered that on prior occasions,
     Howard Thompson has written other checks to himself
     from the Weavewood account, [and] after your affiant
     has had an opportunity to review all of the canceled
     checks an opinion as to the exact amount can be given
     to this court if requested.

               b. That Virgene Thompson does have a compen-
     sated position at Weavewood. Your affiant has discov-
     ered that a number of checks from Weavewood have been
     written to Virgene Thompson, [and] after consulting
     with Ms. Thompson, she has advised your affiant that
     she has not received any monies from the company since
     August of 1995. Attached hereto are three checks
     written to Virgene Thompson.[4]

               c. That after reviewing certain canceled
     checks, bank statements and credit card statements,


     4
      Three of the checks attached to Mr. Caylor’s affidavit were
the same three checks discussed supra note 3 that were attached
to Ms. Thompson’s supplemental affidavit. We note that the
$1,000 check, the date of which is not shown in the Court’s copy
of the attachments to Ms. Thompson’s supplemental affidavit, is
shown in Mr. Caylor’s affidavit as having a date of Feb. 26,
1996.
                             - 15 -

     your affiant has discovered that corporate funds from
     Weavewood have been used to pay Howard Thompson’s
     personal debt and other financial obligations of Howard
     Thompson. Attached hereto are canceled checks to Paul
     Robinson for payment of charges on Mr. Robinson’s
     credit card; Check to Philip Villaume for personal
     legal services; Check to James Caveness [sic] who is a
     personal friend of Howard Thompson’s and not an em-
     ployee of Weavewood; See also attached Paul Robinson
     credit card statement of account for Howard Thompson.
     The Weavewood check ledger also indicates that Howard
     Thompson’s personal auto lease was paid with Weavewood
     funds. As recent as Friday, July 19, 1996, Howard
     Thompson attempted to use Weavewood proceeds to pay for
     past due legal services. * * *

               d. That it is your affiant’s opinion that
     Howard Thompson has also violated his fiduciary duty to
     Weavewood, Inc. by investing corporate funds and sell-
     ing stocks that had been with the company for decades
     and using the corporate proceeds to purchase volatile
     stocks when funds were needed to pay past due bills and
     operate the day to day operations of the Company. That
     your affiant has also discovered that Howard Thompson
     acting on behalf of the Company borrowed $50,000.00
     from Norwest Bank and after reviewing numerous corpo-
     rate records your affiant has found no evidence that
     these borrowed funds were used for the benefit of the
     company or for any business purpose. * * *

          6. That your affiant is familiar with the office
     equipment and corporate automobile owned by or leased
     by Weavewood. That attached hereto is a copy of the
     title card for a 1992 Cadillac Allante which is owned
     by Weavewood, Inc. Also please find attached a lease
     agreement for certain pieces of computer equipment
     currently leased to Weavewood, Inc. * * *

Transactions Involving Petitioner and Checks
That Were Drawn on Weavewood’s Checking Account

     Weavewood’s Checks That
     Were Payable to Ms. Thompson

     During February 1996, petitioner signed the following checks

(collectively, Weavewood’s February 1996 checks) that were
                                   - 16 -

payable to Ms. Thompson and drawn on Weavewood’s checking ac-

count:

              Date of    Check               Amount
            February    15, 1996             $20,000
            February    20, 1996               5,000
            February    26, 1996               1,000
                                     Total   $26,000

Ms. Thompson did not become aware of Weavewood’s February 1996

checks until some time after petitioner signed them.      As dis-

cussed above, in Ms. Thompson’s supplemental affidavit which she

wrote in July 1996 in connection with Weavewood’s memorandum of

law filed on July 22, 1996, Ms. Thompson denied having received

any moneys from Weavewood since August 1995.       It was petitioner

who received the proceeds from Weavewood’s February 1996 checks.5

     Weavewood’s Checks That Were Payable
     to James Cavness or Phil Villaume

     During February and April 1996, petitioner signed the

following checks (collectively, Weavewood’s February and April

1996 checks) that were payable to James Cavness (Mr. Cavness) or

Phil Villaume (Mr. Villaume) and drawn on Weavewood’s checking

account:




     5
      Petitioner deposited into petitioner’s checking account the
$5,000 check dated Feb. 20, 1996, (discussed above) and the
$1,000 check dated Feb. 26, 1996 (discussed above). It is not
clear from the record whether petitioner deposited the $20,000
check dated Feb. 15, 1996 (discussed above) into petitioner’s
checking account or cashed that check.
                               - 17 -

           Date of Check         Payee             Amount
         February 19, 1996   James Cavness           $150
         February 23, 1996   Phil Villaume          1,000
            April 2, 1996    James Cavness            200
           April 11, 1996    James Cavness          7,000
                                       Total       $8,350

Petitioner used Weavewood’s February and April 1996 checks either

to make payments for petitioner’s personal expenses or to make

payments to a nominee of petitioner.      In this connection, at the

time petitioner signed Weavewood’s February and April 1996

checks, Mr. Cavness was a personal friend of petitioner.     More-

over, at the time petitioner signed Weavewood’s February and

April 1996 checks, Mr. Villaume was an attorney practicing in the

Minneapolis-St. Paul area of Minnesota, who during the years at

issue had performed personal legal services on behalf of peti-

tioner and whom Weavewood had not employed during any of those

years.

     Weavewood’s Checks That
     Were Payable to Petitioner

     On July 12, 1996, the day on which Weavewood terminated

petitioner, petitioner signed without Weavewood’s authorization

and later negotiated the following checks (collectively,

Weavewood’s July 12, 1996 checks) that were payable to petitioner

and drawn on Weavewood’s checking account:

                  Date of Check         Amount
                  July 12, 1996         $16,000
                  July 12, 1996          16,750
                           Total        $32,750
                              - 18 -


     On July 16, 1996, when petitioner negotiated Weavewood’s

$16,750 check dated July 12, 1996 (Weavewood’s July 12, 1996

check for $16,750) at Norwest Bank in Ridgedale (Norwest Bank-

Ridgedale), he received $6,750 in cash and a $10,000 cashier’s

check ($10,000 cashier’s check).     On July 16, 1996, Weavewood

placed a stop payment on Weavewood’s July 12, 1996 check for

$16,750.   Consequently, Norwest Bank-Ridgedale voided the $10,000

cashier’s check.

     Weavewood’s Checks That
     Were Payable to Mr. Robinson

     During March and April 1996, petitioner signed, or caused to

be issued to Mr. Robinson, the following checks (collectively,

Weavewood’s March and April 1996 checks) that were payable to Mr.

Robinson and drawn on Weavewood’s checking account:

           Date of Check                    Amount
           March 11, 1996                  $4,848.09
           April 27, 1996                   1,405.00
                             Total         $6,253.09

Petitioner used Weavewood’s March and April 1996 checks to make

payments (petitioner’s 1996 American Express card payments) to

Mr. Robinson for personal expenses that petitioner incurred under

the following arrangement (petitioner’s arrangement with Mr.

Robinson) that he had with Mr. Robinson regarding Mr. Robinson’s

American Express card.   At a time around the end of 1993, when

petitioner was unable to obtain any credit in his own name,

petitioner approached Mr. Robinson to request access to Mr.
                              - 19 -

Robinson’s American Express account (Mr. Robinson’s American

Express account) by having Mr. Robinson authorize American

Express to issue a credit card in petitioner’s name with respect

to Mr. Robinson’s American Express account.   In return for Mr.

Robinson’s authorizing petitioner to have a credit card issued

with respect to Mr. Robinson’s American Express account, peti-

tioner agreed that Mr. Robinson was to receive and retain all the

points from American Express that accrued for each dollar of

charges that petitioner incurred using that card.   In January

1994, Mr. Robinson agreed to petitioner’s arrangement with Mr.

Robinson, and American Express issued a credit card to petitioner

with respect to Mr. Robinson’s American Express account (peti-

tioner’s American Express card issued on Mr. Robinson’s American

Express account).   As part of petitioner’s arrangement with Mr.

Robinson, petitioner submitted to Mr. Robinson payments for

charges that petitioner incurred on petitioner’s American Express

card issued on Mr. Robinson’s American Express account.

     During the time petitioner’s arrangement with Mr. Robinson

was in effect, American Express issued bills to Mr. Robinson for

all charges made on Mr. Robinson’s American Express account,

including the charges that petitioner made on petitioner’s

American Express card issued on Mr. Robinson’s American Express

account.   American Express held Mr. Robinson accountable for any

charges that petitioner made on petitioner’s American Express
                              - 20 -

card issued on Mr. Robinson’s American Express account.

     In April 1994, Mr. Robinson terminated petitioner’s arrange-

ment with Mr. Robinson after a dispute arose between Mr. Robinson

and petitioner.   In August 1995, Mr. Robinson resumed peti-

tioner’s arrangement with Mr. Robinson.    That arrangement contin-

ued until July 18, 1996, when Mr. Robinson canceled petitioner’s

American Express card issued on Mr. Robinson’s American Express

account because petitioner failed to pay the charges that he had

incurred on that account.

     Weavewood’s Checks That
     Were Payable to Gold Key Lease

     During May and June 1996, petitioner signed the following

checks (collectively, Weavewood’s May and June 1996 checks and

individually, Weavewood’s May 15, 1996 check and Weavewood’s June

13, 1996 check) that were payable to Gold Key Lease (Gold Key)

and drawn on Weavewood’s checking account:

                        Date           Amount
                    May 15, 1996       $549.99
                   June 13, 1996        549.99

Petitioner used Weavewood’s May and June 1996 checks to make

payments to Gold Key for the lease (discussed below) of a 1995

Jeep Grand Cherokee (1995 Jeep Grand Cherokee).6   During January,

February, March, and April 1996, petitioner had paid for the


     6
      Petitioner’s use of Weavewood’s May 15, 1996 check to make
the May 15, 1996 lease payment for the 1995 Jeep Grand Cherokee
was the payment of a personal expense of petitioner.
                              - 21 -

lease of that vehicle by giving Gold Key in each of those months

a $549.99 check that he signed, which was payable to Gold Key and

drawn on petitioner’s checking account.

     In order to qualify to lease the 1995 Jeep Grand Cherokee

from Gold Key, on December 27, 1994, Ms. Thompson and petitioner

submitted to Gold Key a credit application (Gold Key credit

application).   That application indicated that Ms. Thompson was

retired and that Uptime Nutrition employed petitioner.    The Gold

Key credit application did not indicate that Weavewood was

applying for credit to lease the 1995 Jeep Grand Cherokee or that

Weavewood was in any way connected with that application.

Sometime in January 1995, Gold Key entered into a lease agreement

(Gold Key lease agreement) with Ms. Thompson and petitioner for

the lease of the 1995 Jeep Grand Cherokee.    The Gold Key lease

agreement indicated that Ms. Thompson and petitioner were the

lessee and colessee, respectively.     The Gold Key lease agreement

did not indicate that Weavewood was a lessee or colessee or that

Weavewood was in any way connected with that agreement.    At no

relevant time was the 1995 Jeep Grand Cherokee Weavewood’s

company vehicle.

Transactions Involving Petitioner and
Checks That Were Payable to Weavewood

     July 16, 1996 Checks

     On July 16, 1996, after Weavewood terminated petitioner,

petitioner deposited into petitioner’s checking account the
                             - 22 -

following checks that were payable to Weavewood (collectively,

July 16, 1996 checks that were payable to Weavewood):

                    Payor                Amount
        Nearly New Restaurant          $3,466.08
            Equip. & Supplies
                Stratosphere            2,743.20
          Rykoff-Sexton, Inc.           2,290.26
                  Fri City                382.88
          Rykoff-Sexton, Inc.             365.29
                      Don                 355.48
            United Restaurant             298.63
                    Equip.
         DBA The Miners Bldg.             275.24
               SS Kemp & Co.              165.86
           L & M Food Service             146.46
                   Tinkels                139.85
                 Spanky’s -                50.50
              Fredericksburg
                   Boelter                 40.58
                     Total            $10,720.31

Petitioner’s deposit into petitioner’s checking account of the

July 16, 1996 checks that were payable to Weavewood was done

without Weavewood’s authorization and constituted a conversion of

those checks.

     July 22, 1996 Checks

     On July 22, 1996, petitioner deposited into petitioner’s

checking account the following checks that were payable to

Weavewood (collectively, July 22, 1996 checks that were payable

to Weavewood):
                                 - 23 -

                    Payor                   Amount
                  Harrah’s                $6,108.80
                     Don                     933.46
                     PFS                     890.25
                  Harrah’s                   198.79
                    Brown                    156.93
                             Total        $8,288.23

Petitioner’s deposit into petitioner’s checking account of the

July 22, 1996 checks that were payable to Weavewood was done

without Weavewood’s authorization and constituted a conversion of

those checks.

Transaction Involving Petitioner
With Respect to Timmerman Leasing

     On February 14, 1996, petitioner received a $6,000 check

(February 14, 1996 check) from or through Weavewood.    The Febru-

ary 14, 1996 check related to a sale-leaseback transaction that

petitioner had negotiated with Timmerman Leasing on behalf of

Weavewood.

Transactions Involving Petitioner and
Checks That Were Payable to Mr. Thompson

     At a time not disclosed by the record before 1991, Mr.

Thompson, petitioner’s father, made an investment with respect to

the leasing of certain airplanes (Mr. Thompson’s investment)

through a program known as Polaris Aircraft Investment Program

1983 (Polaris).    Pursuant to that program, every six months

Polaris issued a check payable to Mr. Thompson with respect to

Mr. Thompson’s investment.     After Mr. Thompson’s death in 1991,
                               - 24 -

Polaris continued to issue every six months checks that were

payable to Mr. Thompson with respect to Mr. Thompson’s invest-

ment.

       On January 31, 1995, Polaris issued a $4,962.50 check

payable to Mr. Thompson (January 31, 1995 check).    Petitioner

negotiated the January 31, 1995 check at First Bank.

       On July 31, 1995, Polaris issued a $4,962.50 check payable

to Mr. Thompson (July 31, 1995 check).    Petitioner, Ms. Thompson,

and Donald D. Kallestad (Mr. Kallestad), whom Weavewood employed

during 1995 and 1996, endorsed the July 31, 1995 check.    On a

date not disclosed by the record between July 31 and August 4,

1995, petitioner negotiated the July 31, 1995 check by giving it

to Mr. Kallestad as a loan.    On August 4, 1995, Mr. Kallestad

deposited that check into his personal checking account (Mr.

Kallestad’s personal checking account) at Norwest Bank-Minneapo-

lis.    Approximately two or three months after Mr. Kallestad

deposited the July 31, 1995 check into Mr. Kallestad’s personal

checking account, Mr. Kallestad gave petitioner $4,962.50 in

repayment of the loan that he received from petitioner.

       On January 31, 1996, Polaris issued a $4,962.50 check

payable to Mr. Thompson (January 31, 1996 check).    Petitioner

negotiated the January 31, 1996 check.

       On July 31, 1996, Polaris issued a $4,962.50 check payable

to Mr. Thompson (July 31, 1996 check).    Petitioner negotiated the
                               - 25 -

July 31, 1996 check by endorsing it to an individual named Gayle

Bjorkland.

Sale of Petitioner’s Arcade Games

       Around May 1, 1996, petitioner sold 10 arcade games (arcade

games) to Reality Entertainment, a company located in Des Moines,

Iowa.    Petitioner and Mr. Robinson delivered those arcade games

to Reality Entertainment.    Reality Entertainment financed the

purchase of the arcade games through Norwest Equipment Finance,

Inc. (Norwest Equipment Finance), a company located in Minneapo-

lis.    On May 1, 1996, Norwest Equipment Finance issued a $16,450

check (May 1, 1996 check) payable to petitioner and drawn on its

account at Norwest Bank-Minneapolis as payment to petitioner for

the sale of the arcade games (petitioner’s sales proceeds from

the sale of the arcade games).    Petitioner endorsed the May 1,

1996 check and sent it to Mr. Kallestad at Weavewood, which Mr.

Kallestad received on or about May 6, 1996.    On May 6, 1996, at

petitioner’s request, Mr. Kallestad arranged through Norwest Bank

of Wayzata, Minnesota, to have petitioner’s sales proceeds from

the sale of the arcade games wired to petitioner at Caesar’s

Tahoe casino.

Ms. Thompson’s Tax Returns
for 1994, 1995, and 1996

       Ms. Thompson filed Form 1040, U.S. Individual Income Tax

Return (Form 1040), for each of her taxable years 1994 (Ms.

Thompson’s 1994 return), 1995 (Ms. Thompson’s 1995 return), and
                              - 26 -

1996 (Ms. Thompson’s 1996 return).     In Ms. Thompson’s 1994

return, Ms. Thompson reported $7,000 of wage income from

Weavewood, $114 of taxable interest income which, in a statement

with respect to such interest income that she attached to that

return,7 she indicated was from “Polaris Aircraft Investment

Program”, and $22,741 of Social Security benefits, of which $195

was reported as taxable.   In Schedule E, Supplemental Income and

Loss (Schedule E), included as part of Ms. Thompson’s 1994 return

(Ms. Thompson’s 1994 Schedule E), Ms. Thompson reported $10,560

in rents received from “An undivided 1/2% interest in four used

aircraft Pittsburg [sic], PA”,8 $655 in expenses, and $9,905 in

total rental real estate income.

     In Ms. Thompson’s 1995 return, Ms. Thompson reported $5,500

of wage income from Weavewood, $178 of taxable interest income,

and $350 of taxable refunds, credits, or offsets of State and

local income taxes.   In Schedule B included as part of Ms.

Thompson’s 1995 return, Ms. Thompson indicated that the $178 of

taxable interest income that she reported was from “POLARIS”.



     7
      Ms. Thompson did not include Schedule B, Interest and
Dividend Income (Schedule B), as part of Ms. Thompson’s 1994
return.
     8
      Although not altogether clear from the record, it appears
that the $10,560 in rents received from “An undivided 1/2%
interest in four used aircraft Pittsburg [sic], PA” reported in
Ms. Thompson’s 1994 Schedule E related to checks that were
payable to Mr. Thompson and that Polaris issued in 1994 with
respect to Mr. Thompson’s investment.
                                - 27 -

Ms. Thompson did not include Schedule E as part of Ms. Thompson’s

1995 return.

     In Ms. Thompson’s 1996 return, Ms. Thompson reported only

$171 of taxable interest income.    In Schedule B included as part

of Ms. Thompson’s 1996 return, Ms. Thompson indicated that the

$171 of taxable interest income that she reported was from

“POLARIS”.   Ms. Thompson did not include Schedule E as part of

Ms. Thompson’s 1996 return.

Petitioner’s Tax Returns
for 1994, 1995, and 1996

     Petitioner filed Form 1040 for his taxable year 1995 (peti-

tioner’s 1995 return).     In petitioner’s 1995 return, petitioner

reported $25,200 of wage income from Uptime Nutrition. In Sched-

ule C, Profit or Loss From Business (Schedule C), included as

part of petitioner’s 1995 return (petitioner’s 1995 Schedule C),

petitioner reported that he was in the vending business and that

he had gross income of $4,750 and expenses of $4,483, including

$1,597 of car and truck expenses.    A vehicle expense worksheet

attached to petitioner’s 1995 Schedule C indicated that the car

and truck expenses claimed in that schedule related to a Jeep

Grand Cherokee that was placed into service on January 1, 1995.

     Petitioner did not file tax returns for his taxable years

1994 and 1996.

Notice

     Respondent issued a notice to petitioner with respect to his
                              - 28 -

taxable years 1994, 1995, and 1996.     In that notice, respondent

determined, inter alia, that for each of the years 1995 and 1996

petitioner has unreported income of $9,925 from Polaris.    Respon-

dent further determined in the notice that for 1996 petitioner

has unreported income of $16,450 from the sale of vending ma-

chines9 and $122,391 of unreported “EMBEZZELMENT [sic] FORM 1099”

income.   Respondent further determined in the notice that peti-

tioner is liable for 1996 for an addition to tax under section

6651(a)(1).

                              OPINION

     Petitioner bears the burden of showing error in the determi-

nations in the notice that remain at issue.10    See Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

     The only issues that remain for decision relate to

(1) certain alleged unreported income for each of the taxable



     9
      In the notice, respondent erroneously referred to the
arcade games that petitioner sold to Reality Entertainment around
May 1, 1996, as vending machines. Petitioner does not dispute
that respondent’s determination in the notice with respect to the
$16,450 of unreported income for 1996 relates to the sale of the
arcade games.
     10
      Petitioner does not contend that sec. 7491 is applicable
in this case. Even if petitioner had advanced such a contention,
he has not established that he has complied with the applicable
requirements of sec. 7491(a)(2). Under the circumstances pre-
sented in this case, we conclude (1) that the burden of proof
does not shift to respondent under sec. 7491(a)(1) with respect
to the deficiency determinations and (2) that respondent does not
have the burden of production under sec. 7491(c) with respect to
the addition to tax under sec. 6651(a)(1).
                              - 29 -

years 1995 and 1996 and (2) the addition to tax under section

6651(a)(1) for the taxable year 1996.   We turn first to the

alleged unreported income.

     The unreported income items at issue for 1995 pertain to

petitioner’s use of the January 31, 1995 check and the July 31,

1995 check, both of which were payable to Mr. Thompson, peti-

tioner’s father, and issued by Polaris with respect to Mr.

Thompson’s investment.   The unreported income items at issue for

1996 pertain to:   (1) Petitioner’s use of Weavewood’s February

1996 checks that were payable to Ms. Thompson and drawn on

Weavewood’s checking account; (2) petitioner’s use of Weavewood’s

February and April 1996 checks that were payable to Mr. Cavness

or Mr. Villaume and drawn on Weavewood’s checking account;

(3) petitioner’s use of Weavewood’s July 12, 1996 checks that

were payable to petitioner and drawn on Weavewood’s checking

account; (4) petitioner’s use of Weavewood’s March and April 1996

checks that were payable to Mr. Robinson and drawn on Weavewood’s

checking account; (5) petitioner’s use of Weavewood’s May and

June 1996 checks that were payable to Gold Key and drawn on

Weavewood’s checking account; (6) petitioner’s use of the July

16, 1996 checks and the July 22, 1996 checks that were payable to

Weavewood; (7) petitioner’s receipt of the February 14, 1996

check relating to Timmerman Leasing; (8) petitioner’s use of the

January 31, 1996 check and the July 31, 1996 check, both of which
                               - 30 -

were payable to Mr. Thompson, petitioner’s father, and issued by

Polaris with respect to Mr. Thompson’s investment; and

(9) petitioner’s receipt of petitioner’s sales proceeds from the

sale of the arcade games.

     In support of his position that he does not have the unre-

ported income at issue for 1995 and 1996, petitioner relies on

his testimony.   In an Order dated May 13, 2003, at the call of

this case from the calendar on June 2, 2003, and at the trial of

this case on June 3, 2003, the Court advised petitioner that he

may not introduce at the trial in the instant case any evidence

that is inconsistent with or contrary to the deemed admissions

and the deemed stipulations in this case.

     At trial, respondent objected to certain of petitioner’s

testimony on the ground that it was inconsistent with or contrary

to certain of the deemed admissions and deemed stipulations in

this case.   The Court sustained respondent’s objections to the

extent the Court found petitioner’s proffered testimony to be

inconsistent with or contrary to certain of those admissions and

stipulations.    Nonetheless, petitioner persisted in proffering

testimony, to which respondent objected as inconsistent with or

contrary to certain of the deemed admissions and deemed stipula-

tions in this case.   In order to facilitate the trial in this

case without repeated objections by respondent, the Court allowed

respondent to make a standing objection to petitioner’s testimony
                                - 31 -

on the ground that it was inconsistent with or contrary to

certain of those admissions and stipulations.     The Court directed

respondent to bring to the Court’s attention on brief any of

petitioner’s testimony to which respondent objected as inconsis-

tent with or contrary to certain of the deemed admissions and

deemed stipulations in this case and informed the parties that it

would deem stricken from the record any such inconsistent or

contrary testimony.

     The Court deems stricken from the record in the instant case

any testimony of petitioner that is inconsistent with or contrary

to the deemed admissions and the deemed stipulations in this

case.     Assuming arguendo that the Court had not deemed such

testimony stricken, the Court would not rely on petitioner’s

testimony to establish his position that he does not have the

unreported income at issue for 1995 and 1996.     That is because

the Court found petitioner’s testimony to be in material respects

not credible, general, conclusory, vague, self-serving, uncorrob-

orated, and/or inconsistent with certain other evidence in the

record.

Transactions Involving Petitioner and Weavewood

        The following are the unreported income items at issue for

1996 which relate to petitioner’s use in that year of various

checks that were drawn on Weavewood’s checking account, that were

payable to Weavewood, or that petitioner received from or through
                             - 32 -

Weavewood, all of which respondent included as part of the

adjustment in the notice, referred to as “EMBEZZELMENT [sic] FORM

1099", to increase petitioner’s income for 1996 by $122,391:11

(1) Petitioner’s use of Weavewood’s February 1996 checks that

were payable to Ms. Thompson and drawn on Weavewood’s checking

account; (2) petitioner’s use of Weavewood’s February and April

1996 checks that were payable to Mr. Cavness or Mr. Villaume and

drawn on Weavewood’s checking account; (3) petitioner’s use of

Weavewood’s July 12, 1996 checks that were payable to petitioner

and drawn on Weavewood’s checking account; (4) petitioner’s use

of Weavewood’s March and April 1996 checks that were payable to

Mr. Robinson and drawn on Weavewood’s checking account;

(5) petitioner’s use of Weavewood’s May and June 1996 checks that

were payable to Gold Key and drawn on Weavewood’s checking

account; (6) petitioner’s use of the July 16, 1996 checks and the

July 22, 1996 checks that were payable to Weavewood; and

(7) petitioner’s receipt of the February 14, 1996 check relating


     11
      The amount of $122,391 by which respondent determined in
the notice to increase petitioner’s income for 1996 was the
amount reported in Form 1099-MISC, Miscellaneous Income (Form
1099), that Weavewood issued for that year with respect to
petitioner (Weavewood’s Form 1099). In preparation for trial,
respondent reconstructed various items of unreported income for
1996, which were included as part of the $122,391 total amount of
income reported in Weavewood’s Form 1099. Except for the unre-
ported income items for 1996 that we address herein, respondent
concedes the balance of the $122,391 of unreported income for
1996 that respondent determined in the notice as an adjustment
referred to in the notice as “EMBEZZELMENT [sic] FORM 1099”.
                                - 33 -

to Timmerman Leasing.

     With respect to the foregoing unreported income items at

issue for 1996, petitioner testified in part as follows:

     The embezzlement issue on the 1099 form[12] has already
     been ruled on, in December 2001, by the Honorable
     Hennepin County District Court Judge Myron Greenberg,
     in which his order specifically writes that the
     $122,391 -- and I believe it was 87 cents -- which is
     missing from this particular entry, was null and void,
     and should be reclassified as $0.00.

In addition, on brief petitioner

     denies all claimes made in the 91 F motion and has
     consistantly denied these bogas alegations. Petitioner
     fought in state district court the exact same claims
     and after nearly (4) four years of trial and pretrial
     Judge Myron Greenburg ruled all of these claims to be
     untrue. This Court has no jurisdiction to rule on the
     same claims already decided. * * * [Reproduced liter-
     ally.]

     Respondent counters that

     Petitioner did not articulate any credible explanation
     at trial why the income attributed to him from his
     misappropriations from Weavewood would not be income to
     him. He testified that a Hennepin County District
     Judge had ruled that the Form 1099 issued by Weavewood
     was null and void and should be reclassified as zero
     * * * but he presented no documentary evidence corrobo-
     rating his claim about either the ruling or the basis
     for the ruling. Even if such an order had been en-
     tered, however, it has no legal effect on this case,
     since petitioner did not claim, and respondent would
     have contested such a claim if it had been made, that
     respondent was a party to the state court proceeding.
     Furthermore, this proceeding [the instant case] would
     have been the appropriate forum in which to raise the
     issue whether the Form 1099 was accurate or not, not in
     a state court action. Respondent notes that, according
     to petitioner’s testimony, the state court ruling would


     12
          See supra note 11.
                              - 34 -

     have occurred two years after petitioner brought this
     proceeding in the Tax Court.

           In any event, respondent’s position in this case
     is not dependent on the accuracy of the Form 1099
     issued by Weavewood. * * * Rather than relying on the
     Weavewood 1099 in preparing for trial, respondent has
     reconstructed the amount of petitioner’s
     misappropriations from Weavewood and proved the spe-
     cific items of income includible in the reconstruction.
     * * *

          Most of the evidence on this issue has been estab-
     lished by respondent through the admissions and stipu-
     lation process * * * .

     We reject petitioner’s argument that we do not have juris-

diction over the determination in the notice referred to as

“EMBEZZELMENT [sic] FORM 1099".   Moreover, even if the record had

established, which it does not, that a proceeding before a

Hennepin County District Court Judge addressed and ruled on that

determination, we would not be bound by any such ruling.

     Weavewood’s February 1996 Checks

     With respect to petitioner’s use of Weavewood’s February

1996 checks that were payable to Ms. Thompson and drawn on

Weavewood’s checking account, the record establishes that peti-

tioner received the proceeds of those checks.   On the record

before us, we find that petitioner has failed to carry his burden

of showing that he used those proceeds for or on behalf of

Weavewood.   On that record, we further find that petitioner has

failed to carry his burden of showing that he does not have

unreported income of $26,000 for 1996 from his use of Weavewood’s
                                - 35 -

February 1996 checks that were payable to Ms. Thompson and drawn

on Weavewood’s checking account.13

     Weavewood’s February and April 1996 Checks

     With respect to petitioner’s use of Weavewood’s February and

April 1996 checks that were payable to Mr. Cavness or Mr.

Villaume and drawn on Weavewood’s checking account, the record

establishes that petitioner used those checks to make payments

for petitioner’s personal expenses or to make payments to a

nominee of petitioner.   On the record before us, we find that

petitioner has failed to carry his burden of showing that he used

those checks for or on behalf of Weavewood.   On that record, we

further find that petitioner has failed to carry his burden of

showing that he does not have unreported income of $8,350 for

1996 from his use of Weavewood’s February and April 1996 checks

that were payable to Mr. Cavness or Mr. Villaume and drawn on

Weavewood’s checking account.

     Weavewood’s July 12, 1996 Checks

     With respect to petitioner’s use of Weavewood’s July 12,

1996 checks that were payable to petitioner and drawn on



     13
      As discussed above, in Ms. Thompson’s supplemental affida-
vit which she wrote in July 1996 in connection with Weavewood’s
memorandum of law filed on July 22, 1996, Ms. Thompson denied
having received any moneys from Weavewood since August 1995.
Moreover, Ms. Thompson did not report as income in Ms. Thompson’s
1996 return Weavewood’s February 1996 checks totaling $26,000
that were payable to her, that petitioner signed, and that were
drawn on Weavewood’s checking account.
                              - 36 -

Weavewood’s checking account, the record establishes that peti-

tioner signed and negotiated those checks without Weavewood’s

authorization.   On the record before us, we find that petitioner

has failed to carry his burden of showing that he used those

checks for or on behalf of Weavewood.   On that record, we further

find that petitioner has failed to carry his burden of showing

that he does not have unreported income of $22,75014 for 1996

from his use of Weavewood’s July 12, 1996 checks that were

payable to petitioner and drawn on Weavewood’s checking account.

     Weavewood’s March and April 1996 Checks

     With respect to petitioner’s use of Weavewood’s March and

April 1996 checks that were payable to Mr. Robinson and drawn on

Weavewood’s checking account, the record establishes that peti-

tioner used those checks to make petitioner’s 1996 American

Express card payments, which were for personal expenses of

petitioner.   On the record before us, we find that petitioner has

failed to carry his burden of showing that any of the charges

that petitioner made on petitioner’s American Express card issued

on Mr. Robinson’s American Express account were incurred for or



     14
      In determining that petitioner has unreported income of
$22,750 as a result of petitioner’s use of Weavewood’s July 12,
1996 checks, respondent added the amounts of Weavewood’s July 12,
1996 checks for $16,000 and $16,750, respectively, and reduced
that sum ($32,750) by $10,000 to take account of the fact that
Norwest Bank-Ridgedale voided the $10,000 cashier’s check that
petitioner received (along with $6,750 in cash) on July 16, 1996,
when he negotiated Weavewood’s July 12, 1996 check for $16,750.
                              - 37 -

on behalf of Weavewood.   On that record, we further find that

petitioner has failed to carry his burden of showing that he does

not have unreported income of $6,253.09 for 1996 from his use of

Weavewood’s March and April 1996 checks that were payable to Mr.

Robinson and drawn on Weavewood’s checking account.

     Weavewood’s May 15, 1996 Check

     With respect to petitioner’s use of Weavewood’s May 15, 1996

check that was payable to Gold Key and drawn on Weavewood’s

checking account, the record establishes that petitioner used

that check to make the May 15, 1996 lease payment for the 1995

Jeep Grand Cherokee, which was a personal expense of petitioner.

On the record before us, we find that petitioner has failed to

carry his burden of showing that he used the May 15, 1996 check

that was payable to Gold Key and drawn on Weavewood’s checking

account for or on behalf of Weavewood.   On that record, we

further find that petitioner has failed to carry his burden of

showing that he does not have unreported income of $549.99 for

1996 from his use of that check.

     Weavewood’s June 13, 1996 Check

     With respect to petitioner’s use of Weavewood’s June 13,

1996 check that was payable to Gold Key and drawn on Weavewood’s

checking account, the record establishes that petitioner used

that check to make the June 13, 1996 lease payment for the 1995

Jeep Grand Cherokee.   Petitioner testified that Weavewood made
                              - 38 -

certain payments for the lease of the 1995 Jeep Grand Cherokee

because Ms. Thompson used that vehicle for company business.      We

reject that testimony, which is contrary to other evidence in the

record.   The record establishes that, as of February 16, 1996,

Weavewood’s company vehicle was a Cadillac, and not a 1995 Jeep

Grand Cherokee, and that Ms. Thompson, among others, drove that

Cadillac in connection with Weavewood business.   The record

further establishes that the Gold Key credit application for the

lease of the 1995 Jeep Grand Cherokee indicated that Ms. Thompson

and petitioner were applying for credit for that lease and did

not indicate that Weavewood was applying for credit to lease that

vehicle or that Weavewood was in any way connected with that

application.   The record also shows that the Gold Key lease

agreement for the 1995 Jeep Grand Cherokee indicated that Ms.

Thompson and petitioner were lessee and colessee, respectively,

and did not indicate that Weavewood was a lessee or colessee or

that Weavewood was in any way connected with that agreement.

Furthermore, during the first four months of 1996, petitioner

paid for the lease of the 1995 Jeep Grand Cherokee by signing

checks that were payable to Gold Key and drawn on petitioner’s

checking account.   Moreover, a vehicle expense worksheet associ-

ated with petitioner’s 1995 Schedule C indicated that the car and

truck expenses claimed in that schedule related to a Grand

Cherokee that was placed into service on January 1, 1995.    In
                               - 39 -

addition, Mr. Caylor’s affidavit indicated that petitioner used

Weavewood’s funds to pay for the lease of petitioner’s personal

automobile lease.   On the record before us, we find that peti-

tioner has failed to carry his burden of showing that he used for

or on behalf of Weavewood the June 13, 1996 check that was

payable to Gold Key and drawn on Weavewood’s checking account.

On that record, we further find that petitioner has failed to

carry his burden of showing that he does not have unreported

income of $549.99 for 1996 from his use of that check.

     July 16, 1996 Checks and July 22, 1996
     Checks That Were Payable to Weavewood

     With respect to petitioner’s use of the July 16, 1996 checks

and the July 22, 1996 checks that were payable to Weavewood, the

record establishes that petitioner deposited those checks into

petitioner’s checking account without Weavewood’s authorization

and that such deposits constituted a conversion of those checks.

On the record before us, we find that petitioner has failed to

carry his burden of showing that he used those checks for or on

behalf of Weavewood.   On that record, we further find that

petitioner has failed to carry his burden of showing that he does

not have unreported income of $10,720.31 and $8,288.23, respec-

tively, for 1996 from his use of the July 16, 1996 checks and the

July 22, 1996 checks that were payable to Weavewood.

     February 14, 1996 Check

     With respect to the February 14, 1996 check relating to
                              - 40 -

Timmerman Leasing, the record establishes that petitioner re-

ceived that check.   On the record before us, we find that peti-

tioner has failed to carry his burden of showing that he used

that check for or on behalf of Weavewood.   On that record, we

further find that petitioner has failed to carry his burden of

showing that he does not have unreported income of $6,000 for

1996 from his receipt of the February 14, 1996 check relating to

Timmerman Leasing.

Transactions Involving Petitioner and
Checks That Were Payable to Mr. Thompson

     With respect to petitioner’s use (1) in 1995 of the January

31, 1995 check and the July 31, 1995 check and (2) in 1996 of the

January 31, 1996 check and the July 31, 1996 check, all of which

were payable to Mr. Thompson, petitioner’s father, and issued by

Polaris with respect to Mr. Thompson’s investment, petitioner

claims on brief that he cashed those checks for, and that he gave

the proceeds from those checks to, his mother Ms. Thompson.   Ms.

Thompson’s 1995 return and Ms. Thompson’s 1996 return belie that

claim.   In Ms. Thompson’s 1995 return and Ms. Thompson’s 1996

return, Ms. Thompson reported taxable interest income from

“POLARIS” of $178 and $171, respectively.   Ms. Thompson did not

report (1) in Ms. Thompson’s 1995 return the January 31, 1995

check and the July 31, 1995 check payable to Mr. Thompson and

issued by Polaris or (2) in Ms. Thompson’s 1996 return the

January 31, 1996 check and the July 31, 1996 check payable to Mr.
                               - 41 -

Thompson and issued by Polaris.   Nor did Ms. Thompson report in

Ms. Thompson’s 1995 return or in Ms. Thompson’s 1996 return rents

received from “An undivided 1/2% interest in four used aircraft

Pittsburg [sic], PA” or any other amount attributable to Mr.

Thompson’s investment.15   On the record before us, we find that

petitioner has failed to carry his burden of showing that he does

not have:   (1) Unreported income of $4,962.50 and $4,962.50,

respectively, for 1995 from his use of the January 31, 1995 check

and the July 31, 1995 check, which were payable to Mr. Thompson

and issued by Polaris with respect to Mr. Thompson’s investment;



     15
      Pursuant to Rule 90(c), the following matters are deemed
admitted:

          4. On October 16, 2001, petitioner, alleging to
     respondent that his mother was the actual recipient of
     certain income items that were attributable to peti-
     tioner in the statutory notice of deficiency, told
     respondent in the presence of his mother that his
     mother would amend her federal income tax returns for
     1995 and 1996 to report the income.

          5. Although respondent stated that he expected
     any amended returns to be sent to him and to be filed
     within thirty days of the meeting and although respon-
     dent informally extended the deadline for filing the
     amended tax returns, the last time to March 5, 2002, no
     amended returns have been filed by petitioner or his
     mother.

As of the trial in this case, petitioner had not proffered any
amended return of Ms. Thompson for 1995 reflecting that she
reported for that year the January 31, 1995 check and the July
31, 1995 check payable to Mr. Thompson and issued by Polaris or
any amended return for 1996 reflecting that she reported the
January 31, 1996 check and the July 31, 1996 check payable to Mr.
Thompson and issued by Polaris.
                              - 42 -

and (2) unreported income of $4,962.50 and $4,962.50,16 respec-

tively, for 1996 from his use of the January 31, 1996 check and

the July 31, 1996 check, which were payable to Mr. Thompson and

issued by Polaris with respect to Mr. Thompson’s investment.

Sale of Petitioner’s Arcade Games

     With respect to petitioner’s receipt of petitioner’s sales

proceeds from the sale of the arcade games, petitioner claims on

brief that he gave those proceeds to his mother, Ms. Thompson.

Ms. Thompson’s 1996 return belies that claim.   Ms. Thompson did

not report in Ms. Thompson’s 1996 return petitioner’s sales

proceeds from the sale of the arcade games.17   On the record

before us, we find that petitioner has failed to carry his burden

of showing that he does not have unreported income of $16,450 for

1996 from his receipt of petitioner’s sales proceeds from the


     16
      Respondent acknowledges that the deemed admissions contain
a mathematical error in showing (1) the total of the January 31,
1995 check for $4,962.50 and the July 31, 1995 check for
$4,962.50 as $9,950 and (2) the total of the January 31, 1996
check for $4,962.50 and the July 31, 1996 check for $4,962.50 as
$9,950. The correct total of the two checks issued in 1995 is
$9,925, as is the correct total of the two checks issued in 1996.
Such correct totals shall be reflected in the parties’ computa-
tions under Rule 155.
     17
      As indicated supra note 15, on Oct. 16, 2001, in the
presence of his mother, petitioner told respondent that his
mother was the actual recipient of certain income items that were
attributable to petitioner in the notice and that his mother
would amend her Federal income tax returns for 1995 and 1996 in
order to report such income items. As of the trial in this case,
petitioner had not proffered any amended return of Ms. Thompson
for 1996 reflecting that she reported for that year petitioner’s
sales proceeds from the sale of the arcade games.
                                - 43 -

sale of the arcade games.18

Addition to Tax Under Section 6651(a)(1)

     Respondent determined that petitioner is liable for 1996 for

an addition to tax under section 6651(a)(1).     The record estab-

lishes that petitioner did not file a tax return for 1996.

Petitioner claims that he does not have the requisite amount of

income that would have required him to file a tax return for that

year.     The record in the instant case belies that claim.   In a

stipulation of settled issues filed by the parties on April 16,

2002, petitioner conceded that for 1996 he has $6,178 of income,

consisting of $4,000 of income with respect to his employment by

Uptime Nutrition and $2,178 of income with respect to unemploy-

ment compensation from the Minnesota Department of Economic

Security.     Based on petitioner’s concessions alone, he was

required to file a tax return for 1996.19    See sec. 6012.     On the

record before us, we find that petitioner has failed to carry his

burden of showing that he is not liable for an addition to tax

under section 6651(a)(1) for 1996.

     We have considered all of the contentions and arguments of

petitioner that are not discussed herein, and we find them to be


     18
      Petitioner does not contend, and has failed to establish,
that he has a basis in the arcade games that he sold to Reality
Entertainment.
     19
      In addition to the $6,178 of income that petitioner con-
ceded he has for 1996, we have found that petitioner has
$115,836.61 of income for that year.
                             - 44 -

without merit and/or irrelevant.

     To reflect the foregoing and the concessions of the parties,


                                   Decision will be entered

                              under Rule 155.
