                          T.C. Memo. 2003-19



                        UNITED STATES TAX COURT



                JAMES JOSEPH, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7681-00.                Filed January 21, 2003.



     James Joseph, Jr., pro se.

     Linda A. Neal, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:     Respondent determined deficiencies in

petitioner’s Federal income tax and additions to tax and

penalties as follows:
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                                          Additions to Tax
       Year        Deficiency      Sec. 6651(a)(1)    Sec. 6662

          1992      $9,429             $464            $1,886
          1993       8,878            1,332             1,776
          1994       3,861              –-                772

     The issues for decision are:

     1.    Whether petitioner had unreported income of $35,125 in

1992, $30,247 in 1993, and $16,305 in 1994.     We hold that he had

unreported income of $29,123 for 1992, $24,715 for 1993, and

$16,095 for 1994.

     2.    Whether petitioner is liable for the addition to tax for

failure to file timely under section 6651(a)(1) for 1992 and 1993

and the accuracy-related penalty under section 6662 for 1992,

1993, and 1994.    We hold that he is.

     Section references are to the Internal Revenue Code as

amended.     Rule references are to the Tax Court Rules of Practice

and Procedure.

                             FINDINGS OF FACT

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

A.   Petitioner

     Petitioner resided in Marrero, Louisiana, when he filed the

petition.
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     Petitioner received Social Security payments of $6,491 in

1992 and $6,664 in 1993.1    He did not report those payments as

income on his returns for 1992 and 1993.

B.   Petitioner’s Return Preparation Business

     Petitioner has been a self-employed tax return preparer from

1980 through the years in issue.     He charged fees ranging from $0

to at least $70 per return in 1992-94.

     In the years in issue, petitioner generally filed his

clients’ returns by transmitting them electronically through

banks to respondent.    Petitioner filed paper returns for clients

whose electronic returns were rejected by respondent.      Petitioner

included his name and return preparer number on the returns he

prepared.

     Taxpayers claimed refunds on 99 percent of the returns

prepared by petitioner.     Petitioner arranged loans in

anticipation of refunds (refund anticipation loans or RALs) for

taxpayers for whom he electronically filed returns.     Banks

approved refund anticipation loans in the amount of a client’s

anticipated refund and advanced that amount to the client, less

fees for the bank and petitioner.     The banks paid petitioner a

$30 fee for each RAL.   The bank issuing the RAL also sometimes




     1
        Respondent determined that $3,246 of those payments is
taxable income to petitioner in 1992 and $3,342 is taxable income
in 1993.
                                - 4 -

paid petitioner’s return preparation fee from the RAL proceeds.

The bank issuing the RAL received the refund from respondent.

C.   Petitioner’s Records and Returns

     Petitioner did not keep track of his income.   His files and

records were disorganized.   He estimated the amount of income to

report on his tax returns.   Petitioner reported that he had gross

receipts from preparing tax returns of $4,695 for 1992, $13,601

for 1993, and $22,895 for 1994.

     Petitioner filed his 1992 return on April 26, 1993, and his

1993 return on June 20, 1994.   Respondent did not grant any

extensions of time to petitioner to file those returns.

Petitioner did not pay estimated tax in 1992 or 1993.

D.   Respondent’s Examination and Determination

     Respondent’s revenue agent asked petitioner for records of

his checking and savings accounts and canceled checks and deposit

slips, but he did not give any of those records to the agent.

The revenue agent had no records from petitioner.   The revenue

agent asked petitioner to complete a personal living expense

statement, but petitioner did not do so.

     Respondent’s agent used Internal Revenue Service computer

records to identify returns bearing petitioner’s return preparer

number.   Respondent’s agent found petitioner’s preparer number on

726 returns for 1992, 756 returns for 1993, and 700 returns for

1994.   In 1997, respondent’s revenue agent mailed a questionnaire
                               - 5 -

to individuals whose 1992-94 returns bore petitioner’s preparer

number.   In the questionnaire respondent’s agent asked how much

the individuals had paid petitioner to prepare their returns.

The revenue agent received 151 responses to the questionnaire.

The responses stated that petitioner received fees from $0 to $70

per return.   Based on the responses which indicated petitioner

prepared their returns, petitioner received an average return

preparation fee of $17 for 1992, $21 for 1993, and $28 for 1994.

     Two people who responded to the questionnaire attached to

their responses records from their banks which showed that the

banks had paid petitioner a return preparation fee of $25 per

return in 1992, $28 per return in 1993, and $26 per return in

1994 and a $30 fee for every RAL for each of the years in issue.

Based on those two responses and third party bank records

attached to them, respondent’s agent estimated that petitioner

received an average return preparation fee of $25 for each return

he prepared in 1992, $28 for each return he prepared in 1993, and

$26 for each return he prepared in 1994. Respondent’s revenue

agent also assumed that petitioner received a $30 RAL fee for

each return he filed in 1992-94.

     Respondent’s agent multiplied her estimate of petitioner’s

preparer fees and the $30 RAL fee by the number of returns

prepared and filed by petitioner for each year.   Thus,
                                - 6 -

respondent’s agent estimated that petitioner had the following

amounts of gross receipts:

                                  1992        1993           1994
Returns prepared                  724          756           700
Return preparer fee               $25          $28           $26
RAL fee                           $30          $30           $30
     Total fee per return       x $55        x $58       x $56
     Total gross receipts     $39,820      $43,848     $39,200
Less gross receipts            $4,695      $13,601     $22,895
reported
Adjustment per notice of      $35,125      $30,247     $16,305
deficiency (unreported
income)


                               OPINION

A.     Whether Petitioner Had Unreported Income in 1992-94

       1.   Positions of the Parties

       Respondent contends that petitioner understated his income

by $35,125 for 1992, $30,247 for 1993, and $16,305 for 1994.

Petitioner contends that he reported all of his income in 1992-94

and that respondent’s method of reconstructing his income is

inaccurate.

       2.   Whether Respondent’s Determination Is Entitled to
            Presumption of Correctness

       The U.S. Court of Appeals for the Fifth Circuit, the circuit

to which this case is appealable, has stated that, in cases
                               - 7 -

involving unreported income, to be entitled to a presumption of

correctness, the deficiency determination must be supported by

some predicate evidence that the determination is correct.      Sealy

Power, Ltd. v. Commissioner, 46 F.3d 382, 386 (5th Cir. 1995),

affg. in part and revg. in part T.C. Memo. 1992-168; Portillo v.

Commissioner, 932 F.2d 1128, 1132 (5th Cir. 1991), affg. in part

and revg. in part T.C. Memo. 1990-68.

     Petitioner provided no records to respondent.   Respondent

may, in the absence of records, use a reasonable method to

reconstruct a taxpayer’s income.   Holland v. United States, 348

U.S. 121, 131 (1954).   Respondent estimated the amount of

petitioner’s return preparer fees to be $25 for 1992, $28 for

1993, and $26 for 1994 based on third party bank records attached

to two responses to respondent’s survey.   Respondent multiplied

those estimates by the number of returns bearing petitioner’s

return preparer number for each year.   Respondent estimated the

amount of RAL fees petitioner received by multiplying $30 by the

number of returns bearing petitioner’s return preparer number for

each year.   Respondent added these estimates of petitioner’s

return preparer fees and RAL fees to estimate the amount of

petitioner’s gross receipts for 1992-94.

     Respondent’s determination is amply supported by sufficient

predicate evidence.   Thus, petitioner bears the burden of showing
                                - 8 -

whether the amount of unreported income determined by respondent

is excessive.2

     3.     Unreported Receipts From Tax Preparation Business

     Petitioner contends that he reported all of the receipts

shown on the bank records for his tax preparation business.     We

disagree based on the responses to respondent’s survey.

     Petitioner contends that he prepared fewer than 395 returns

for each year in issue.    We disagree because petitioner’s return

preparer number appears on 700 or more returns for each year in

issue.    Petitioner contends that his return preparer number

appeared on more than one income tax return for each client for a

given tax year.    There is no evidence supporting petitioner’s

position.    He offered in evidence a computer printout entitled

“1992 Preparer Fee Reconcilement”, which petitioner testified was

a printout of what the bank told him was money the bank deposited

in his account in 1992; about 350 2-inch by 8-inch strips of

paper entitled “Refund Anticipation Loan, 1992 Tax Year, Tax

Preparer’s Receipt” with a check number, Social Security number,

name, and address of a taxpayer on each strip; and 25 client



     2
        Petitioner contends that respondent bears the burden of
proof but does not state the grounds for this contention. The
examination began before July 22, 1998. Sec. 7491 applies to
court proceedings arising in connection with examinations
beginning after July 22, 1998. Internal Revenue Service
Restructuring & Reform Act of 1998, Pub. L. 105-206, sec.
3001(a), 112 Stat. 726. Thus, sec. 7491(a) does not apply, and
petitioner bears the burden of proof on all issues in this case.
Rule 142(a)(1).
                               - 9 -

return files for 1993.   Those documents were not admitted in part

because petitioner did not exchange them 15 days before trial as

required by our standing pretrial order served on him more than 5

months before trial.   Materials not provided in compliance with

our standing pretrial order may be excluded from evidence.   See

Rules 104(c)(2), 131(b); Moretti v. Commissioner, 77 F.3d 637,

644 (2d Cir. 1996).

     The documents that petitioner offered in evidence represent,

at best, only a fraction of the returns that petitioner prepared

in the years in issue.   They do not show the amounts that

petitioner received for RAL fees or tax preparation fees.    They

do not show that petitioner’s return position was correct because

they do not establish how many clients he had or how much he

received from each of them for the years in issue.

     Petitioner makes various personal attacks on respondent’s

revenue agent.   Those allegations are unsupported by the record

and are amply refuted by evidence of the thorough and

professional approach taken by respondent’s agent.

     Petitioner received an average return preparation fee of $17

for 1992, $21 for 1993, and $28 for 1994.   These averages are

based on all of the responses to respondent’s agent’s survey in

the record.   As shown below, we adjust respondent’s estimates

because (1) the average fee based on all of the survey responses

is a better basis for estimating the amount of fees petitioner
                               - 10 -

received than using only bank records attached to two survey

responses, and because (2) the record shows that petitioner

received an RAL fee for 99 percent (not 100 percent as

respondent’s agent assumed) of the returns he prepared and filed.

                                  1992          1993         1994
Returns prepared1                  724          756              700
                                                             2
Return preparer fee                $17          $21           $26
   Total estimated preparer    $12,308      $15,876      $18,200
   fee
99% of returns prepared            717          748              693
RAL fee                            $30          $30              $30
   Total estimated RAL fee     $21,510      $22,440      $20,790
   Total gross receipts        $33,818      $38,316      $38,990
Less gross receipts             $4,695      $13,601      $22,895
reported
Unreported income              $29,123      $24,715      $16,095

     1
        A few of the survey responses for taxpayers whose returns
bore petitioner’s preparer number stated that someone other than
petitioner prepared the return. We disregard those statements
because the record contains no other explanation why petitioner’s
preparer number appeared on those returns unless he prepared them.
     2
        Although the average preparation fee for 1994 was $28, we
treat respondent’s estimate of $26 as a concession.

     We conclude that petitioner had unreported income of $29,123

for 1992, $24,715 for 1993, and $16,095 for 1994.3




     3
        Petitioner contends that it is inappropriate to use
Bureau of Labor statistics to determine his deficiency. We need
not decide petitioner’s contention because respondent’s
determination is not based on Bureau of Labor statistics.
                                - 11 -

     4.     Social Security Benefits

     Respondent determined that petitioner had taxable Social

Security benefits of $3,246 in 1992 and $3,342 in 1993.

Petitioner contends that his Social Security payments were

nontaxable because they were disability benefits.     We disagree;

Social Security disability benefits are taxed the same as other

Social Security benefits.4     Sec. 86(d)(1); Thomas v.

Commissioner, T.C. Memo. 2001-120.

B.   Whether Petitioner Is Liable for the Addition to Tax for
     Failure To Timely File His 1992 and 1993 Returns and the
     Accuracy-Related Penalty Under Section 6662 for 1992-94

     1.     Failure To File Timely

     A taxpayer is liable for an addition to tax of up to 25

percent for failure to file timely a Federal income tax return

unless the failure was due to reasonable cause and not willful

neglect.    Sec. 6651(a)(1).

     Petitioner filed his 1992 and 1993 returns late.      Thus,

petitioner bears the burden of proving that the failure is due to

reasonable cause and not willful neglect.5     Rule 142(a)(1);

United States v. Boyle, 469 U.S. 241, 245 (1985).



     4
        Petitioner does not contend that respondent applied the
formula in sec. 86 incorrectly. Any adjustments to petitioner’s
modified adjusted gross income will be made during computations
under Rule 155.
     5
          Sec. 7491 does not apply to this proceeding.    See note 2
above.
                                 - 12 -

     Illness or incapacity may constitute reasonable cause if the

taxpayer establishes that he was so ill that he was unable to

file.     Williams v. Commissioner, 16 T.C. 893, 906 (1951).     On

brief, petitioner contends that he filed his returns late because

he was ill.     We disagree.   Petitioner was well enough to prepare

and file hundreds of tax returns for each of the years in issue.

We conclude that petitioner is liable for the addition to tax for

failure to timely file his 1992 and 1993 returns.

        2.   Accuracy-Related Penalty

        Petitioner testified that he did not keep track of his

income during the years in issue.       He did not provide respondent

with any records of his income or expenses for those years.       A

taxpayer’s failure to properly substantiate items is evidence of

negligence.     See sec. 6662(c); Higbee v. Commissioner, 116 T.C.

438, 449 (2001).

        Petitioner made no argument about the accuracy-related

penalty at trial or on brief.     A taxpayer may be deemed to

concede an issue that was raised in the petition if he or she

makes no argument at trial or on brief relating to that issue.

Levin v. Commissioner, 87 T.C. 698, 722-723 (1986), affd. 832

F.2d 403 (7th Cir. 1987); Zimmerman v. Commissioner, 67 T.C. 94,
                              - 13 -

104 n.7 (1976).   We conclude that petitioner is liable for the

accuracy-related penalty under section 6662 for 1992-94.

     To reflect the foregoing,

                                              Decision will be

                                         entered under Rule 155.
