                   T.C. Summary Opinion 2006-5



                     UNITED STATES TAX COURT



             STEVE GERALD HUISENFELDT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5448-04S.               Filed January 24, 2006.


     Steve Gerald Huisenfeldt, pro se.

     James E. Cannon, for respondent.



     GOLDBERG, 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 Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
                                - 2 -

     Respondent determined a deficiency in petitioner’s Federal

income tax of $2,958 and an accuracy-related penalty pursuant to

section 6662(a) and (b)(1) for the taxable year 2000.

     The issues for decision are:    (1) Whether petitioner had

unreported tip income during taxable year 2000; and (2) whether

petitioner is liable for the accuracy-related penalty pursuant to

section 6662(a) and (b)(1) for the taxable year 2000.

                              Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.     Petitioner resided in

Deerfield Beach, Florida, on the date the petition was filed in

this case.

     During taxable year 2000, petitioner was employed as a room

service food server by the Las Vegas Hilton (Hilton).

     On July 1, 1992, pursuant to section 7121, the Hilton and

the Commissioner of the Internal Revenue Service entered into a

closing agreement in the form of a Tip Compliance Program “to

ensure maximum compliance by the employees of the Employer

[Hilton] with those provisions of the Internal Revenue Code of

1986 * * *”.   The Tip Compliance Program Agreement states as

follows, in pertinent part:

          WHEREAS, by law, all employees who receive tips are
     required to keep timely and accurate records of tips
     received and to report the tips received to their employer
                          - 3 -

on a monthly basis, and all tips received are required to be
reported as income on federal income tax returns:

     WHEREAS, the Las Vegas District of the Internal Revenue
Service and Las Vegas Hilton Corporation, (hereinafter
“Employer”) have agreed to implement a program to ensure
maximum compliance by the employees of the Employer
(hereinafter referred to as an “Employee” or “Employees”)
with those provisions of the Internal Revenue Code of 1986,
as amended, (hereinafter the “Code”) relating to tip income,
to minimize the burden on the Employer resulting from tip
compliance programs of the Internal Revenue Service
(hereinafter the “Service”), and to reduce the cost to the
Service of enforcing the relevant provisions of the Code;

     WHEREAS, the Service and the Employer have agreed to
resolve disputes concerning the responsibility of the
Employer under section 3121(q) of the Code for periods
preceding this agreement, and to establish procedures which
will prevent such disputes in future periods;

     NOW IT IS HEREBY DETERMINED AND AGREED for federal
income and employment tax purposes as follows:

           *    *    *    *       *   *   *

II.   EMPLOYEE PARTICIPATION

     A.   For purposes of this agreement, a “Participating
Employee” is an Employee who:

          1)   reports and continues to report his or her
tips to the Employer at or above the “tip rates” established
pursuant to Paragraph V of this agreement; and

          2)   timely files federal income tax returns that
report those tips.

     B.   In order to participate in this program an
Employee must have filed, if required to do so by law,
federal income tax returns for 1988, 1989, 1990 (and 1991
when due). Any Employee who has not filed these returns but
wishes to participate in this program must file these
federal income tax returns with the Las Vegas District
Director of the Internal Revenue Service within 60 days of
the effective date of this agreement.
                          - 4 -

     C.   Employees with unpaid tax liabilities may
participate in this program; however, they must cooperate
with the Service in the resolution of their delinquent
accounts. The policy of the Service with regard to the
collection of delinquent accounts is set forth in attachment
“A” to this closing agreement.

     D.   The Service will not initiate new tip income
examinations of Participating Employees’ tip income for any
year prior to 1992 for which a return was timely filed and
will not examine tip income for 1992 or any later year in
which the Employee is a Participating Employee for the
entire period during such year in which he or she earns tip
income, provided that the following conditions listed below
are fulfilled. New employees may participate if they make
an election to do so within 30 days of the start of their
employment. Such employees must have been participants in
any previous employer’s tip compliance program if that
employer had a tip compliance program and the employee was a
tip earner.

          *      *    *   *       *   *   *

III. NONPARTICIPATING EMPLOYEES

     A.   An Employee other than a Participating Employee
(hereinafter a “Nonparticipating Employee”) is subject to
the full range of compliance and enforcement procedures of
the Service.

          *      *    *   *       *   *   *

V.   TIP RATES

     A.   Tip rates will be established by the Employer and
approved in writing by the Service as follows:

          (1) Dealers Who Pool or Split Tips -- The
Employer may use either of the following options:

          Option A:

          The Employees or their representative (e.g., the
toke committee) will present to the Employer a listing of
the actual tip split received by or given to each Employee.
This listing must reconcile to the tokes presented to the
Employer’s cage for cashing. The tip rate is the amount of
tips so reported to the Employer. Failure of the Employees
                                - 5 -

     or their representative to present information describing
     the actual split shall require the use of Option “B”.

               Option B:

               An hourly rate “in lieu” of actual tips will be
     determined by the method set out in Appendix [D]. In order
     to exercise this option: (i) the toke committee or other
     Employee representative must maintain a daily record of the
     total tips received and the number of Employees receiving a
     share of split of those tips; (ii) the toke committee or
     other representative must make available those records of
     daily tips to validate the “in lieu” rate; and (iii) the
     Employees must continue pooling tips in the same or larger
     groups.

               2)   Other Tipped Employees

                Based on information available to the Employer,
     historical information provided by the Service, and
     generally accepted accounting principles, the Employer will
     establish tip rates for categories or subcategories of
     employees. These rates will specify tips received, either
     by hour or by shift, depending on the nature of the work
     performed.

     The initial rates agreed to by the Employer and the Service
     will remain in effect through December 31, 1993. The rates
     shall thereafter be reviewed and revised (if necessary) no
     more frequently than annually, unless there is a 20%
     decrease in the Employer’s gross monthly revenue compared to
     the same month of the previous year.

               *    *      *    *       *   *   *

     VII. ADDITIONAL PROVISIONS

          The additional terms and conditions set forth in
     attachment “D” are incorporated into and made a part of this
     agreement.

     The tip rates discussed in section V of the Tip Compliance

Program Agreement were established in an addendum to the Tip

Compliance Program Agreement.   The addendum states, in pertinent

part, as follows:
                                    - 6 -

          Pursuant to Section V of the Agreement [Tip Compliance
     Program Agreement] dated July 1, 1992, the parties agree
     that the following tip rates shall apply beginning on the
     following effective dates:

                                   Effective      Effective     Effective
     Employee Position   Shift     on 4/3/97      on 1/1/98     on 1/1/99

     Food Servers:
       Room Service      All       13.0%/Gross    14.2%/Gross   15.4%/Gross
                                         Sales          Sales         Sales

     Although petitioner was a participant in the Tip Compliance

Program at the Hilton at one time, he withdrew from the program

on or about December 10, 1997, and was not a participant in the

program during the taxable year 2000.            The room service food

servers that did participate in the Tip Compliance Program during

taxable year 2000 were subject to a tip rate of 15.4 percent of

their gross sales for the year.

     Petitioner received a Form W-2, Wage and Tax Statement, from

the Hilton reflecting wages, tips, and other compensation on Line

1 totaling $19,4971 for taxable year 2000.            The amount of $19,497

included tips in the amount of $784 which were distributed to

petitioner as his share of tips from communal banquets or Hilton

group events.

     During taxable year 2000, petitioner had individual room

service sales of $91,281.        Additionally, for taxable year 2000,

petitioner worked a total of 1,919.6 hours.            Further, during




     1
      All amounts are rounded to the nearest dollar.
                               - 7 -

taxable year 2000, petitioner did not maintain a tip diary or

other log.

     Petitioner electronically filed a Form 1040EZ, Income Tax

Return for Single and Joint Filers With No Dependents, for

taxable year 2000.   On March 30, 2002, petitioner filed a Form

1040X, Amended U.S. Individual Income Tax Return, for taxable

year 2000.   On his Form 1040X petitioner claimed an additional

capital loss and itemized his deductions.   These changes, which

have been accepted by respondent, reduced the amount of tax shown

by petitioner on the return.   Petitioner did not declare any room

service tips to the Hilton during taxable year 2000.   Also,

petitioner did not report additional tips, above the $784 of

tips, previously discussed, on either his Form 1040EZ or his Form

1040X.

     In the notice of deficiency,2 respondent determined that

petitioner failed to report tip income of $17,046, which was

computed by multiplying petitioner’s hours worked, 1,919.6, by a

rate of $8.88 per hour.   At trial, however, respondent stated

that it would be more appropriate to compute petitioner’s tip

income for taxable year 2000 on the same basis as the room

service food servers who participated in the Tax Compliance


     2
      The notice of deficiency failed to take into account the
additional capital loss, itemized deductions, and reduced tax as
reported on petitioner’s Form 1040X. Respondent concedes that
when any deficiency is computed, the computation should take into
account these adjusted amounts.
                                - 8 -



Program.   In other words, respondent contends that it would be

more appropriate to multiply petitioner’s gross sales, $91,281,

by the Tip Compliance Program tip rate of 15.4 percent to arrive

at an unreported room service tip income figure of $14,057.

     Also, in the notice of deficiency, respondent determined

that petitioner is liable for the accuracy-related penalty

pursuant to section 6662(a) and (b)(1) for the taxable year 2000

of $591.60.

                            Discussion

     As a general rule, the determinations of the Commissioner in

a notice of deficiency are presumed correct, and the taxpayer

bears the burden of proving the Commissioner’s determinations in

the notice of deficiency to be in error.     Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).     As one exception to this

rule, section 7491(a) places upon the Commissioner the burden of

proof with respect to any factual issue relating to liability for

tax if the taxpayer maintained adequate records, satisfied the

substantiation requirements, cooperated with the Commissioner,

and introduced during the Court proceeding credible evidence with

respect to the factual issue.   Although neither party alleges the

applicability of section 7491(a), we conclude that the burden of

proof has not shifted with respect to the unreported income.

However, respondent has the burden of production with respect to
                                - 9 -

the accuracy-related penalty.   Sec. 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).

1.   Unreported Income

     As previously stated, respondent contends that petitioner

had unreported tip income for taxable year 2000 of $14,057.   It

is respondent’s contention that the $14,057 figure is a

reasonable estimation of petitioner’s tips during the year 2000,

especially in light of petitioner’s failure to keep a tip diary.

However, petitioner contends that he is not liable for the

alleged unreported income because he believes he was a

participant in the Tax Compliance Program during taxable year

2000, and therefore his tips were included in the $19,497

reported on the W-2 issued by Hilton.

     Section 61(a) defines gross income as “all income from

whatever source derived,” unless otherwise provided.    The Supreme

Court has consistently given this definition of gross income a

liberal construction “in recognition of the intention of Congress

to tax all gains except those specifically exempted.”

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430 (1955); see

also Roemer v. Commissioner, 716 F.2d 693, 696 (9th Cir. 1983)

(all realized accessions to wealth are presumed taxable income,

unless the taxpayer can demonstrate that an acquisition is

specifically exempted from taxation), revg. 79 T.C. 398 (1982).

It is beyond contention that tips are included within the
                               - 10 -

definition of gross income.   See Roberts v. Commissioner, 10 T.C.

581 (1948), affd. 176 F.2d 221 (9th Cir. 1949); sec. 1.61-

2(a)(1), Income Tax Regs.

     As previously stated, petitioner contends that he is not

liable for the unreported income because he claims he was a

participant in the Tax Compliance Program during taxable year

2000, and therefore his tips were included in the $19,497

reported on the W-2 issued by Hilton.   However, respondent has

offered into evidence a document titled “Tip Compliance Waiver”,

which is dated December 10, 1997.   This document states:   (1)

Petitioner no longer wishes to participate in the Tip Compliance

Program; (2) he wishes to withdraw from the Tip Compliance

Program; and (3) he wishes to stop the direct declaration of his

tip income and submit declared tips to payroll.   Petitioner

contends that the signature on the “Tip Compliance Waiver” is not

his own.   However, the signature on the waiver resembles

petitioner’s signature on Exhibit 2-J, his Form 1040X.   We are

convinced that the signature on the waiver is indeed

petitioner’s.   Therefore, we conclude that petitioner was not a

participant in the Tip Compliance Program during taxable year

2000.

     Further, petitioner has testified that during taxable year

2000 he would receive cash from a cashier at the Hilton at the

end of his daily shifts.    The receipt of this cash was a result
                                - 11 -

of tips earned by petitioner during his daily shifts.   As

previously stated, petitioner did not keep a tip diary of the

cash received from the cashier.    Also, petitioner did not report

these cash distributions to the Hilton or on his returns filed

for taxable year 2000.   Petitioner has failed to provide any

evidence to controvert respondent’s determination as to

petitioner’s unreported tip income for taxable year 2000.    He

simply presented this Court with frivolous contentions that merit

no further discussion.   See Rowlee v. Commissioner, 80 T.C. 1111

(1983); Hallock v. Commissioner, T.C. Memo. 1983-684.     Thus, we

sustain respondent’s determination on this issue, as modified by

respondent’s position at trial.

2.   Accuracy-Related Penalty

     As previously stated, respondent, in the notice of

deficiency, determined that petitioner is liable for the

accuracy-related penalty pursuant to section 6662(a) and (b)(1)

for the taxable year 2000.

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

20 percent of the portion of any underpayment attributable to,

among other things, negligence or intentional disregard of rules

or regulations.   Sec. 6662(b)(1).   The term “negligence” is the

failure to make a reasonable attempt to comply with the

provisions of the Internal Revenue Code, or the failure to do

what a reasonable and ordinarily prudent person would do under
                                - 12 -

the circumstances.    Neely v. Commissioner, 85 T.C. 934, 947

(1985).   Negligence also includes the failure by the taxpayer to

keep adequate books and records.    Sec. 1.6662-3(b)(1), Income Tax

Regs.   No accuracy-related penalty may be imposed on any portion

of an underpayment if it is shown that there was a “reasonable

cause” for such portion and that the taxpayer acted in “good

faith” with respect to such portion.     Sec. 6664(c)(1).   The

determination of whether a taxpayer acted in good faith is made

on a case-by-case basis, taking into account all pertinent facts

and circumstances.   Sec. 1.6664-4(b), Income Tax Regs.     The most

important factor is the extent of the taxpayer’s efforts to

determine the proper tax liability.      Id.

     As previously stated, respondent bears the burden of

production with respect to all penalties.      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.      Respondent need not

negate all defenses to the additions or penalties.      See Higbee v.

Commissioner, supra at 446.     Respondent has met his burden with

respect to his claim of negligence by establishing that

petitioner understated his tip income and that petitioner did not

keep a tip diary.    Further, petitioner has not shown that there

was reasonable cause for his failure to claim his additional tip

income for taxable year 2000.    Therefore, we sustain respondent’s
                             - 13 -

determination of the penalty under section 6662(a) and (b)(1) for

taxable year 2000.3

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                   Decision will be entered

                              under Rule 155.




     3
      As previously noted, respondent concedes that any
deficiency should take into account the adjusted amounts reported
on petitioner’s Form 1040X and application of the 15.4-percent
tip rate. The accuracy-related penalty pursuant to sec. 6662(a)
and (b)(1) for taxable year 2000 will also take into account
these adjusted amounts.
