                  T.C. Memo. 1997-158



                UNITED STATES TAX COURT



         MICHAEL J. FITZPATRICK, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 9269-94.                       March 31, 1997.


     During 1981 and 1982, P was a loan officer at Bank
of New York. P accepted money from the Bank's clients
in order to approve or modify loans. In Fitzpatrick v.
Commissioner, T.C. Memo. 1995-548, the Court decided
that P, because he had been convicted of tax evasion
under sec. 7201, I.R.C., for the years 1981 and 1982,
was collaterally estopped from denying his
participation in a bribery scheme and from denying that
some part of the underpayment of his income tax was due
to fraud for purposes of sec. 6653(b), I.R.C., for each
of those taxable years.
     Held: P's 1981 and 1982 gross income includes the
payments he received from clients in those years.
     Held, further, P is liable for the additions to tax
under sec. 6653(b), I.R.C., for 1981 and 1982, and for
purposes of sec. 6653(b)(2), as in effect for 1982, the
addition to tax applies to the entire amount of unreported
income he received in 1982.
                                   - 2 -


       Michael J. Fitzpatrick, pro se.

       Patrick E. Whelan and Daniel K. O'Brien, for respondent.

                 MEMORANDUM FINDINGS OF FACT AND OPINION


       LARO, Judge:     Michael J. Fitzpatrick petitioned the Court to

redetermine the following determinations of deficiencies and

additions to tax:

                                        Additions to Tax
                               Sec.        Sec.           Sec.
Year        Deficiency        6653(b)   6653(b)(1)     6653(b)(2)
             1
1981          $30,601         $15,301        ---          ---
1982          96,418             ---       $48,209     50% of the
                                                        interest due
                                                        on $96,418
       1
      The parties stipulated that the deficiency for 1981 should
be reduced by $17,253.

       Following our decision in Fitzpatrick v. Commissioner,

T.C. Memo. 1995-548,1 the issues before the Court are as follows:

       1
       In Fitzpatrick v. Commissioner, T.C. Memo. 1995-548, the
Court decided that: (1) Respondent was not collaterally or
equitably estopped from issuing a notice of deficiency due to the
earlier issuance of the no-change letter to petitioner for the
same tax years; (2) the notice of deficiency was not in violation
of the Double Jeopardy Clause of the Fifth Amendment; (3)
petitioner is collaterally estopped from denying his
participation in the bribery scheme; and (4) petitioner is
collaterally estopped from denying that there is an underpayment
of his income tax, and that some part of the underpayment is due
to fraud for purposes of sec. 6653(b), for each of the years 1981
and 1982.
     Sec. 6653(b)(2) requires respondent to establish the
specific portion of the underpayment of tax which is attributable
to fraud for purposes of applying the "50 percent of the interest
payable" provision. Cooney v. Commissioner, T.C. Memo. 1994-50.
Since we decided in Fitzpatrick v. Commissioner, supra, that
                                                   (continued...)
                                - 3 -


     1.     Whether respondent correctly determined that petitioner

received unreported income from bribes in the years 1981 and 1982

in the amounts of $50,000 and $206,087, respectively.     We hold

that respondent's determinations are correct.

     2.     Whether respondent correctly determined that the entire

amount of the deficiency for 1982 was attributable to fraud for

purposes of section 6653(b)(2).   We hold that she did.

     Unless otherwise stated, section references are to the

Internal Revenue Code applicable to the years in issue.     Rule

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

Dollar amounts are rounded to the nearest dollar.

                          FINDINGS OF FACT

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

The stipulations of fact and the exhibits submitted therewith are

incorporated herein by this reference.   Petitioner resided in

Taos Ski Valley, New Mexico, when he filed his petition.

     From 1980 through 1982, petitioner was a loan officer in the

real estate and construction lending department of the Bank of

New York (the Bank).   He initially served as assistant treasurer,

and in late 1981, he was promoted to assistant vice president of

the Bank.

     1
      (...continued)
petitioner cannot deny that a part of the underpayment was due to
fraud for purposes of sec. 6653(b) and sec. 6653(b)(1) for 1981
and 1982, respectively, it is left to decide the amount of the
addition to tax under sec. 6653(b)(2) for 1982.
                                - 4 -


     On September 26, 1980, Brenton's Cove Development Co.

(Brenton's) closed on a $5.5 million construction loan with the

Bank.    Petitioner worked on this loan as a loan officer for the

Bank.    Herbert L. Finley (Finley) and Radcliffe Romeyn (Romeyn)

were the general partners of Brenton's.    On April 23, 1981, the

Bank approved a construction loan advance of $30,000 for

Brenton's, the proceeds of which were wired to petitioner's

brother on April 24, 1981.

     On November 28, 1980, petitioner recommended that the Bank

Credit Committee approve a $6.17 million construction loan to

Landing Development Co. (Landing) and Long Wharf Development Co.

(Long Wharf) for the purpose of financing the construction of two

condominium hotels, Inn on the Harbor and Inn on Long Wharf (the

Inns).    The Bank conditionally approved this loan.   On April 16,

1981, Landing closed on a construction loan of $3,000,055 from

the Bank.    Finley, Romeyn, and William R. Wing (Wing) were

general partners of Landing and Long Wharf; Timothy M. Dwyer

(Dwyer) was a general partner of Long Wharf only.

     In the summer of 1981, R. Perry Harris, a representative of

a real estate investment group, expressed an interest in possibly

purchasing the Inns and later selling each completed unit as a

time share promotion.    The original Bank commitment to Landing

and Long Wharf did not permit the borrowers to market the

condominiums as time shares.    In order for the sale of the Inns
                                - 5 -


to be accomplished, a change in the Bank loan agreement had to be

effected.

       On December 17, 1981, Inn Group Associates (Inn Group), a

limited partnership, was formed for the purpose of acquiring the

Inns.    The general partner of Inn Group was R. Perry Harris, and

the limited partners were R. Perry Harris, Finley, Romeyn, Wing,

Dwyer, Tremont Street Corp., and Western Atlantic Investment,

Inc.

       In December 1981, the partners of Landing and Long Wharf

entered into purchase and sale agreements with Inn Group whereby

the Inns were sold to Inn Group for $10.26 million.     Pursuant to

these agreements, Inn Group assumed Landing's and Long Wharf's

obligations as to the Bank's construction loan, and Landing

received a $1 million nonrefundable deposit.     Petitioner, acting

on behalf of the Bank, was a signatory to the assumption

agreement.

       On December 18, 1981, Landing used the $1 million deposit to

make $250,000 payments to Finley, Romeyn, and Wing.     The

remainder of the deposit was utilized to pay $50,000 in

construction bills and $200,000 to petitioner.     The $200,000

payment was made to petitioner so that he would approve the

modification of the loan agreement.     Petitioner directed that

Landing make the payment by two checks, one for $50,000, the

other for $150,000, which were deposited in a Panamanian bank, in
                                 - 6 -


the checking account of Rain & Shine (R&S), a Panamanian

corporation.   The memo blank on each check reflected that it was

for "furniture, fixtures and equipment".       These notations were

fabrications designed to permit Landing to deduct these

expenditures as business expenses.

     The distribution of the $1 million deposit, of which

$750,000 went to the general partners of Landing and the rest to

petitioner, violated the terms of Landing's construction loan

from the Bank.    Under the loan agreement, the first income earned

by Landing was to have been applied toward paying off the

construction loan to the Bank.

     Petitioner endorsed the $50,000 and $150,000 checks in 1981

and 1982, respectively.   Petitioner directed the Panamanian bank

to mail R&S's account records to him in the United States.       A

small quantity of temporary checks for R&S was mailed to

petitioner at his home.    All checks on the R&S account were

drawn by petitioner, using either his name or the fictitious name

of Daniel Dunn.   In 1981, a check was drawn on the R&S account

payable to petitioner for $45,000.       This check was signed by

petitioner as an authorized signatory and was ultimately

deposited to his New York City checking account.

     During 1982, disbursements totaling $143,075 were made from

the R&S account to the Hill Winery Associates checking account

(Hill account) at the Citizens First National Bank of New Jersey,
                               - 7 -


Ridgewood, New Jersey (Citizens Bank).   All deposits to the Hill

account were transferred from the R&S checking account with the

exception of loan proceeds in the amount of $40,000 deposited to

the Hill account on November 24, 1982.   In 1982, the below-listed

disbursements, which inured to the personal benefit of

petitioner, were made from the Hill account:

  Date
Disbursed       Amount      Payee                   Purpose
  2/3/82        $28,903   FBF Winery     Winery partnership with
                                         petitioner's brother in
                                         California
 2/28/82        35,000    Mary Fusco     Petitioner's purchase of
                                         residence located in City
                                         Island, New York
  5/5/82        20,000    Elaine M.      Repayment of loan to
                          Fitzpatrick    petitioner's mother

During February and March of 1982, the Hill account had a mailing

address of 313 Columbus Avenue, New York, New York.   The monthly

statements for February and March were undeliverable at that

address, and the statements were thereafter picked up by

petitioner's father, who was an employee of Citizens Bank.

     On September 16, 1982, petitioner, acting on behalf of the

Bank, was a signatory to a Building Loan Agreement with Long

Wharf.   The agreement authorized the release of $3,115,000 in

construction loan proceeds to Long Wharf.

     On September 27, 1982, Landing made a $50,000 payment to

Pares Y Nones, S.A., a Panamanian corporation, because petitioner

had enabled the Long Wharf loan closing to take place in spite of

the fact that Long Wharf did not have any coastal zone management
                               - 8 -


approvals.   Petitioner was instrumental in opening an account for

Pares Y Nones, S.A., into which the $50,000 was deposited.     In

connection with the purchase of a 71-foot Bermuda ketch by Banba

Associates on December 15, 1982, petitioner directed a Panamanian

attorney to wire $42,500 from the Pares Y Nones, S.A. account.

Approximately 1 month prior to directing this disbursement,

petitioner had obtained a survey report on the ketch.    Petitioner

was the signatory on behalf of the seller.

     During 1982, Dwyer Construction Co. made repairs and

renovations to petitioner's residence.   The renovations were

first discussed by Finley, Romeyn, and petitioner at the Long

Wharf loan closing.   Petitioner requested that a Jacuzzi be

installed in his house and that Landing send some of its

construction workers to his house to do renovations.    Landing

made payments of $6,087 to Dwyer and Dwyer Construction Co. in

connection with the renovations.

     On November 2 and 29, 1984, Romeyn wrote to petitioner and

demanded payment from him initially in the amount of $35,000 and

thereafter in the amount of $45,000.   These demands were made by

Romeyn under the threat that, if the money was not forthcoming,

the Internal Revenue Service would be advised of petitioner's

involvement in the R&S account and the Pares Y Nones, S.A.

account.   Petitioner never complied with either of Romeyn's

demands.
                               - 9 -


     In 1987 and 1989, Finley, Romeyn, and petitioner were each

convicted of related crimes involving dishonesty and false

statements in the Federal District Court for the District of

Rhode Island.   Finley and Romeyn each pled guilty in 1987 to two

counts of making false statements on documents submitted to the

Federally insured Old Colony Co-Operative Bank requesting

construction loan advances, in violation of 18 U.S.C.

section 1014.   Romeyn also pled guilty in 1987 to one count of

making material false statements on the Landing 1982 Federal

income tax return in violation of section 7206(1); these material

false statements consisted, in part, of falsely deducting

payments made to R&S as business expenses.   On May 19, 1989,

petitioner was convicted of willful attempted evasion of his 1981

and 1982 income tax liabilities under section 7201.   This

conviction was affirmed by the Court of Appeals for the First

Circuit.   See United States v. Fitzpatrick, 892 F.2d 162 (1st

Cir. 1989).   Petitioner was also convicted of two counts of

conspiracy to travel, and use of the mails and interstate

commerce between Rhode Island, New York, and the Republic of

Panama to facilitate bribery and the distribution of the proceeds

of bribery in violation of 18 U.S.C. sections 1952 and 2.

                              OPINION

A.   Unreported Income
                              - 10 -


     Respondent asserts that the transfers from Landing, into the

R&S and Pares Y Nones, S.A. accounts and the repairs by Landing

to petitioner's home constituted income in the respective amounts

of $50,000 and $206,087 for 1981 and 1982.   Petitioner argues

that the deposits were loans, rather than income.    We agree with

respondent.

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

whatever source derived."   This definition includes all

"accessions to wealth, clearly realized, and over which the

taxpayers have complete dominion", including bribes.    Sec. 61(a);

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

Hawkins v. United States, 30 F.3d 1077, 1079 (9th Cir. 1994);

Blohm v. Commissioner, 994 F.2d 1542, 1549 (11th Cir. 1993),

affg. T.C. Memo. 1991-636; United States v. Wyss, 239 F.2d 658

(7th Cir. 1957); sec. 1.61-14(a), Income Tax Regs.

     Respondent's determinations are presumed correct, and

petitioner has the burden to establish that they are erroneous.

Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933).      Some

courts have recognized a limited exception to this general rule

where the Commissioner alleges that the taxpayer has unreported

illegal income.   Petzoldt v. Commissioner, 92 T.C. 661, 688

(1989).   In such cases, the deficiency determination must be

supported by some evidentiary foundation linking the taxpayer to

the alleged income-producing activity.   Blohm v. Commissioner,
                               - 11 -


supra at 1549; Erickson v. Commissioner, 937 F.2d 1548, 1551

(10th Cir. 1991).   Once this minimal evidentiary showing has been

made, the deficiency determination is presumed correct, and it

becomes the taxpayer's burden to prove it erroneous.     Blohm v.

Commissioner, supra at 1549.     Testimony of a taxpayer which is

unsupported by documentary evidence may be insufficient to

satisfy the taxpayer's burden.    See Ghadiri v. Commissioner, T.C.

Memo. 1996-528; Alvarez v. Commissioner, T.C. Memo. 1995-414.

     In Fitzpatrick v. Commissioner, T.C. Memo. 1995-548, the

Court held that petitioner was collaterally estopped from denying

his participation in the bribery scheme.    Remaining in issue is

the amount of unreported income he received in 1981 and 1982.       We

find that petitioner has not met his burden of proving that the

amounts he directed Landing to deposit in the R&S and Pares Y

Nones, S.A. accounts are not includable in his gross income.

Further, petitioner has not proven that the repairs to his home

which Landing paid for did not constitute income to him.

     Respondent argues that petitioner should include in income

the deposits into the R&S and Pares Y Nones, S.A. accounts and

that he exercised dominion and control over those accounts.    We

agree with respondent.   All of the deposits to the R&S account

came from the Bank's construction loan clients to whom petitioner

rendered services, and all of the disbursements from the account

were made by checks drawn on the account that were signed either
                               - 12 -


by petitioner personally or by petitioner with the alias Daniel

Dunn.    Some of the disbursements from the account were channeled

to a New Jersey bank account in the name of Hill Winery

Associates which had no business purpose other than to pay major

personal expenditures of petitioner and for which petitioner's

father picked up all the bank statements.      During 1981, the sole

check disbursed from this account was for $45,000 and was signed

by petitioner, was made payable to petitioner, and was ultimately

deposited by petitioner in his New York City checking account.

Accordingly, we hold that petitioner must include $50,000 and

$150,000 in his 1981 and 1982 income, respectively.

     Petitioner similarly has failed to prove that he did not

exercise dominion and control over the Pares Y Nones, S.A.

account.    The evidence has shown that petitioner was involved in

opening and operating the account.      Petitioner had obtained a

survey on a ketch; then approximately 1 month later, he directed

a Panamanian attorney to wire $42,500 from the account.

Petitioner was signatory on behalf of the seller of the Bermuda

ketch.    Accordingly, we find that petitioner must include the

$50,000 deposited by Landing into the Pares Y Nones, S.A. account

in his 1982 income.

     Additionally, respondent contended that petitioner should

include in income the amount of renovations on his home paid for

by Landing.    The renovations were first discussed by Finley,
                              - 13 -


Romeyn, and petitioner at the Long Wharf closing.    Petitioner

requested that a Jacuzzi be installed in his home along with

other alterations, and that Landing send some of its construction

workers to do the work.   Landing made $6,087 in payments to fund

the renovations.   Petitioner admitted that he never expected that

he would have to pay for the repairs.     Accordingly, we find that

petitioner should include the amount Landing paid for the

renovations on his home in his 1982 gross income.

2.   Fraud Addition Under Section 6653(b)

      Respondent determined that petitioner was liable for

additions to tax for fraud in each year in issue.    Respondent

must prove her determinations of fraud by clear and convincing

evidence.   Sec. 7454(a); Rule 142(b); Rowlee v. Commissioner,

80 T.C. 1111, 1123 (1983).   Fraud requires a showing that the

taxpayer intended to evade a tax known or believed to be owing.

Stoltzfus v. United States, 398 F.2d 1002, 1004 (3d Cir. 1968).

As discussed above, respondent must prove the amount of the

underpayment that is attributable to fraud for purposes of

section 6653(b)(2).   See supra note 1.

      In Fitzpatrick v. Commissioner, supra, the Court decided

that petitioner's conviction under section 7201 collaterally

estops him from denying that there is an underpayment of his

income tax, and that some part of the underpayment is due to

fraud for purposes of section 6653(b), for each of the taxable
                              - 14 -


years 1981 and 1982.   Consequently petitioner is liable for the

addition to tax under section 6653(b) for 1981, and he is liable

for the addition to tax under section 6653(b)(1) for 1982.    The

only remaining issue that we must decide is the amount of the

understatement of tax in 1982 which is attributable to fraud for

purposes of section 6653(b)(2).    We recognize that respondent has

the burden of proving fraud by clear and convincing evidence

whereas petitioner, as explained above, has the burden of showing

that he did not receive unreported income to overcome

respondent's determination of deficiencies.    We find that

respondent has met her burden.    The evidence clearly and

convincingly shows that petitioner had dominion and control over

the R&S and Pares Y Nones, S.A. accounts, that the amounts

deposited in those accounts by Landing constituted unreported

income to him, and that he received additional unreported income

as a result of the repairs on his home which Landing paid for.

The unreported income consisted of the bank deposit proceeds and

the renovations on petitioner's house.    Consequently, the entire

amount of petitioner's unreported income for 1982 is attributable

to fraud and is subject to the provisions of section 6653(b)(2).
                             - 15 -


     We have considered all arguments made by petitioner for

contrary holdings and, to the extent not discussed above, find

them to be without merit.

     To reflect the foregoing,

                                        Decision will be entered

                                   under Rule 155.
