                      T.C. Memo. 2005-280



                    UNITED STATES TAX COURT



KENNETH W. STEJSKAL, SR. AND JANE STEJSKAL, ET AL.,1 Petitioners
        v. COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket Nos. 2275-04, 2276-04,      Filed December 5, 2005.
                2277-04, 2278-04.



    Joe Alfred Izen, Jr., for petitioners.

    Daniel N. Price, for respondent.




    1
      Cases of the following petitioners are consolidated
herewith: Stejskal Enterprises Trust, docket No. 2276-04; Total
Health Center Trust, docket No. 2277-04; and Bioactive Kansas
Trust, docket No. 2278-04.
                                  - 2 -

              MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:     Respondent determined deficiencies in and

additions to tax with respect to petitioners’ Federal income tax

for 1999 as follows:

                                       Additions to tax/penalties
                                         Internal Revenue Code
Docket No.         Deficiencies     Sec. 6651(a)(1)     Sec. 6662(a)

 2275-04             $112,919          $16,937.85           $22,583.80
 2276-04              347,030           52,054.50            69,406.00
 2277-04              374,189           56,128.35            74,837.80
 2278-04              373,621           56,043.15            74,724.20

Unless otherwise indicated, all section references are to the

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

Rule references are to the Tax Court Rules of Practice and

Procedure.   The deficiencies included “whipsaw” determinations

against petitioner trusts in the event that the validity of the

trusts was sustained by the Court.        However, in a stipulation of

settled issues, the parties agreed:

          1. Stejskal Enterprises Trust, Bioactive Kansas
     Trust, and Total Health Center Trust should be
     disregarded for tax purposes because the trusts were
     grantor trusts, lacked economic substance, or were
     assigned income attributable to Petitioners Kenneth W.
     Stejskal, Sr. and Jane Stejskal.

               *       *    *      *        *     *     *

          3. All income reported by Stejskal Enterprises
     Trust, Bioactive Kansas Trust, and Total Health Center
     Trust is properly reportable by Petitioners Kenneth W.
     Stejskal, Sr. and Jane Stejskal on their Individual
     Income Tax Return, Form 1040, on Schedule C, Profit or
     Loss from Business.
                               - 3 -

          4. All substantiated expenses allowed under the
     I.R.C. attributable to Stejskal Enterprises Trust,
     Bioactive Kansas Trust, and Total Health Center Trust
     are properly reportable by Petitioners Kenneth W.
     Stejskal, Sr. and Jane Stejskal on their Individual
     Income Tax Return, Form 1040.

At trial, petitioners conceded the addition to tax under section

6651(a)(1) and the penalty under section 6662 with respect to

Kenneth W. Stejskal, Sr., and Jane Stejskal (petitioners).   After

these concessions, the issues for decision are whether gross

receipts reported by Bioactive Kansas Trust were counted twice

when the income of the several trusts was reallocated to

petitioners and whether petitioners are entitled to cost of goods

sold in excess of that allowed by respondent.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioners resided in Texas at the time that they filed their

petitions.   In 1977, petitioners incorporated Stejskal

Enterprises, Inc.   Stejskal Enterprises, Inc., operated retail

stores in Kansas selling health supplements and other products.

Petitioners were corporate officers and were actively involved in

the operations of Stejskal Enterprises, Inc.

     Stejskal Enterprises, Inc., elected to be taxed as an S

corporation commencing on or about January 1, 1994.   During 1999,

the businesses formerly conducted by Stejskal Enterprises, Inc.,

were primarily conducted under the name Stejskal Enterprises
                               - 4 -

Trust, with a small portion conducted under the name Bioactive

Kansas Trust.   During 1999, the business was conducted through

retail stores in Kansas and one store in Texas.    Separate books

and bank accounts were maintained for the Kansas stores and the

Texas store.

     Bioactive Kansas Trust filed a Form 1041, U.S. Income Tax

Return for Estates and Trusts, for 1999.    On Schedule C, Profit

or Loss From Business, Bioactive Kansas Trust reported gross

receipts of $66,003.   The gross receipts reported by Bioactive

Kansas Trust were attributed to petitioners in the statutory

notice of deficiency sent to petitioners.

     Stejskal Enterprises Trust filed a Form 1041 for 1999.    On

Schedule C of that return, Stejskal Enterprises Trust reported

gross receipts of $781,121 and cost of goods sold of $397,751.

The cost of goods sold amount was computed on the Schedule C as

follows:

     Inventory at beginning of year            $171,607
     Purchases                                  448,052
       Total                                    619,659

     Less: Inventory at end of year             221,908
       Total cost of goods sold                $397,751

The trial balance for Stejskal Enterprises Trust as of

December 31, 1999, showed purchases in the amount of $397,751.

The beginning inventory reported on Schedule C coincided with the

amount reported at the end of 1998.    Neither the trial balance

nor any other record produced by petitioners showed an amount for
                               - 5 -

ending inventory corresponding with the amount reported on the

Schedule C.   The amount shown as ending inventory ($221,908) was

carried forward on other returns, including an amended return for

2000 filed for Stejskal Enterprises Trust in July 2004.

     Audit of petitioners’ individual returns and the returns for

the various trusts commenced in 2003.    Petitioners declined to

meet with the Internal Revenue Service agent.    The agent met with

petitioners’ daughter-in-law, Bonnie Stejskal, and Janet S.

Wilkerson (Wilkerson), the certified public accountant who

prepared returns for petitioners and for the trusts.    Bonnie

Stejskal signed the 1999 Forms 1041 for Stejskal Enterprises

Trust and Bioactive Kansas Trust.

     Among the adjustments to petitioners’ income made in the

notices of deficiency was to reduce purchases by Stejskal

Enterprises Trust to $397,480 and, consequently, to reduce cost

of goods sold to $347,179.

                              OPINION

     Paragraph 10 of the stipulation that was filed at the time

of trial set forth that “Petitioners concede that they bear the

burden of proof under I.R.C. sec. 7491 on all income, expense,

and deduction issues to be tried.”     Petitioners also conceded the

negligence penalty under section 6662 and the addition to tax for

failure to file timely under section 6651(a)(1).    The issues for
                               - 6 -

trial were identified in petitioners’ counsel’s opening statement

as follows:

     the question is whether all of the deposits from one
     account to another, who had as their source funds that
     have already been counted as a gross deposit for one
     account, have they been accounted for in the gross
     income figure. That’s one issue.

          Then the other issue about the cost of goods sold,
     I just say this. * * * So whatever cost of goods sold
     indicate that the testimony that you hear and when
     these items were purchased, we’re trying to deal with
     items that were purchased from January 1 through
     December 31 in the taxable year.

          We’re not trying to get any adjustments outside of
     that for anything, so we’re strict cash basis.

          And that’s it. That more or less outlines the
     testimony I expect to present.

     Nowhere in their posttrial briefs do petitioners point to

any evidence that would establish that the gross receipts

reported by Bioactive Kansas Trust were included more than once

in any calculation of gross receipts ultimately attributed to

petitioners.   Nowhere in their posttrial briefs do petitioners

point to any evidence of the correct amount of purchases to be

included in the cost of goods sold calculation for the businesses

during 1999.

     The arguments set forth in petitioners’ briefs do not

address the issue of purchases identified at the commencement of

trial.   Petitioners’ argument in their briefs with respect to the

cost of goods sold issue claims unexplained and unquantified

inventory adjustments, such as alleged “shrinkage”.   Yet no
                                - 7 -

“correction” of the 1999 ending inventory had been made on

filings as late as July 2004.    At the time of trial, Wilkerson

admitted that the amount shown on the tax return as purchases

during 1999 was an error, which she attributed to “an input error

into the computer program that I use for tax preparation by a

part-time person I had working for me.”    Wilkerson testified:

          Q [Petitioners’ counsel] As far as the cost of
     goods sold is concerned that’s on the return versus the
     one that’s on the workpapers or the accounting records,
     which one is accurate?

          A [Wilkerson]     The ones that–-in the accounting
     records.

          Q So that would mean that the return was
     overstated by $50,000?

           A   Yes.

Petitioners have not shown any error in respondent’s calculation

of cost of goods sold for 1999.

     In their briefs, petitioners disregard their concession at

trial of the negligence penalty, and they argue that the penalty

amount should be reduced.    Even if petitioners were not bound by

their stipulation, which they are, they have not identified, much

less established, any adjustments not due to negligence that

would justify reduction of the penalty.

     The record in these cases is thus devoid of any credible

evidence from petitioners that would substantiate any of their

claims.   The parties’ briefs devote substantial space to

quarreling with what the revenue agent did or did not do–-matters
                               - 8 -

irrelevant to the issues in these cases.     See Greenberg’s

Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974).

Petitioners’ concession in the stipulation that they bear the

burden of proof on all issues is consistent with their failure to

cooperate during the course of the audit, the absence of required

books and records during the audit or at trial, and their failure

to present credible evidence at trial.     See sec. 7491(a).

Because of their concession, it is unnecessary for us to make any

findings concerning events occurring during the audit.

     Respondent does not dispute that petitioners would be

entitled to offset against gross receipts any substantiated

deductions attributable to Bioactive Kansas Trust.       However,

petitioners produced only Bonnie Stejskal’s vague testimony,

which did not identify, explain, or quantify any of the alleged

deductions and expenses.   There is no evidentiary basis in this

record for any estimates of deductible expenses.     See Williams v.

United States, 245 F.2d 559 (5th Cir. 1957); Vanicek v.

Commissioner, 85 T.C. 731, 743 (1985).

     Petitioners have failed to prove that they are entitled to

any adjustments other than those set forth in the stipulations.

To give effect to the stipulations,


                                            Decisions will be entered

                                       under Rule 155.
