                        T.C. Memo. 1999-402



                      UNITED STATES TAX COURT



  ESTATE OF BETTY BODWELL, DECEASED, RONALD L. BODWELL, SPECIAL
ADMINISTRATOR, AND RONALD L. BODWELL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No.   19637-95.              Filed December 13, 1999.



     Ronald L. Bodwell, pro se.

     Paul K. Voelker, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     PARR, Judge:   By notices of deficiency, respondent

determined deficiencies in and additions to petitioner Ronald L.

Bodwell’s Federal income taxes for the years 1982 through 1994 as

follows:
                                - 2 -

                    Ronald L. Bodwell (Petitioner)
                                             Additions to tax
Year             Deficiency           Sec. 6651(a)(1)     Sec. 6654
1982              $21,266                $5,121.75        $1,988.90
1983               22,430                 5,607.50         1,372.55
1984               23,986                 5,996.50         1,508.01
1985               24,944                 6,236.00         1,429.38
1986               26,371                 6,592.75         1,275.91
1987               24,040                 6,010.00         1,290.49
1988               22,607                 5,651.75         1,454.16
1989               23,598                 5,899.50         1,595.89
1990               24,599                 6,149.75         1,610.56
1991               25,633                 6,408.25         1,464.94
1992               26,934                 6,733.50         1,174.72
1993               28,229                 7,057.25         1,182.78
1994               29,680                 7,420.00         1,540.15

       By separate notices of deficiency, respondent determined

deficiencies in and additions to the Federal income taxes due

from the estate of Betty Bodwell for the years 1982 through 1994

as follows:

                     Betty Bodwell (Mrs. Bodwell)
                                             Additions to tax
Year             Deficiency           Sec. 6651(a)(1)     Sec. 6654
1982               $6,224                $1,556.00         $605.94
1983                6,637                 1,659.25          406.14
1984                6,929                 1,732.25          435.65
1985                7,115                 1,778.75          407.74
1986                7,444                 1,861.00          360.19
1987                6,651                 1,662.75          357.03
1988                6,137                 1,534.25          394.75
1989                6,353                 1,588.25          429.63
1990                6,606                 1,651.50          432.50
1991                6,925                 1,731.25          395.79
1992                7,298                 1,824.50          318.30
1993                7,647                 1,911.75          320.41
1994                6,007                 1,201.40          311.67

       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, unless otherwise
                               - 3 -

indicated.   References to petitioners include both Mr. and Mrs.

Bodwell.1

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

Whether petitioners had unreported income from painting services

for the taxable years 1989 through 1994.     We hold they did.    (2)

Whether petitioner incurred self-employment tax for the taxable

years 1989 through 1994.   We hold he did.    (3) Whether

petitioners are liable for additions to tax under section 6651(a)

for failure to timely file their tax returns for the taxable

years 1989 through 1994.   We hold they are liable.    (4) Whether

petitioners are liable for additions to tax under section 6654

for failure to pay estimated tax for the taxable years 1989

through 1994.   We hold they are liable.


     1
      Mrs. Bodwell died on October 25, 1994. On Feb. 22, 1996,
we ordered that Mr. Bodwell, "the surviving spouse of Betty
Bodwell, Deceased, is appointed special administrator of the
estate of Betty Bodwell, solely for the purpose of maintaining
the present proceeding as to the estate of Betty Bodwell,
Deceased."
     2
      This case originally involved determined deficiencies in
income tax for the years 1982 to 1994, inclusive, totaling
$412,290 and additions to the tax under Secs. 6651(a) and 6654
totaling $102,577.40 and $24,064.18, respectively. By order
dated Mar. 4, 1998, we concluded that respondent’s determinations
of income set forth in the notices of deficiency were arbitrary,
and shifted the burden of proof as to income to respondent. At
trial, respondent presented evidence as to petitioners’ income
only for the years 1989 through 1994. Respondent provided no
arguments on brief that petitioner is liable for tax for the
years 1982 through 1988. Accordingly, we treat the issue of
petitioners’ liability for tax from 1982 through 1988 as conceded
by respondent.
                                 - 4 -

                            FINDINGS OF FACT

     During 1989 through 1994, petitioner was engaged in business

as a painting contractor, painting new and existing gasoline

service stations.   He did business under the name PAINT-SER LTD.,

and he performed the painting services himself.   During the years

1989 through 1994, petitioner, d.b.a. PAINT-SER LTD., performed

painting services for Shell Oil Co. (Shell), for which Shell paid

him, as follows:

                     Year             Amount
                     1989           $51,619.64
                     1990            84,832.88
                     1991            35,919.48
                     1992            63,163.81
                     1993            64,645.53
                     1994            46,162.61


     During the years 1990 through 1994, petitioner, d.b.a.

PAINT-SER LTD., performed painting services for Town and Country

Contractors, Inc. (Town and Country), for which Town and Country

paid him, as follows:

                     Year             Amount
                     1990           $27,807.20
                     1991            49,442.09
                     1992            17,821.04
                                       1
                     1993                230.64
                     1994             8,091.17
     1
      On brief, respondent states that the amount of petitioners'
income from Town and Country for 1993 is $203.64. However,
respondent's schedules accompanying the brief indicate that
petitioners' income is $230.64. After reviewing the record, it
is apparent that the correct amount of income received from Town
and Country by petitioners in 1993 is $230.64.
                                - 5 -

     During the years 1989 through 1994, petitioner and Mrs.

Bodwell resided in the State of California.    They did not file

income tax returns for the years 1989 through 1994.    During these

years, Mrs. Bodwell did not exercise any management or control

over petitioner's business.

                               OPINION

Issue 1.    Unreported Income From Painting Services

     A.    Burden of Proof

     By order dated March 4, 1998, we ruled that respondent’s

determinations of petitioners’ income were arbitrary because

respondent had not offered any evidence or other basis to support

the determination that petitioners received income.    Thus, we

held that respondent may not rely on the presumption that the

determination is correct.    See Palmer v. IRS, 116 F.3d 1309, 1312

(9th Cir. 1997); Weimerskirch v. Commissioner, 596 F.2d 358, 360-

361 (9th Cir. 1979), revg. 67 T.C. 672 (1977).    Accordingly, we

ruled that respondent bears the burden of proving the amount of

petitioners’ income for the years in issue.

     B.    Amount of Unreported Income

     Respondent presented evidence at trial that petitioner,

d.b.a. PAINT-SER LTD., performed painting services during the

years 1989 through 1994 for Shell and Town and Country.

     The manager of Federal income tax audits at Shell, Bruce

Charles Fay (Mr. Fay), stated that petitioner's tax
                                 - 6 -

identification number (TIN) was associated with two vendor

accounts at Shell.    In addition, he provided extracts from

Shell’s accounting system which clearly displayed petitioner's

TIN beside these two vendor accounts.    Further, these extracts

showed that Shell paid the following amounts to petitioner for

painting services:    $51,619.64 in 1989, $84,832.88 in 1990,

$35,919.48 in 1991, $63,163.81 in 1992, $64,645.53 in 1993, and

$46,162.61 in 1994.    Finally, a senior construction engineer at

Shell responsible for construction of new service station and

maintenance of other service stations, Raymond G. Newsome (Mr.

Newsome), testified that he personally observed petitioner

performing painting services for Shell during the years in issue.

     The president of Town and Country, Robert Balian (Mr.

Balian), also testified on behalf of respondent.    Mr. Balian

identified invoices sent to Town and Country by PAINT-SER LTD.,

and copies of checks sent to PAINT-SER LTD. for payment of those

invoices.   The PAINT-SER LTD. invoices represented charges for

materials and labor related to painting new and old service

stations for Town and Country.    Mr. Balian also testified that

PAINT-SER LTD. and petitioner were one and the same.    On the

basis of the record, we find that Town and Country paid

petitioner, d.b.a. PAINT-SER LTD., $27,807.20 in 1990, $49,442.09

in 1991, $17,821.04 in 1992, $230.64 in 1993, and $8,091.17 in

1994 for painting services.
                               - 7 -

     Petitioners presented no evidence or argument on brief

contesting these facts.3   When this case was called for trial

there was no appearance by or on behalf of petitioners; however,

respondent went forward with the evidence.   At the close of the

trial, respondent moved to have his answer amended to conform to

the proof.   This Court granted respondent’s oral motion.   The

amended answer asks this Court to find that petitioners had total

income of $51,619.64 in 1989, $112,640.08 in 1990, $85,361.57 in


     3
      This matter has a long procedural history. In their
petition filed Sept. 29, 1995, petitioners made standard
frivolous arguments. On Nov. 15, 1995, we ordered petitioners to
amend their petition. On Dec. 4, 1995, petitioners filed an
amended petition again making standard frivolous tax-protester
arguments. On Mar. 5, 1996, we ordered petitioners to file a
second amended petition stating:

     petitioners have failed to satisfy the requirements of
     Rule 34(b). The best that can be said of both the
     petition and amended petition is that petitioners have
     assigned error in respect of respondent's
     determinations. However, neither the petition nor the
     amended petition includes any statement of the facts on
     which petitioners base the assignments of error. * * *
     [Fn. ref. omitted.]

Petitioners filed a second amended petition that continued to
assert frivolous tax-protester arguments. Accordingly, on May
28, 1996, we ordered that, except for matters dealing with the
burden of proof in the second amended petition, "the petition,
amended petition, and second amended petition will be stricken in
their entirety".

     This is the second trial of this case. On May 5, 1997, we
held the first trial. On Mar. 4, 1998, we ordered that the
record from the first trial, including the petitioner's answering
brief, "will not be considered in deciding the merits of the case
unless and to the extent that the parties so stipulate". There
have been no stipulations to this effect.
                                 - 8 -

1991, $80,984.85 in 1992, $64,876.17 in 1993, and $54,253.78 in

1994.     Accordingly, on the basis of the record, we hold that Mr.

Bodwell earned total income for painting services from both Shell

and Town and Country as follows:    $51,619.64 in 1989, $112,640.08

in 1990, $85,361.57 in 1991, $80,984.85 in 1992, $64,876.17 in

1993, and $54,253.78 in 1994.

     C.    Community Property

     During the years in issue, petitioner and Mrs. Bodwell

resided in California, a community property State.    Married

persons who reside in a community property State are generally

each required to report one-half of their community income for

Federal income tax purposes.    See United States v. Mitchell, 403

U.S. 190 (1971); Drummer v. Commissioner, T.C. Memo. 1994-214,

affd. without published opinion 68 F.3d 472 (5th Cir. 1995).

Therefore, the income earned by petitioner for painting services

must be divided equally between petitioners during the years in

issue.

     D.    Deductions

     Where taxpayers have trade or business income, they

ordinarily have business and other deductions.    Deductions are

strictly a matter of legislative grace; however, petitioners bear

the burden of providing evidence to substantiate the claimed

deductions.     See Rule 142(a); INDOPCO, Inc. v. Commissioner, 503

U.S. 79, 84 (1992).     A taxpayer must keep sufficient records to
                                 - 9 -

establish their amount.   See sec. 6001.   Except in the case of

expenses subject to section 274, if the taxpayer's records are

inadequate or there are no records, we may still allow a

deduction based on a reasonable estimate.    See Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).     However, the

taxpayer must present evidence sufficient to provide some

rational basis upon which estimates of deductible expenses may be

made.   See Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).

In this case, petitioners provided no evidence at trial or

argument on brief that they are entitled to deductions from their

income.    Accordingly, we cannot estimate petitioners' deductions

under the Cohan rule.

Issue 2.   Self-Employment Tax

     On brief, respondent contends that petitioner "is liable for

self-employment tax on all of the income he earned."    Section

1401 imposes a tax on the self-employment income of every

individual.   An individual's self-employment income depends on

his "net earnings from self-employment".    Sec. 1402(b).   In

relevant part, the term "net earnings from self-employment" means

the gross income derived by an individual from any trade or

business carried on by such individual less allowable deductions

attributable to such trade or business.    See sec. 1402(a).

     Under section 1402(a)(5), where the income from a trade or

business is community income, as in this case, all the gross
                               - 10 -

income and deductions attributable to such trade or business

shall be treated, for purposes of self-employment tax, as the

gross income and deductions of the husband, unless the wife

exercises substantially all of the management and control of such

trade or business, in which case all such gross income and

deductions shall be treated as hers.    Accordingly, under section

1401, the spouse deemed to have management and control of the

business activity is subject to self-employment tax, and the tax

is computed on the total gross income less the total deductions

of the business, notwithstanding the attribution of one-half of

the income to the other spouse for income tax purposes.

     It is uncontested that petitioner, d.b.a. PAINT-SER LTD.,

managed and controlled the performance of the painting services

associated with PAINT-SER LTD.    On the basis of the record and

sections 1401 and 1402(a)(5), we find that all the self-

employment tax liability for the years 1989 through 1994 is

attributable to the business managed and controlled by

petitioner, and that he is liable for self-employment tax during

the years in issue on the income earned from these services.

Issue 3.    Failure To File Timely Tax Return or To Pay Tax

     Respondent determined that the addition to tax for failure

to file timely a tax return was applicable for each of the years

in issue.    It is uncontested that petitioners did not file tax

returns for any of the years in issue.    An income tax return must
                               - 11 -

be filed by all individuals receiving gross income in excess of

certain minimum amounts.    See sec. 6012; sec. 1.6012-1(a), Income

Tax Regs.   For the years 1989 through 1994, petitioners' gross

income, as defined in section 61(a), was well in excess of the

minimum amounts specified in section 6012.    Therefore,

petitioners were required to file Federal income tax returns for

the years 1989 through 1994.    See secs. 6011, 6012(a)(1)(A),

7701(a)(1); sec. 1.6012-1(a), Income Tax Regs.

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

file timely a return, unless the taxpayer establishes:     (1) The

failure did not result from willful neglect, and (2) the failure

was due to reasonable cause.    See United States v. Boyle, 469

U.S. 241, 245-246 (1985).    Petitioners bear the burden of proof

on this issue.    See Rule 142(a); Baldwin v. Commissioner, 84 T.C.

859, 870 (1985).    Petitioners failed to prove reasonable cause

for their failure to file.    Accordingly, petitioners are liable

for additions to tax for failure to file returns under section

6651(a) for the years 1989 through 1994.

Issue 4.    Failure To Pay Estimated Income Tax

     Respondent determined that petitioners were liable for the

addition to tax under section 6654(a) for failure to pay

estimated tax for the years 1989 through 1994.    Where payments of

tax, either through withholding or by making estimated quarterly

tax payments during the course of the year, do not equal the
                                - 12 -

percentage of total liability required under the statute,

imposition of the addition to tax under section 6654(a) is

automatic, unless petitioners show that one of the statutory

exceptions applies.    See Niedringhaus v. Commissioner, 99 T.C.

202, 222 (1992); Habersham-Bey v. Commissioner, 78 T.C. 304, 319-

320 (1982); Grosshandler v. Commissioner, 75 T.C. 1, 20-21

(1980).    Petitioners have provided no evidence that any of these

exceptions apply.     Therefore, we sustain respondent on this

issue.    The correct amounts of underpayment and additions to tax

under sections 6651(a) and 6654 will be determined under Rule

155.

       To reflect the foregoing,

                                           Decision will be entered

                                      under Rule 155.
