                        T.C. Memo. 1998-316


                      UNITED STATES TAX COURT



                DENNIS R. ANDREWS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18990-96.             Filed September 2, 1998.



     Thomas S. Botkin and Ralph A. Caruso II,1 for petitioner.

     Brian M. Harrington, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     WELLS, Judge:   Respondent determined deficiencies in and

additions to petitioner's Federal income taxes as follows:




1
     After the trial of this case, Ralph A. Caruso II filed a
Motion to Withdraw which was granted by the Court.
                                 - 2 -


                                 Additions to Tax
Year        Deficiency      Sec. 6651(a)(1)     Sec. 6654

1991        $13,997           $3,499.25           $811.54
1992         10,926            2,731.50            476.54
1993          9,575            2,393.75            401.18
1994          9,406            2,351.50            488.12

       Unless otherwise indicated, 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.

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

the notice of deficiency is arbitrary and excessive and therefore

lacks presumptive correctness; (2) whether petitioner is liable

for the deficiencies in taxes as determined by respondent; and

(3) whether petitioner is liable for the additions to tax as

determined by respondent.

                          FINDINGS OF FACT

       The parties submitted the instant case fully stipulated.

The stipulated facts are incorporated herein by reference and are

found as facts in the instant case.      Petitioner resided in

Warsaw, Indiana, at the time he filed his petition.

       In a letter to respondent dated July 18, 1994, petitioner

stated that he is not a resident or citizen of the United States,

but that he is a "Natural human being of the Indiana Republic",

questioned respondent's delegation of authority to operate in a

foreign capacity in the "united American Republic (Indiana)", and
                                - 3 -


stated that he had no income from a source within the United

States or effectively connected to a trade or business within the

United States.    On July 19, 1994, petitioner executed a document

entitled "AFFIDAVIT OF REVOCATION & RESCISSION OF SIGNATURE AND

POWER OF ATTORNEY" in which document he stated that he revoked

all signatures on any and all instruments related to his Social

Security number and his Federal income tax returns.   On April 18,

1995, respondent received from petitioner a document entitled

"NOTICE:   A SPECIAL LEGAL ADMINISTRATIVE EVIDENTIARY INSTRUMENT"

in which document petitioner asserted that he does not reside and

never resided "in this state", "in the state" or "any federal

area", that he is not a "U.S. Citizen", "U.S. Person", or "U.S.

Individual", and that he "is a sovereign Indiana citizen, living

and working in the Indiana Republic, which is distinct and

separate from any Federal area."

     Petitioner did not file Federal income tax returns for the

years in issue.   On January 5, 1996, respondent sent a letter to

petitioner concerning his failure to file returns for the years

in issue and requesting that he either file returns or assist the

tax auditor in preparing returns for him.   Respondent's letter

also indicated that if petitioner failed to cooperate, returns

would be prepared based upon information received by the Internal

Revenue Service (IRS).   On January 26, 1996, respondent mailed to

petitioner a report proposing adjustments for the years in issue.
                                    - 4 -


       In response to respondent's January 26, 1996, letter,

petitioner, in a discursive letter to respondent dated February

22, 1996, claimed "Nontaxpayer" status, maintained that "Title 26

is NOT positive law", refused to "volunteer to be a taxpayer",

asserted that he was outside the jurisdiction of the IRS and the

Courts, and claimed that respondent's attempt to collect money

from him is "straight fraud".

       Respondent's Information Return Master File (IRMF) indicates

that several payors issued information returns to petitioner as

follows:

                                                Type of
Tax Year      Payor                 Form        Income                Amount

1991       The Jada Co. Inc.        W-2         Wages                 $2,990
1991       The Jada Co. Inc.        1099-MISC   Rents                 10,200
1991       Starkey Lab., Inc.       1099-MISC   Nonemployee   Comp.    2,400
1991       Starkey Lab., Inc.       1099-MISC   Nonemployee   Comp.      200
1992       Starkey Lab., Inc.       1099-MISC   Nonemployee   Comp.    3,900
1992       Matol Botanical Inter.   1099-MISC   Nonemployee   Comp.       63

Respondent's IRMF also indicates that one payee, Inland Mortgage

Corporation, reported, on Form 1098, that petitioner paid

mortgage interest during the years in issue as follows:

                       Tax
                       Year         Amount

                       1991         $6,521
                       1992          6,000
                       1993          6,973
                       1994          6,380

       On June 4, 1996, respondent issued to petitioner the

statutory notice of deficiency for the years in issue.
                                - 5 -


In determining petitioner's tax deficiencies, respondent utilized

the information as set forth above relating to the Forms W-2,

1099, and 1098, and certain Consumer Expenditure Surveys released

by the U.S. Department of Labor, Bureau of Labor Statistics.



                               OPINION

1.   Burden of Proof

      The threshold issue for decision concerns the placement of

the burden of proof.   Petitioner argues that although

respondent's determinations contained in a notice of deficiency

are generally presumed to be correct, when respondent's

determinations are based upon an alleged underreporting of income

the presumption of correctness "evaporates", citing Zuhone v.

Commissioner, 883 F.2d 1317 (7th Cir. 1989), affg. T.C. Memo.

1988-142.   Accordingly, petitioner contends, the burden of proof

in the instant case has shifted to respondent.   Respondent

counters that the burden of proof remains with petitioner because

evidence linking petitioner to an income-producing activity has

been provided, and, in any event, that petitioner does not deny

receiving unreported income.

      In general, the Commissioner's determinations contained in a

notice of deficiency are entitled to a presumption of

correctness, and the taxpayer has the burden of proving them
                               - 6 -


incorrect.2   Rule 142(a); United States v. Janis, 428 U.S. 433,

441-442 (1976); Welch v. Helvering, 290 U.S. 111, 115 (1933);

Gold Emporium, Inc. v. Commissioner, 910 F.2d 1374, 1378 (7th

Cir. 1990), affg. Malicki v. Commissioner, T.C. Memo. 1988-559.

If, however, the taxpayer demonstrates that the Commissioner's

determinations are arbitrary and excessive or without rational

foundation, then the presumption no longer applies.3   Pittman v.

2
     The Internal Revenue Service Restructuring & Reform Act of
1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112 Stat. 685, 726-
727, added sec. 7491, which shifts the burden of proof to the
Secretary in certain circumstances.
     However, sec. 7491 is applicable to "court proceedings
arising in connection with examinations commencing after the date
of the enactment of this Act." RRA 1998, sec. 3001(c). The
Internal Revenue Service Restructuring & Reform Act of 1998 was
enacted on July 22, 1998, and, accordingly, neither party argues
that sec. 7491 is applicable to the instant case.
3
     On brief, petitioner cites Anastasato v. Commissioner, 794
F.2d 884 (3d Cir. 1986), vacating and remanding T.C. Memo. 1985-
101, for the proposition that respondent bears the burden of
proving that the deficiency notice is not arbitrary or erroneous
where it is based upon alleged unreported income. Petitioner,
however, misconstrues Anastasato. Respondent does not have the
burden to prove that the deficiency notice is not arbitrary;
rather, petitioner has the burden to prove that the deficiency
notice is arbitrary. See Anastasato v. Commissioner, 794 F.2d
884, 887 (3d Cir. 1986) ("If the taxpayer rebuts the presumption
by showing that it is arbitrary and erroneous * * * the
presumption disappears."); see also Pittman v. Commissioner, 100
F.3d 1308, 1313 (7th Cir. 1996) ("Thus, to rebut the presumption
of correctness and shift the burden to the Commissioner, the
taxpayer must demonstrate that the Commissioner's deficiency
assessment lacks a rational foundation or is arbitrary and
excessive." (Citations omitted.)), affg. T.C. Memo. 1995-243;
Gold Emporium, Inc. v. Commissioner, 910 F.2d 1374, 1378 (7th
Cir. 1990) ("If the taxpayer demonstrates that the assessment is
arbitrary and excessive or without factual foundation, then the
presumption no longer applies." (Citation omitted.)), affg.
                                                   (continued...)
                                - 7 -


Commissioner, 100 F.3d 1308, 1317 (7th Cir. 1996), affg. T.C.

Memo. 1995-243; Gold Emporium, Inc. v. Commissioner, supra at

1378; Zuhone v. Commissioner, supra at 1325-1326; Ruth v. United

States, 823 F.2d 1091, 1094 (7th Cir. 1987).

     In asking this Court to hold that the notice of deficiency

is arbitrary, petitioner is asking us to explore the

underpinnings of that notice.   As a general rule, we will not

look behind the statutory notice to examine the evidence used in

making the determination.   Petzoldt v. Commissioner, 92 T.C. 661,

688 (1989); Llorente v. Commissioner, 74 T.C. 260, 264 (1980),

affd. in part, revd. in part and remanded 649 F.2d 152 (2d Cir.

1981); Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324,

327 (1974).   Courts have identified an exception to the general

rule where the Commissioner, in a case involving unreported

income, introduces no direct evidence but rests on the

presumption of correctness and the taxpayer challenges the



3
 (...continued)
Malicki v. Commissioner, T.C. Memo. 1988-559; Zuhone v.
Commissioner, 883 F.2d 1317, 1325, 1326 (7th Cir. 1989) ("If the
taxpayer establishes that the Commissioner's determination is
arbitrary, courts generally shift the burden of production to the
Commissioner." (Citation omitted.) "If the taxpayer is
successful in showing that the assessment is arbitrary and
excessive or without factual foundation, the presumption drops
from the case."), affg. T.C. Memo. 1988-142; Ruth v. United
States, 823 F.2d 1091, 1094 (7th Cir. 1987) ("when the assessment
is shown to be 'without rational foundation' or 'arbitrary and
erroneous,' the presumption should not be recognized." (Citations
omitted.)).
                                - 8 -


deficiency on the grounds that it is arbitrary.4   Portillo v.

Commissioner, 932 F.2d 1128, 1133 (5th Cir. 1991), affg. in part,

revg. in part and remanding T.C. Memo. 1990-68; Schad v.

Commissioner, 87 T.C. 609, 618 (1986), affd. without published

opinion 827 F.2d 774 (11th Cir. 1987); Llorente v. Commissioner,

supra at 264; see also Senter v. Commissioner, T.C. Memo. 1995-

311.

       Petitioner relies on Portillo as support for his position

that the notice of deficiency in the instant case is arbitrary

and therefore not entitled to the normal presumption of

correctness.    The Court of Appeals for the Fifth Circuit,

however, has recently distinguished Portillo in Parker v.

Commissioner, 117 F.3d 785 (5th Cir. 1997).    As in the instant

case, the taxpayers in Parker failed to file income tax returns

for the years in issue, yet relied upon Portillo for the

proposition that the usual presumption of correctness should not

apply because the Commissioner's determinations of unreported

income were based upon Forms 1099 and W-2.    The Court of Appeals

for the Fifth Circuit stated:

       In Portillo, the IRS issued a notice of deficiency when
       it discovered that the taxpayer had reported
       substantially less income from a particular payor than

4
     "[T]he reason behind the burden-shifting principle in an
unreported income case is that the taxpayer bears the difficult
burden of proving the non-receipt of income." Sealy Power, Ltd.
v. Commissioner, 46 F.3d 382, 386 (5th Cir. 1995), affg. T.C.
Memo. 1992-168.
                              - 9 -


     that payor had reported in its Form 1099. We found
     that the Commissioner "arbitrarily decided to attribute
     veracity to [the third-party payor] and assume that
     [the taxpayer's] Form 1040 was false." [Portillo v.
     Commissioner, 932 F.2d at 1134.] In Portillo, the
     Commissioner's determination was arbitrary because the
     Commissioner offered no factual basis for accepting one
     sworn statement, the Form 1099, while rejecting another
     sworn statement, the taxpayer's Form 1040.

          Portillo did not hold that the IRS must conduct an
     independent investigation in all tax deficiency cases.
     In this case, the Commissioner has not arbitrarily
     found the third-party forms credible: the Parkers
     never filed a Form 1040 or any other document in which
     they swore that they did not receive the payments in
     question. The Commissioner has no duty to investigate
     a third-party payment report that is not disputed by
     the taxpayer.

Parker v. Commissioner, supra at 786-787.5

     Like the taxpayers in Parker, petitioner in the instant case

never filed a Form 1040 or any other document in which he swore

that he did not receive unreported income.   We find it

significant that nowhere in petitioner's petition, trial

5
     Petitioner does not cite Parker v. Commissioner, 117 F.3d
785 (5th Cir. 1997), in his trial memorandum, brief, or reply
brief. On brief, petitioner cites Portillo v. Commissioner, 932
F.3d 1128 (5th Cir. 1991), affg. in part, revg. in part and
remanding T.C. Memo. 1990-68, for the proposition that
"Respondent is not allowed to blindly accept the veracity of tax
forms submitted by third parties when rendering proposed
deficiencies", but "is required to investigate the books,
receipts and other records of the third parties submitting these
forms to determine whether the forms are correct." Petitioner's
failure to mention the holding in Parker, that no such
investigation is required where, as in the instant case, the
taxpayer does not file a Form 1040 or other sworn document
denying receipt of unreported income, does little to instill
faith in petitioner's candor toward the Court. We generally
expect more from counsel representing parties appearing before
this Court.
                              - 10 -


memorandum, brief, or reply brief does he state any facts tending

to indicate that he did not receive unreported income.6

Petitioner's sole strategy in the instant case has been to

obfuscate rather than enlighten.

     Moreover, respondent has at least established in the instant

case a minimal predicate for the determination.   The evidence

stipulated by the parties indicates that petitioner received

wages, rents, and nonemployee compensation from several payors

and that he made interest payments on a home mortgage.

Additionally, the use of data compiled by the Bureau of Labor

Statistics is an acceptable and reasonable method of income

reconstruction.   Pollard v. Commissioner, 786 F.2d 1063, 1066

(11th Cir. 1986), affg. T.C. Memo. 1984-536; Burgo v.

Commissioner, 69 T.C. 729, 749 (1978); Cupp v. Commissioner, 65

T.C. 68 (1975), affd. without published opinion 559 F.2d 1207 (3d

Cir. 1977); Giddio v. Commissioner, 54 T.C. 1530, 1532 (1970).

It was not arbitrary for respondent to determine that petitioner

had income in an amount at least equal to the normal cost of




6
     See White v. Commissioner, T.C. Memo. 1997-459 ("We observe
that upon receipt of a notice of deficiency determining
unreported income, a taxpayer can reasonably be expected to
support an allegation that the Commissioner erred in determining
a deficiency in tax by stating facts tending to show that the
taxpayer was unemployed, earned a lower amount of income, or
otherwise did not receive the payments reported to respondent by
third-party payors.").
                                - 11 -


supporting his family.7   "All that is required to support the

presumption is that the Commissioner's determination have some

minimal factual predicate."     Pittman v. Commissioner, 100 F.3d at

1317.

     The evidence of unreported income offered by respondent is

uncontroverted by petitioner.    Consistent with Parker v.

Commissioner, supra, we hold that the presumption of correctness

properly attached to respondent's determinations, and petitioner

bears the burden of demonstrating that they are erroneous.    See

White v. Commissioner, T.C. Memo. 1997-459 ("In short,

petitioner's assertion that respondent erred in relying on

reports from third-party payors in determining the deficiencies

in dispute, standing alone, carries no weight.").8

7
     The parties stipulated that during the years in issue
petitioner "was married and was legally responsible for one
dependant [sic] child."
8
     Sec. 6201(d),amended by the Taxpayer Bill of Rights 2, Pub.
L. 104-168, sec. 602, 110 Stat. 1452, 1463 (1996), is effective
as of July 30, 1996. Sec. 6201(d) provides that if the taxpayer,
in a court proceeding, asserts a reasonable dispute with respect
to the income reported on an information return, and fully
cooperates with the Commissioner, then the Commissioner shall
have the burden of producing reasonable and probative information
in addition to the information return. See McQuatters v.
Commissioner, T.C. Memo. 1998-88; Dennis v. Commissioner, T.C.
Memo. 1997-275; Hardy v. Commissioner, T.C. Memo. 1997-97.
     Neither party addressed the applicability vel non of sec.
6201(d) to the instant case. Sec. 6201(d) does not apply to
petitioner's 1993 and 1994 taxable years because there was no
income reported on an information return for those years. As for
petitioner's 1991 and 1992 taxable years, we conclude that
petitioner has not asserted a reasonable dispute with respect to
                                                   (continued...)
                              - 12 -


2.   Whether Petitioner Is Liable for the Deficiencies

      Petitioner presented no affirmative evidence that

respondent's determinations are erroneous.   On this record, we

sustain respondent's determinations.

3.   Section 6651(a)(1) Failure To File Timely

      For each year in issue respondent determined that petitioner

is liable for the addition to tax under section 6651(a)(1) for

his failure to file a Federal income tax return.   Section

6651(a)(1) provides for an addition to tax of 5 percent of the

tax required to be shown on the return for each month or fraction

thereof for which there is a failure to file, not to exceed 25

percent.   The addition to tax for failure to file a return timely

will be imposed if a return is not timely filed unless the

taxpayer shows that the delay was due to reasonable cause and not

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

      There is no evidence in the record that suggests that

petitioner's failure to file a Federal income tax return for any

year in issue was due to reasonable cause and not due to willful


8
 (...continued)
any item of income reported on an information return.
Petitioner: (1) Never filed a Form 1040 or any other document in
which he swore that he did not receive unreported income; (2)
failed to state any facts tending to indicate that he did not
receive unreported income; and (3) failed to deny that he
received any item of income reported on an information return.
Furthermore, petitioner offered no evidence that he fully
cooperated with respondent, and the limited evidence in the
record suggests otherwise.
                              - 13 -


neglect.   To the contrary, his asserted reasons for refusing to

file returns are patently frivolous.     Consequently, we sustain

respondent's determination that petitioner is liable for the

additions to tax under section 6651(a)(1) for the years 1991

through 1994.

4.   Section 6654 Failure To Pay Estimated Tax

      For each year in issue respondent determined that petitioner

is liable for the additions to tax under section 6654 for his

failure to make estimated tax payments.     Where payments of tax,

either through withholding or by making estimated quarterly tax

payments during the course of the year, do not equal the amount

required under the statute, imposition of the addition to tax

under section 6654 is automatic, unless the taxpayer shows that

one of the statutory exceptions applies.      Niedringhaus v.

Commissioner, 99 T.C. 202, 222 (1992); Grosshandler v.

Commissioner, 75 T.C. 1, 20-21 (1980).     Petitioner bears the

burden to show qualification for such exception.       Habersham-Bey

v. Commissioner, 78 T.C. 304, 319-320 (1982).       The record does

not show that he qualifies for any exception; therefore, we hold

that he is liable for the additions to tax under section 6654 for

the 1991 through 1994 taxable years.

      To reflect the foregoing,

                                       Decision will be entered

                                  under Rule 155.
