                          T.C. Memo. 2002-318



                       UNITED STATES TAX COURT



                 THOMAS LEE WOODALL, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2644-01.                 Filed December 30, 2002.


     Thomas Lee Woodall, pro se.

     Frank J. Jackson, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:     Respondent determined the following

deficiencies in, additions to, and penalties on petitioner’s

Federal income taxes:1




     1
         All figures are rounded to the nearest dollar.
                               - 2 -

                             Additions to Tax            Penalty
   Year   Deficiency    Sec. 6651(a)(1)   Sec. 6654     Sec. 6662

   1992      $117,034      $29,258                      $23,407
   1993       361,493       90,373          $5,447
   1994        48,973       12,243           2,541

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

     After concessions,2 the issues for decision are:    (1)

Whether petitioner had additional unreported income for 1992,

1993, and 1994, (2) whether petitioner is liable for an addition

to tax pursuant to section 6651(a)(1) for 1992, 1993, and 1994,

(3) whether petitioner is liable for an addition to tax pursuant

to section 6654 for 1993 and 1994, and (4) whether petitioner is

liable for a penalty pursuant to section 6662 for 1992.

                         FINDINGS OF FACT

     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.   At the time he filed the

petition, petitioner resided in New York, New York.


     2
        Petitioner concedes that deposits totaling $168,948,
$133,022, and $41,124 in 1992, 1993, and 1994, respectively, are
taxable income to petitioner for 1992, 1993, and 1994,
respectively. Respondent concedes that deposits totaling $3,897,
$3,665, and $3,951 in 1992, 1993, and 1994, respectively, are not
taxable income to petitioner. Additionally, respondent concedes
that petitioner received gifts totaling $10,000 in 1992 and
$19,949 in 1993.
                               - 3 -

Petitioner’s Law Practice

     Petitioner is an attorney.   In 1973, petitioner received his

law degree and was admitted to the Texas bar.   As of the time of

trial, petitioner was licensed to practice law in Texas, was in

good standing in Texas, and was engaged in the practice of law.

     During 1992, 1993, and 1994, petitioner was engaged in the

practice of law in Texas.   During that time, petitioner worked as

an independent attorney out of the law office of Patrick V.

Strong, Esq.   Petitioner had several overseas clients.

Petitioner also worked on Mr. Strong’s cases.   In 1992, Mr.

Strong paid petitioner $38,692.

     Petitioner has no records from his law practice.     Petitioner

has no documents that establish his relationship with Norman D.

Haynes (Mr. Haynes) or any project in the Philippines.

Petitioner’s Bank Accounts and Additional Bank Deposits3

     A.   Cullen Bank

     In 1992, 1993, 1994, deposits totaling $124,055, $1,000, and

$38,194, respectively, were made into Cullen Bank4 account number

XX-XXXXXXX (Cullen #453).   Cullen #453 was styled “Manila

Recovery Company”.

     In 1992, 1993, 1994, deposits totaling $105,000, $584,236,


     3
        These deposits are in addition to those conceded by
petitioner and respondent. See supra note 2.
     4
        As of the time of trial, Cullen Bank had changed its name
to Frost National Bank.
                                 - 4 -

and $5,658, respectively, were made into Cullen Bank account

number XX-XXXXXXX (Cullen #921).    Cullen #921 was styled “Manila

Exploration Company-Eldridge”.

     In 1993 and 1994, deposits totaling $120,800 and $55,663,

respectively, were made into Cullen Bank account number 50-

1211226 (Cullen #226).   Cullen #226 was styled “Manila

Exploration Company Rizal”.

     For convenience, Cullen #453, Cullen #921, and Cullen #226

are hereinafter collectively referred to as the Manila Accounts.

The Manila Accounts were not client trust accounts.    Petitioner’s

Social Security number was the only Social Security number on the

Manila Accounts.   Petitioner was one of two signatories on the

Manila Accounts, and each of the Manila Accounts required only

one signature.

     The Manila Accounts bank statements were sent to petitioner

at his law office address.    Petitioner received the bank

statements for the Manila Accounts for 1992, 1993, and 1994.

     Petitioner made intrabank transfers between the Manila

Accounts.   Petitioner also made intrabank transfers from the

Manila Accounts to a “trust account” he had at Cullen Bank,

account number XX-XXXXXXX (Cullen trust account).    During the

years in issue, petitioner deposited money that was income to him

into his Cullen trust account.    During the years in issue,

petitioner wired at least $214,000 from the Manila Accounts to an
                                 - 5 -

offshore account in the Philippines.     In 1993, petitioner also

wired $5,000 from Cullen #921 to a bank in Washington State.

     B.     Nations Bank

     Petitioner had a bank account, number 266-216660-1, at

Nations Bank styled “Thomas Lee Woodall, Attorney at Law Trust

Account” (Nations trust account).     Petitioner’s Social Security

number was on the Nations trust account.

     In June 1993, a $100,000 deposit was made into the Nations

trust account.    The $100,000 was wired from offshore into the

Nations trust account.     Between June 30 and July 2, 1993,

petitioner wrote 21 checks on the Nations trust account totaling

$99,950--19 checks for $5,000, 1 check for $3,500, and 1 check

for $1,450.

Tax Returns and Notice of Deficiency

     Petitioner filed his 1992 Federal income tax return on April

28, 1994.    On his 1992 return, the only income petitioner

reported was $38,692 of business income.     Attached to the 1992

return was a Form 1099-MISC, Miscellaneous Income, that reported

$38,692 paid to petitioner by Mr. Strong.     The 1992 return listed

$0 of tax withheld and $0 of estimated tax payments.

     Petitioner did not file Federal income tax returns for 1993

and 1994.

     Respondent timely issued a statutory notice of deficiency to

petitioner for 1992, 1993, and 1994.     Respondent computed
                                 - 6 -

petitioner’s taxable income for 1992, 1993, and 1994 using the

bank deposits method.    Respondent eliminated transfers and

nontaxable sources of income from his bank deposits computation.

                                OPINION

I.   Unreported Income

     Every individual liable for tax is required to maintain

books and records sufficient to establish the amount of his or

her gross income.   Sec. 6001; DiLeo v. Commissioner, 96 T.C. 858,

867 (1991), affd. 959 F.2d 16 (2d Cir. 1992).    For the years in

question, we find that petitioner maintained inadequate books and

records for his law practice.

     Where a taxpayer fails to maintain or produce adequate books

and records, the Commissioner is authorized to compute the

taxpayer’s taxable income by any method that clearly reflects

income.   Sec. 446(b); Holland v. United States, 348 U.S. 121

(1954); Webb v. Commissioner, 394 F.2d 366, 371-372 (5th Cir.

1968), affg. T.C. Memo. 1966-81.    The reconstruction of income

need only be reasonable in light of all surrounding facts and

circumstances.   Giddio v. Commissioner, 54 T.C. 1530, 1533

(1970).   The Commissioner is given latitude in determining which

method of reconstruction to apply when a taxpayer fails to

maintain records.   Petzoldt v. Commissioner, 92 T.C. 661, 693

(1989).

     Respondent employed the bank deposits method of proof to
                                   - 7 -

reconstruct petitioner’s gross receipts from his law practice.

This method of proof is well established.       DiLeo v. Commissioner,

supra at 867; Estate of Mason v. Commissioner, 64 T.C. 651, 656

(1975), affd. 566 F.2d 2 (6th Cir. 1977).       Bank deposits are

prima facie evidence of income.       Tokarski v. Commissioner, 87

T.C. 74, 77 (1986); Estate of Mason v. Commissioner, supra at

656-657.       When using the bank deposits method, the Commissioner

is not required to show that each deposit or part thereof

constitutes income, Gemma v. Commissioner, 46 T.C. 821, 833

(1966), or prove a likely source, Clayton v. Commissioner, 102

T.C. 632, 645 (1994); Estate of Mason v. Commissioner, supra at

657.       Unless the nontaxable nature of deposits is established,

gross income includes deposits to bank accounts where the

taxpayer has dominion and control of the funds.       Commissioner v.

Glenshaw Glass Co., 348 U.S. 426, 431 (1955); Davis v. United

States, 226 F.2d 331, 334-335 (6th Cir. 1955); Manzoli v.

Commissioner, T.C. Memo. 1988-299, affd. 904 F.2d 101 (1st Cir.

1990).       Respondent’s determination is presumed to be correct, and

petitioner bears the burden of proving otherwise.5      Rule 142(a).

       A.      Manila Accounts

       Petitioner claims that Mr. Haynes was his client and that he

(petitioner) set up the Manila Accounts as an accommodation to

       5
        Sec. 7491 is inapplicable, as the audit in this case
started in 1994. Higbee v. Commissioner, 116 T.C. 438, 440
(2001).
                              - 8 -

Mr. Haynes as part of an alleged treasure hunting operation--

searching for gold allegedly hidden by the Japanese in the

Philippines during World War II--being conducted by Mr. Haynes in

the Philippines (Manila projects).    Petitioner claimed that he

entered into some type of agreement with Mr. Haynes (agreement)

in order to open the Manila Accounts.    Petitioner argues that all

the money that was deposited into the Manila Accounts was capital

contributions from various investors for the alleged treasure

hunting operation.

     Petitioner did not provide a copy of the agreement to the

Court and claims he does not have a copy of the agreement.

Additionally, petitioner has no records that show Mr. Haynes or

the Manila projects as clients of his law practice.    Contrary to

petitioner’s assertions, the signature cards for the Manila

Accounts clearly show that the Manila Accounts were not trust

accounts.

     Petitioner testified that he was not held out as an investor

in any of the purported Manila projects, he was not a partner in

the purported Manila Exploration Company-Eldridge project, and he

never had an equity interest in any Manila partnerships.

     The only document in evidence about the Manila projects,

entitled Project Update for Manila Exploration Company Eldridge

Recovery, Ltd., lists petitioner as a major investor in the

Manila projects, as one of the Manila projects’ strongest
                               - 9 -

supporters over a number of years, as having a small interest in

“Phase I”, as having invested a substantial sum of cash, and as

Co-Managing General Partner of Manila Exploration Co. - Eldridge,

Ltd. (USA).   Thus, the money wired from the Manila Accounts to

the Philippines appears to represent the substantial sums of cash

that the Project Update states petitioner invested in the Manila

projects.

     We note that neither Mr. Haynes nor any of the alleged

investors in the Manila projects were called as witnesses.6    We

infer that their testimony would not have been favorable to

petitioner.   Wichita Terminal Elevator Co. v. Commissioner, 6

T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947).

     6
        At trial and on brief, petitioner repeatedly argued that
petitioner and respondent had an agreement to stipulate three
affidavits--including an affidavit of Mr. Haynes--that the Court
did not receive into evidence after sustaining respondent’s
hearsay objections. Petitioner claims respondent “duped”
petitioner into not having his witnesses at trial.

     At trial, the Court asked respondent: “Did you all have an
agreement that you all would stipulate to those affidavits?”
Petitioner claims that respondent gave a carefully crafted answer
to avoid directly answering this question. Respondent, however,
replied, “At no time was there ever an agreement.”

     In addition to offering hearsay, at trial petitioner stated
that he had a witness waiting for a call from the Court so that
the witness could “testify” via speaker phone.

     Petitioner was a trial attorney. Petitioner has been an
attorney for almost 30 years. Petitioner stated, that as an
attorney, he knew that the affidavits were not admissible in
evidence and he should have known better. At trial, petitioner
stated that he had a “lame excuse” for failing to get his
witnesses to the trial. We agree.
                              - 10 -

     Petitioner claims that none of the deposits into the Manila

Accounts during 1992, 1993, and 1994 were his income “except for

$36,000 to $38,000" from which he made intrabank transfers to his

personal account at Cullen Bank.   Petitioner relies on his own

self-serving testimony to support this conclusion.   Petitioner’s

testimony was questionable, vague, conclusory, and unsupported by

the evidence in the record.   Under these circumstances, we are

not required to, and do not, rely on petitioner’s testimony to

sustain his burden of establishing error in respondent’s

determinations.   Lerch v. Commissioner, 877 F.2d 624, 631-632

(7th Cir. 1989), affg. T.C. Memo. 1987-295; Tokarski v.

Commissioner, supra at 77.

     Petitioner had dominion and control over the Manila

Accounts.   Petitioner had the power to make withdrawals out of

the Manila Accounts.   His Social Security number was the only one

on the Manila accounts, his name was on the Manila Accounts, he

was one of two signatories on the Manila accounts, and his

business address was on the Manila Accounts.   Petitioner made

intrabank transfers into and out of the Manila Accounts and wired

money domestically and overseas from the Manila Accounts.

     There is, however, documentary evidence suggesting that five

deposits into the Manila Accounts are not income to petitioner.

The revenue agent’s work papers were submitted as evidence.   For

1993, the revenue agent listed as deposits into Cullen #226 a
                                - 11 -

check from Mark E. Weaver in the amount of $25,000 and a check

from Michael C. Dawson in the amount of $10,000.    The “memo” line

of Mr. Weaver’s check contained the phrase “Philippine

Investment” and the “memo” line of Mr. Dawson’s check contained

the phrase “Rizal Ptnership”.    Cullen #226 was styled “Manila

Exploration Company Rizal”.

     For 1994, the revenue agent listed as deposits into Cullen

#226 a check from George A. Balian in the amount of $1,500 and a

check from “Nationwide Ins.” in the amount of $3.    The “memo”

line of Mr. Balian’s check contained the phrase “Rizal Ptnership

Phase II” and the revenue agent noted that the “Nationwide Ins.”

check was paid to Norman D. Haynes and endorsed over to Manila

CK58351228.

     The account statements for Cullen #453 include a copy of one

of the checks deposited into the account during the years in

issue and the associated deposit ticket.    The deposit ticket is

dated July 15, 1993, and lists a single deposit of $1,000.    The

check deposited into Cullen #453 is dated July 4, 1993.    The

printed name on the top of the check is “Deepsea Recovery Corp.”,

the check is made payable to the order of Norman Haynes, the

check is endorsed by Norman Haynes, the check contains the

notation “Post Dated-Loan Repayment”, the amount of the check is

$1,000, and the check is signed by someone whose first name is

Dennis (the last name is illegible).
                               - 12 -

     We conclude that these five checks--totaling $36,000 for

1993 and $1,503 for 1994--are not income to petitioner; however,

we conclude that the remaining deposits into the Manila Accounts

in 1992, 1993, and 1994 are petitioner’s income.

     B.     Nations Trust Account

     Petitioner claims that $98,550 of the $100,000 deposit into

the Nations trust account in 1993 is not unreported income.7

Petitioner relies on his own self-serving testimony to support

this conclusion.    Petitioner’s testimony was questionable, vague,

conclusory, and unsupported by the evidence in the record.     Under

these circumstances, we are not required to, and do not, rely on

petitioner’s testimony to sustain his burden of establishing

error in respondent’s determinations.    Lerch v. Commissioner,

supra at 631-632; Tokarski v. Commissioner, 87 T.C. at 77.

     Petitioner stipulated that the deposits into the Nations

trust account in 1994 were income to him.   Petitioner also

testified that he used his attorney trust accounts as personal

accounts.

     Petitioner originally claimed that the $100,000 deposit into

the Nations trust account was a certificate of deposit belonging

to a purported client of his named Charter Trading Corp., owned

by William C. Comey.   After learning that the $100,000 deposit


     7
        Petitioner concedes that $1,450 of the $100,000 deposit
is his income.
                                - 13 -

came from offshore, petitioner testified that he believed the

deposit was from a purported client of his named James

Scarborough for the promotion of a floating gambling boat on the

Mississippi River.    Petitioner later testified that this money

came from an associate of Mr. Scarborough.

      Petitioner presented no documentary evidence to support any

of these claims.    Neither Mr. Comey or Mr. Scarborough was called

as a witness.    We infer that their testimony would not have been

favorable to petitioner.     Wichita Terminal Elevator Co. v.

Commissioner, 6 T.C. at 1165.

      Petitioner had dominion and control over the Nations trust

account.   Petitioner’s name was on the Nations trust account.

Petitioner had the power to make withdrawals out of the Nations

trust account.     His Social Security number and name were on the

Nations trust account.     Petitioner wrote 21 checks on the Nations

trust account drawing on virtually all of the $100,000 deposit.

      We conclude that the $100,000 deposit into the Nations trust

account is petitioner’s income.

II.   Section 6651(a)(1)

      Section 6651(a)(1) imposes an addition to tax for failure to

file a return on the date prescribed (determined with regard to

any extension of time for filing), unless the taxpayer can

establish that such failure is due to reasonable cause and not

due to willful neglect.    Rule 142(a); United States v. Boyle, 469
                               - 14 -

U.S. 241, 245 (1985).

      Petitioner stipulated that he filed his 1992 return late and

that he did not file returns for 1993 and 1994.     Petitioner

stated that he had no good excuse or compelling reason for not

filing.

      Petitioner offered no evidence showing that his failure to

file timely was due to reasonable cause and not due to willful

neglect.    Accordingly, we hold that petitioner is liable for the

addition to tax pursuant to section 6651(a)(1) for 1992, 1993,

and 1994.

III. Section 6654

      Section 6654 imposes an addition to tax for failure to pay

estimated income tax.   Petitioner must come forward with evidence

sufficient to persuade the Court that respondent’s determination

is incorrect or that an exception applies.   Rule 142(a); Welch v.

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

      Petitioner did not offer any evidence at trial related to

this issue, and he failed to address it on brief.   We conclude

that petitioner is liable for an addition to tax pursuant to

section 6654 for 1993 and 1994.

IV.   Section 6662

      Pursuant to section 6662(a), a taxpayer may be liable for a

penalty of 20 percent on the portion of an underpayment of tax

(1) attributable to a substantial understatement of tax or (2)
                               - 15 -

due to negligence or disregard of rules or regulations.      Sec.

6662(b).   Whether applied because of a substantial understatement

of tax or negligence or disregard of the rules or regulations,

the accuracy-related penalty is not imposed with respect to any

portion of the understatement as to which the taxpayer acted with

reasonable cause and in good faith.     Sec. 6664(c)(1).   The

decision as to whether the taxpayer acted with reasonable cause

and in good faith depends upon all the pertinent facts and

circumstances.    Sec. 1.6664-4(b)(1), Income Tax Regs.

     Petitioner conceded he did not report $168,948 of taxable

income in 1992.   We have found that petitioner did not report an

additional $229,055 of income for 1992.     Petitioner’s only

argument is that he should not be penalized because he “was naive

and stupid”.

     We conclude that petitioner is liable for a penalty pursuant

to section 6662 for 1992.

     In reaching all of our holdings herein, we have considered

all arguments made by the parties, and to the extent not

mentioned above, we find them to be irrelevant or without merit.

     To reflect the foregoing,

                                           Decision will be entered

                                      under Rule 155.
