                  T.C. Summary Opinion 2002-42



                     UNITED STATES TAX COURT



                  JAMES J. COYLE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

          REGAL MOBILE HOME SALES, INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 12012-99S, 12061-99S.    Filed April 22, 2002.



     William James Kelly, for petitioners.

     Randall B. Pooler, for respondent.



     PANUTHOS, Chief Special Trial Judge:    These cases were heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petitions were filed.    The

decisions to be entered are not reviewable by any other court,

and this opinion should not be cited as authority.   Unless

otherwise indicated, subsequent section references are to the
                                     - 2 -

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

Rule references are to the Tax Court Rules of Practice and

Procedure.

     Respondent determined that petitioners James J. Coyle (Mr.

Coyle) and Regal Mobile Home Sales, Inc. (Regal), in these

consolidated cases are liable for deficiencies, an addition to

tax, and penalties as follows:

                 James J. Coyle, docket No. 12012-99S

                                                        Penalty
                Year          Deficiency               Sec. 6663

               1992               $9,983               $7,487
               1993                5,284                3,962

       Regal Mobile Home Sales, Inc., docket No. 12061-99S

                                           Addition to Tax       Penalty
       Year            Deficiency          Sec. 6651(a)(1)      Sec. 6663

     3/31/90             $2,850                   –                $2,138
     3/31/92              3,690                   –                 2,768
     3/31/93              3,526                   –                 2,645
     3/31/94              3,607                 $902                2,705

     The issues for decision are:

     (1) Whether Regal failed to report gross receipts from

sales of mobile home wheels and axles for its tax years ending

March 31, 1992 and 1993, of $13,948 and $45,741, respectively.

Respondent also determined that Regal is entitled to a

corresponding deduction for each year for commissions it paid

Mr. Coyle.     If we conclude that Regal omitted gross receipts from

sales of wheels and axles, then Regal is allowed the
                               - 3 -

corresponding deductions.   Regal does not dispute the allowance

of the corresponding deductions.

     (2) Whether Mr. Coyle failed to report commission income

from Regal for 1992 and 1993 of $21,130 and $18,816,

respectively.

     (3) Whether Regal is liable for section 6663 civil fraud

penalties for its tax years ending March 31, 1990, 1992, 1993,

and 1994, of $2,138, $2,768, $2,645, and $2,705, respectively.

      (4) Whether Mr. Coyle is liable for section 6663 civil

fraud penalties for 1992 and 1993 of $7,487.25 and $3,962.25,

respectively.

     (5) Whether the periods of limitations for assessment of

underpayments of tax with respect to Regal and Mr. Coyle have

expired.

     Respondent also determined the following:   Regal is not

entitled to claim a net operating loss (NOL) carryback of $18,995

to its tax year ending March 31, 1990, from the tax year ending

March 31, 1992; Regal is not entitled to claim an NOL

carryforward of $24,048 to its tax year ending March 31, 1994;

Regal failed to report rental or installment sale income in its

tax year ending March 31, 1992, of $4,496; Regal is liable for an

addition to tax under section 6651(a)(1) for its tax year ending

March 31, 1994; Regal is not entitled to a claimed bad debt

deduction for its tax year ending March 31, 1992, of $26,358;
                                 - 4 -

Regal is not entitled to a claimed deduction for State sales tax

for its tax years ending March 31, 1992 and 1993, of $12,740 and

$15,844, respectively; Regal failed to report volume rebate

income for its tax year ending March 31, 1993, of $31,713; and

Mr. Coyle failed to report dividend income from Regal in 1992 of

$16,495.

     Regal and Mr. Coyle did not present any evidence concerning

these determinations.   To some extent the adjustments to the

claimed carryback and carryforward are affected by our findings

and conclusions on the issues placed in dispute.      To the extent

they are not affected by the issues placed in dispute, we deem

these determinations conceded.

     The notice of deficiency mailed to Mr. Coyle increased the

self-employment tax in 1992 and 1993 and decreased the earned

income credit (EIC) in 1992 by $18.      These computational

adjustments depend on the adjustments to income for 1992 and

1993.   Mr. Coyle has not disputed these adjustments.     Therefore,

we do not separately address them.

                            Background

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

the time the respective petitions in these cases were filed, Mr.

Coyle was a resident of Lakeland, Florida, and Regal’s principal

place of business was Lakeland, Florida.
                               - 5 -

     Regal sold new mobile homes either from inventory located at

its business premises or from orders placed with mobile home

manufacturers.   Regal also sold and traded used mobile homes.

Mobile homes are transported on detachable wheels and axles.

Upon the sale of a mobile home, a set-up crew provided by Regal

installed the mobile home and removed the wheels and axles.    The

wheels and axles were then returned to Regal.

     Mr. Coyle has been the president and a stockholder of Regal

since its incorporation in 1983.   In addition to preparing

customer purchase orders for Regal, Mr. Coyle has been a salesman

for Regal, and he hired and fired Regal’s employees.   During the

years at issue, Mr. Coyle was at the Regal worksite on most

workdays.   Mr. Coyle was a majority shareholder with control over

Regal.   He acted on behalf of Regal, and Regal acted through him.

Mr. Coyle signed Regal’s Federal income tax returns.

     After the sale of a mobile home and the return of the wheels

and axles to Regal, Regal sold them to various purchasers

including Marilyn and Robert Roach (Mr. and Mrs. Roach), who

owned and operated Bob Roach Mobile Home Services, Inc. (Roach

Mobile Home), Jerry Lee Gibson (Mr. Gibson), and Mr. Charles

Vernon Pearce.   Roach Mobile Home began purchasing wheels and

axles from Regal in April 1991.    Regal sold the wheels and axles

for cash, which is the industry custom.   All of Regal’s employees

were authorized to sell the wheels and axles in exchange for cash
                                   - 6 -

from various purchasers.    Mr. Coyle received the cash from the

sales of wheels and axles.       Regal and Mr. Coyle did not issue

invoices to the purchasers of wheels and axles.

     Regal and Mr. Coyle received receipts of purchase from Roach

Mobile Home and Mr. Gibson that Mr. Coyle retained for a short

but unspecified period.    It was the practice of Roach Mobile Home

for its driver who purchased and picked up wheels and axles to

prepare a receipt of purchase indicating the seller of the wheels

and axles and the amount paid for each item.       Each receipt was a

two-part ticket.    The driver gave one-half of the receipt to the

seller and returned the other half to the office of Roach Mobile

Home.    Roach Mobile Home kept a record of its purchases by

entering information from each receipt into its computer.       Roach

Mobile Home’s receipts from 1991 through 1993 indicate that Roach

Mobile Home paid Regal the following amounts for wheels and

axles:

                    Apr.--Dec.   1991        $6,681.25
                    Jan.--Mar.   1992         7,267.00
                    Apr.--Dec.   1992        37,783.25
                    Jan.--Mar.   1993         7,957.25
                    Apr.--Dec.   1993        26,658.00

     It was the practice of Mr. Gibson to provide the seller of

wheels and axles with a receipt and to retain a copy of the

receipt in company records.       Mr. Gibson usually paid the cash

directly to Mr. Coyle or his father, Thomas Coyle, who also

worked for Regal.    If Mr. Gibson received delivery of the wheels
                               - 7 -

and axles from one of Regal’s employees, Mr. Gibson would give

cash to the employee and have that employee sign a receipt.    Mr.

Gibson provided the Court with 13 receipts dated from July to

December 1993 indicating that he paid Regal $8,041 for wheels and

axles.   The additional item of omitted income determined for 1993

as to Mr. Coyle was $2,500 of income from sales of wheels and

axles to Mr. Pearce.   Petitioner failed to present any evidence

as to this adjustment.

     During the years at issue, Regal employed a bookkeeper to

keep its records.   The sales manager or the office manager would

often make notations in Regal’s books and records concerning

sales of mobile homes.   In 1992, Regal purchased a computer

system to better maintain its bookkeeping records.   Either Mr.

Coyle or the bookkeeper would prepare the bank deposit slips for

deposits made into Regal’s bank accounts.   Petitioner, the

bookkeeper, or any one of Regal’s employees made deposits into

Regal’s bank accounts.   Regal did not produce copies of its books

and records to respondent or at trial.

     Regal’s certified public accountant and tax return preparer,

Steven D. Herman (Mr. Herman), reviewed Regal’s books and records

quarterly because he filed quarterly and annual tax returns for

Regal.   He did not audit or analyze Regal’s books and records.

Mr. Herman did not rely on the original underlying documents when

preparing Regal’s returns because they were not available to him.
                                - 8 -

Instead, Mr. Herman used information prepared or provided by

Regal’s bookkeeper or Mr. Coyle in preparing Regal’s tax returns.

Mr. Herman requested that Regal provide him with documents such

as checks, inventory statements on sales tax returns, bank

statements, a listing of accounts receivable and notes payable,

and deposit receipts.    He experienced difficulty obtaining the

documents and information from Regal, however, and even when he

received information, it was often incomplete.    Mr. Herman

prepared certain books and records for Regal, a small portion of

which he produced to the Court.

     Mr. Herman also prepared Mr. Coyle’s tax returns for 1992

and 1993 using information prepared or provided by Mr. Coyle.

Mr. Coyle would provide information in writing or orally.      Mr.

Coyle was not clear as to whether he actually provided Mr. Herman

with receipts he received from sales of wheels and axles.

     On February 2, 1993, Mr. Coyle submitted an offer in

compromise with an attached Form 443-A, Collection Information

Statement for Individuals, to respondent, which respondent

rejected.    Mr. Coyle resubmitted the offer in compromise dated

December 3, 1993, which respondent accepted on August 3, 1994.

As a result, Mr. Coyle compromised taxes due of $32,150.76 for a

total payment of $6,000 for the 1986, 1989, 1990, 1991, and 1992

tax years.
                                - 9 -

     The parties stipulated the fact of this offer in compromise.

The record contains a copy of the offer in compromise dated

February 2, 1993, and the amended offer in compromise dated

December 3, 1993.    Neither the stipulation nor copies of the

offers provide any detail as to the amounts or bases for

determination of liability for any of the tax years involved.    We

note that the original offer was submitted February 2, 1993,

which is prior to the filing of the 1992 Federal income tax

return.   The record is further unclear whether there was an

examination of the 1992 return and any additional tax determined

and/or assessed before the acceptance of the offer in compromise.

     Thus, it is not clear whether, upon issuing Mr. Coyle a

notice of deficiency in connection with the case at hand,

respondent was reopening the offer in compromise with respect to

the 1992 tax year.    See sec. 301.7122-1(c), Proced. & Admin.

Regs.   Mr. Coyle has not alleged that the issuance of the notice

of deficiency in this case is an impermissible reopening of the

offer in compromise, and since the record does not provide

sufficient information in this regard, we decline to consider

this issue.   Id.

                             Discussion

     The primary issue in these cases is whether Regal omitted

gross receipts from the sale of wheels and axles and, if so,

whether Mr. Coyle omitted commission income received from Regal.
                               - 10 -

To the extent we conclude that there are underpayments of taxes,

we must also decide whether the underpayments of taxes by Regal

and Mr. Coyle are due to fraud under section 6663.

     Regal and Mr. Coyle each allege that the 3-year period of

limitations under section 6501(a) for each of the tax years at

issue has expired and respondent is precluded from assessing any

underpayments in tax.1

     Respondent asserts that the periods of limitations have not

expired under subsections (c)(1) and (e) of section 6501.

Respondent determined that all or part of the underpayments in

tax of Regal and Mr. Coyle were due to fraud under section

6663(a).    Thus, respondent asserts that the taxes imposed against

Regal and Mr. Coyle may be assessed at any time under section

6501(c)(1) and the periods of limitations had not expired for the

tax years at issue at the time the notices of deficiency were

issued.    In the alternative, respondent relies upon section

6501(e) (substantial omission of gross income) in asserting that

the periods of limitations have not expired with respect to Regal

and Mr. Coyle.

     Because an underpayment of tax is critical to a finding of

fraud, we shall first consider whether Regal omitted gross


     1
        Separate notices of deficiency were issued to Regal and
Mr. Coyle on Apr. 15, 1999. There is no dispute that the notices
of deficiency were mailed beyond the respective 3-year periods of
limitations under sec. 6501(a).
                                - 11 -

receipts from sales of wheels and axles and, if so, whether Mr.

Coyle omitted commission income.

1.   Regal

      Respondent determined that Regal failed to report gross

receipts from sales of wheels and axles for the taxable years

ending March 31, 1992 and 1993, of $13,948 and $45,741,

respectively.     Respondent allowed Regal corresponding deductions

for commission expenses paid to Mr. Coyle for the tax years

ending March 31, 1992 and 1993, of $13,948 and $45,741,

respectively.

      Gross income means all income from whatever source derived.

Sec. 61.     The Commissioner may use any reasonable means to

reconstruct a taxpayer’s income.     Counts v. Commissioner, 774

F.2d 426, 428 (11th Cir. 1985), affg. T.C. Memo. 1984-561.        When

the Commissioner determines that a taxpayer received unreported

income, the determination in the notice of deficiency must be

“supported by ‘some evidentiary foundation linking the taxpayer

to the alleged income-producing activity.’”      Blohm v.

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

Weimerskirch v. Commissioner, 596 F.2d 358, 362 (9th Cir. 1979),

revg. 67 T.C. 672 (1977)), affg. T.C. Memo. 1991-636.       The

Commissioner need only provide a minimal showing that the

taxpayer failed to report income.     Id.   The taxpayer bears the

burden of proving that the notice of deficiency is arbitrary or
                                - 12 -

erroneous once the Court determines that the Commissioner

provided the minimal evidentiary showing.2   Gatlin v.

Commissioner, 754 F.2d 921, 923 (11th Cir. 1985) (citing Jackson

v. Commissioner, 73 T.C. 394, 401 (1979)), affg. T.C. Memo. 1982-

489.

       Respondent determined on the basis of documentary evidence

that Regal omitted gross receipts from sales of wheels and axles.

We found Mr. Roach, Mrs. Roach, and Mr. Gibson to be credible

witnesses.    The testimony of these witnesses further supported

the contemporaneous receipts.    The receipts indicate that Regal

received cash payments greater than the amounts it reported on

its returns.

       When asked why Regal did not report gross receipts from

sales of wheels and axles as such on its returns, Mr. Coyle

explained that he and Mr. Herman thought that it was “not

something necessarily that needs to be broken out”.      We find this

assertion by Mr. Coyle not to be credible.

       We conclude that Regal received gross receipts from sales of

wheels and axles of $13,948 and $45,741 for the tax years ending



       2
        Petitioners bear the burden of proof with respect to the
underpayments of tax. Rule 142(a)(1). Sec. 7491 does not shift
the burden of proof to respondent with respect to the
underpayments of tax because petitioners have neither alleged
that sec. 7491 is applicable nor established that they complied
with the requirements of sec. 7491(a)(2)(A) and (B) to
substantiate items, maintain required records, and fully
cooperate with respondent’s reasonable requests.
                               - 13 -

March 31, 1992 and 1993, respectively.    Those amounts were not

reported on the returns for those years.    We are also satisfied

that Mr. Coyle ultimately received the amounts paid to Regal for

the wheels and axles.    Accordingly, Regal is entitled to

deductions for commissions paid as determined by respondent, as

discussed below, for the tax years ending March 31, 1992 and

1993, of $13,948, and $45,741, respectively.

     While there is no doubt that Regal omitted gross receipts,

the corresponding deductions for commissions paid result in no

underpayments of tax with respect to sales of wheels and axles.

However, the underpayments of tax and the deficiencies respondent

determined for the years in issue are based on adjustments of

other items including:   (1) A disallowed deduction for claimed

bad debts; (2) a disallowed deduction for State sales tax; and

(3) omitted income from volume rebates.    Regal did not present

any evidence that would suggest that respondent’s determinations

were not correct as to these items.

     On the basis of respondent’s determination and Regal’s

failure to present evidence to establish that the determination

is not correct, we would normally sustain the determination as to

these items.   However, since respondent relies on (1) fraud under

sections 6663 and 6501(c)(1), and (2) substantial omission under

section 6501(e) as affirmative defenses to the running of the

period of limitations, we withhold any further consideration of
                               - 14 -

these adjustments until our discussion of the fraud penalty and

the period of limitations.

2.   Mr. Coyle

      Respondent determined that Mr. Coyle failed to report

commission income received from Regal of $21,130 in 1992 and

$18,816 in 1993.   The commission income consisted of the income

which Regal received from sales of wheels and axles and which Mr.

Coyle diverted from Regal.   Mr. Coyle reported $23,920 in 1992

and $26,340 in 1993 of “other” income (not “commission” income)

on his Federal income tax returns.3

      In our discussion above, we have concluded that Regal

received gross receipts from sales of wheels and axles and that

the funds received were paid to Mr. Coyle.     The discussion here

provides further support for our conclusion that Mr. Coyle failed

to report commission income as determined in the notice of

deficiency.

      Respondent elicited testimony from four of Regal’s former

employees concerning their involvement with sales of wheels and

axles.    All four provided credible testimony that Mr. Coyle was

the person who received the cash from sales of wheels and axles

or, if he was not available at that time, the cash would

ultimately be turned over to him.     Mr. Coyle has admitted that



      3
        Regal paid its other salespeople a commission for each
mobile home sold.
                                - 15 -

the cash from sales of wheels and axles went directly into his

pocket.   As Mr. Coyle explained at trial:      “a lot of times it

would come to me.   Okay?   And I would use it for my income, you

know.”

     Mr. Coyle failed to provide any evidence with respect to

respondent’s determination for 1993 that he received $2,500 from

Mr. Pearce from sales of wheels and axles.

     Respondent elicited testimony from Mr. Herman concerning the

nature of Mr. Coyle’s income.    Mr. Herman presumed Mr. Coyle

received commission income from Regal, but the documentation did

not support this.   Mr. Herman explained that he “instructed Mr.

Coyle that, being an officer of the company, the IRS generally

required them to take wages, W-2s, and we could report the income

from the W-2s and any withholding.       During the course of those

years, that was not done.   He did not pay himself any payroll.”

     Respondent’s revenue agent said that, at the audit, it was

first explained to her that Regal paid Mr. Coyle commissions.

Petitioners later “elaborated a little more, saying that it

actually was wheel and axle income that came from the corporation

that went directly to Mr. Coyle in lieu of commission income.”

Mr. Coyle testified that he never received commission income.         We

find Mr. Coyle’s lack of clarity in reporting the nature of his

income to be disingenuous, given that he controlled Regal.
                                 - 16 -

     We do not accept Mr. Coyle’s testimony that the income he

reported on his returns for 1992 and 1993 was his only income for

those years.     See Tokarski v. Commissioner, 87 T.C. 74, 77

(1986).      We conclude that Mr. Coyle failed to report income

received from Regal in 1992 and 1993 of $21,130 and $18,816,

respectively.

3.   Fraud

      Respondent affirmatively alleges that Regal and Mr. Coyle

are liable for civil fraud penalties under section 6663.

Specifically, respondent claims that petitioners committed fraud

because:      Mr. Coyle directed Regal to maintain false books in

which gross receipts from sales of wheels and axles were not

recorded and ensured that Regal’s and his own accountant was not

provided with the receipts from the sales of wheels and axles;

neither Regal nor Mr. Coyle recorded the cash received in Regal’s

books or deposited the money in any of Regal’s bank accounts; Mr.

Coyle ensured that Regal received cash when it sold wheels and

axles; Mr. Coyle directed that cash from sales of wheels and

axles be paid to him; Mr. Coyle substantially understated his

income for 1992 and 1993; and Mr. Coyle’s income tax return

filing history indicates a consistent pattern of underreporting

his income tax liability.

      Section 6663 imposes a penalty of 75 percent on the portion

of any underpayment of tax required to be shown on a return that
                               - 17 -

is due to fraud.   Fraud, under section 6663, is defined as an

intentional wrongdoing designed to evade tax believed to be

owing.    Conforte v. Commissioner, 692 F.2d 587, 592 (9th Cir.

1982), affg. in part and revg. in part 74 T.C. 1160 (1980); Neely

v. Commissioner, 116 T.C. 79, 86 (2001) (citing Edelson v.

Commissioner, 829 F.2d 828, 833 (9th Cir. 1987), affg. T.C. Memo.

1986-223)).    When the Commissioner has alleged fraud under

section 6663, the Commissioner has the initial burden of proving

by clear and convincing evidence for the years at issue that some

portion of the underpayment of tax is due to fraud.    Sec.

7454(a); Rule 142(b); see also Anastasato v. Commissioner, 794

F.2d 884, 889 (3d Cir. 1986), vacating T.C. Memo. 1985-101.     To

satisfy the burden of proof, the Commissioner must show that:

(1) An underpayment in tax exists, and (2) the taxpayer intended

to evade taxes by concealing, misleading, or otherwise preventing

the collection of taxes.    Parks v. Commissioner, 94 T.C. 654,

660-661 (1990).    The Commissioner can prove by circumstantial

evidence that the taxpayer intended to evade taxes by concealing,

misleading, or otherwise preventing the collection of taxes.      Id.

at 664.

     Fraud is a question of fact to be resolved upon

consideration of the entire record and is never presumed.      Estate

of Pittard v. Commissioner, 69 T.C. 391, 404 (1977).    The

Commissioner may draw reasonable inferences to establish
                                - 18 -

fraudulent intent.   Korecky v. Commissioner, 781 F.2d 1566 (11th

Cir. 1986), affg. T.C. Memo. 1985-63.    Indicia of fraudulent

intent include the following:    A pattern of consistent

underreporting of income, Parks v. Commissioner, supra at 664;

the filing of false documents, Stephenson v. Commissioner, 79

T.C. 995, 1007 (1982), affd. 748 F.2d 331 (6th Cir. 1984);

destruction of records, Prokop v. Commissioner, 254 F.2d 544 (7th

Cir. 1958), affg. T.C. Memo. 1957-75; inadequate and incomplete

records, failure to file tax returns, implausible or inconsistent

explanations of behavior, concealment of assets, and failure to

cooperate with tax authorities, Bradford v. Commissioner, 796

F.2d 303, 307 (9th Cir. 1986), affg. T.C. Memo. 1984-601.

     If the Commissioner establishes that any portion of the

underpayment is attributable to fraud, then the entire

underpayment for that tax year shall be treated as attributable

to fraud, unless the taxpayer can establish that a portion is not

attributable to fraud.   Sec. 6663(b).   The term “underpayment” is

defined by section 6664(a) to mean the amount by which any tax

imposed by this title exceeds the excess of (1) the sum of (A)

the amount shown as the tax by the taxpayer on his return, plus

(B) amounts not so shown previously assessed (or collected

without assessment), over (2) the amount of rebates made.    Estate
                                - 19 -

of Trompeter v. Commissioner, 111 T.C. 57, 58 (1998).        An

underpayment under sections 6663 and 6664(a) has the same meaning

as a deficiency in section 6211(a).

        To prove fraud respondent has presented evidence of and

relied on Regal’s conduct with respect to the omitted gross

receipts from sales of wheels and axles.     However, as a result of

the corresponding deductions determined and allowed, these

adjustments do not result in underpayments of tax.     The

underpayments of tax come from other items (i.e., the denied bad

debt deduction, the denied deductions for State sales taxes, and

unreported volume rebate income).

        To prove fraud under section 6663(b), respondent is required

to prove by clear and convincing evidence that a part of the

underpayment for each year is attributable to fraud.     Respondent

has not clearly and convincingly proven that any part of the

underpayment of tax due from Regal for the tax years ending

March 31, 1992 and 1993, is attributable to fraud.     See Kreimer

v. Commissioner, T.C. Memo. 1983-672.     Accordingly, we conclude

that Regal is not liable for the fraud penalties under section

6663.

     We now consider whether Mr. Coyle is liable for the fraud

penalties.     On the basis of our discussion above, we are

satisfied that there is an underpayment of tax with respect to

commission income required to be shown on each of Mr. Coyle’s
                             - 20 -

Federal income tax returns for 1992 and 1993.   We review this

record further to consider whether the underpayments of tax by

Mr. Coyle are due to fraud within the meaning of section 6663.

     When asked at trial how he kept his records on sales of

wheels and axles, Mr. Coyle responded as follows:

     Q    So you get the cash. Are you – you’re not
     recording it anywhere or booking it anywhere?
     A    Yes. I would keep my records, you know,
     basically, you know, to justify my income. Yes.
     Q    And what kind of records would you keep?
     A    I’d basically make notations, you know, on a
     monthly basis and then accumulate it at the end of the
     year and then give it to Herman for my income.
     Q    So –
     A    Which, you know, is not the best way in the world
     to do it, you know. But, you know, that’s the way I
     was doing it.
     Q    You would book each receipt of cash from wheel
     and axle income -
     A    Right.
     Q    – to your own records, not the records of Regal?
     A    Right.
     Q    To your own records?
     A    Yes. Because I was getting the benefit of it at
     that particular time.
     Q    And where are those records?
     A    I don’t know now.

Mr. Coyle did not provide Mr. Herman with information or receipts

reflecting income from sales of wheels and axles.

     Testimony from Mr. Roach, Mrs. Roach, and Mr. Gibson lead us

to the conclusion that it was the practice of their respective

businesses not only to keep records for themselves of cash

purchases of wheels and axles from Regal, but also to provide

Regal or Mr. Coyle with copies of the receipts.   As stated

previously, we found Mr. Roach, Mrs. Roach, and Mr. Gibson to be
                               - 21 -

credible witnesses.    Mr. Coyle admitted that he received the

receipts but did not keep them.    Mr. Coyle’s counsel explained

that Mr. Coyle “would reconcile his books and get with his tax

man at the end of the tax year, give this information to him, and

then, he had no need to keep these receipts.”      We are not

convinced that an experienced businessperson such as Mr. Coyle

would not understand the need to keep receipts.      See Korecky v.

Commissioner, supra.

     Mr. Coyle hired Mr. Herman to prepare his Federal income tax

returns.   Mr. Herman testified that Mr. Coyle did not provide him

with many original records and documents when he was preparing

Regal’s and Mr. Coyle’s tax returns.      Rather, Mr. Coyle provided

him with totals of dollar amounts.      Mr. Herman’s testimony

conflicts with Mr. Coyle’s testimony because Mr. Coyle had

asserted that he provided receipts to Mr. Herman.      We are

inclined to accept Mr. Herman’s testimony.

     Mr. Coyle and respondent entered into an offer in compromise

for 1986, 1989, 1990, 1991, and 1992.      In a statement attached to

his offer in compromise, Mr. Coyle indicated that he was

“employed as a mobile home salesman”.      From the facts in the

record, it is apparent that during many of those years Mr. Coyle

was not only an employee, but he was also a majority shareholder

with control over Regal.    Mr. Coyle’s dishonesty in his prior

dealings with respondent is an indication of fraud.
                                 - 22 -

     Mr. Coyle’s testimony about the amount and type of income he

received from Regal was at best vague and, at worst, evasive.        We

conclude that Mr. Coyle’s testimony was self-serving and lacked

credibility.      See Tokarski v. Commissioner, 87 T.C. at 77.

      On the basis of the entire record, we conclude that the

underpayments of tax due from Mr. Coyle for 1992 and 1993 were

due to fraud.      We sustain respondent’s determinations of fraud

penalties under section 6663 with respect to Mr. Coyle for 1992

and 1993.

4.   Period of Limitations

     a.   Regal

      We have concluded that Regal's underpayments of tax were not

due to fraud.      Thus, section 6501(c)(1) does not prevent the

running of the periods of limitations with respect to Regal.

      We look to whether the periods of limitations are open under

section 6501(e).      Section 6501(e) extends the period within which

the Commissioner must assess an underpayment of tax to 6 years

from the date the return was filed.       Section 6501(e) is

applicable if a taxpayer omits from gross income an amount

properly includable which is greater than 25 percent of the

amount of gross income stated in the return.       “Gross income”

means, in the case of a trade or business, the total of the

amounts received or accrued from the sale of goods or services

(if required to be shown on the return) before reducing it by the
                                - 23 -

cost of the sales or services.    Sec. 6501(e)(1)(A)(i); sec.

301.6501(e)-1(a)(1)(ii), Proced. & Admin. Regs.    An item is not

considered omitted from the return if its nature and amount are

sufficiently disclosed in the return or any schedule or statement

attached to the return.    Sec. 301.6501(e)-1(a)(1)(ii), Proced. &

Admin. Regs.

     We further note that under section 6501(h), a deficiency

attributable to an NOL carryback may be assessed at any time

before the expiration of the period within which a deficiency for

the taxable year of the NOL which results in the carryback may be

assessed.

     Section 6501(e) is of no assistance to respondent for the

period ending March 31, 1992, since the notice of deficiency was

mailed more than 6 years after the filing of the return.

Further, since the underpayment determined with respect to Regal

for the tax year ending March 31, 1990, is attributable to the

disallowance of the NOL carryback from the tax year ending March

31, 1992 (the year in which Regal claimed the loss arose), the

period during which the underpayment may be assessed has expired

under section 6501(h).     See Calumet Indus., Inc. v. Commissioner,

95 T.C. 257, 274 (1990).
                              - 24 -

     Respondent does not specifically allege4 that Regal omitted

from gross income for the taxable years ending March 31, 1993 and

1994, amounts properly includable that are greater than 25

percent of the amounts stated in the returns under section

6501(e)(1)(A)(i).   Regal reported gross income of $379,221 for

the year ending March 31, 1993, and $409,996 for the year ending

March 31, 1994.   See Colony, Inc. v. Commissioner, 357 U.S. 28

(1958) (concluding that Congress intended to extend period of

limitations under statutory predecessor to section

6501(e)(1)(A)(i) when gross receipts are understated on return).

Respondent determined Regal omitted gross income of $79,454 from

the return for the tax year ending March 31, 1993.   This amount

is not greater than 25 percent of the amount of gross income

stated in the return.   Respondent did not determine that Regal

omitted gross income from its return for the tax year ending

March 31, 1994, under section 6501(e)(1)(A) because respondent

denied an NOL carryforward that was not an item omitted from the

return.   Sec. 301.6501(e)-1(a)(1)(ii), Proced. & Admin. Regs.

Accordingly, section 6501(e) is not applicable to extend the

periods of limitations for either of the tax years ending March

31, 1993 or 1994.


     4
        The Court permitted petitioners to raise the bar of the
statute of limitations at trial and further permitted respondent
to make general affirmative allegations as to the basis for the
exceptions to the normal 3-year period of limitations under sec.
6501(a).
                              - 25 -

     b.     Mr. Coyle

     Because the underpayments of tax due from Mr. Coyle were

attributable to fraud under section 6663, respondent is not

barred from assessing the deficiencies determined against Mr.

Coyle for 1992 and 1993.   Sec. 6501(c)(1).   Because we have

concluded that the periods of limitations have not expired under

section 6501(c)(1) with respect to Mr. Coyle, we need not

consider whether section 6501(e) is applicable.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                    Decision will be entered for

                               respondent in docket No. 12012-99S

                               and for petitioner in docket No.

                               12061-99S.
