                      T.C. Memo. 2000-111



                      UNITED STATES TAX COURT



                 DELWIN D. HOUSER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 13202-97, 20120-97.   Filed March 30, 2000.



     Delwin D. Houser, pro se.

     Linda K. West, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     SWIFT, Judge:   In these consolidated cases, respondent

determined deficiencies in petitioner’s Federal income taxes and

additions to tax as follows:
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                                    Additions to Tax
     Year     Deficiency        Sec. 6651(f)    Sec. 6654
     1993      $192,457           $144,343        $8,064
     1994       181,722            136,291         9,430
     1995       122,177             91,633         6,625


     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.

     The issues for decision involve the amount of unreported

income that should be charged to petitioner, petitioner’s

liability under section 6651(f) for fraudulent failure to file

income tax returns, and petitioner’s liability under section 6654

for failure to make estimated income tax payments.


                           FINDINGS OF FACT

     Because petitioner failed to respond to respondent's

requests for admission, factual matter set forth in respondent's

requests for admission is deemed admitted.    See Rule 90(c).

     When the petition was filed, petitioner resided in Greenwell

Springs, Louisiana.   Petitioner and his stepdaughter and her

husband, Rebecca and Richard Adair, operate a roofing business

under the name H & H Sheet Metal (the roofing business).    The

evidence does not establish how ownership of the roofing business

is divided between petitioner and the Adairs.
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     Payments were received by the roofing business for roofing

services rendered for various general contractors, including Roof

Technologies and Vaughn Roofing.

     In 1993, 1994, and 1995, Roof Technologies and Vaughn

Roofing were billed by the roofing business the following total

amounts for roofing services rendered to them:


                    Year                 Amount
                    1993                $490,009
                    1994                 426,843
                    1995                 197,965


     Roof Technologies and Vaughn Roofing issued checks in favor

of petitioner that cumulatively total the above amounts billed to

them by the roofing business.   The checks were received and

deposited into a checking account (the checking account) on which

petitioner, petitioner’s wife, and Rebecca Adair were

signatories.

     For 1993, 1994, and 1995, the following schedule reflects

monthly and annual total deposits into the above checking

account:
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            Month           Total Deposits Into Checking Account
                              1993          1994          1995
          January              -0-        $ 21,346      $ 10,533
         February           $ 28,154        34,950        19,056
            March             25,824        12,150        23,104
            April             37,400        53,022        18,000
              May             20,131        44,211        21,372
             June             48,870        55,007        61,050
             July             34,149        37,700        49,146
           August             33,038        17,577           670
        September             52,000        53,619        24,465
          October             91,020        51,219        51,946
         November             72,000        56,580        17,492
         December             65,150        40,450        34,500
                    Total   $507,736      $477,903      $331,334


     For 1993, 1994, and 1995, petitioner did not file Federal

income tax returns.

     During respondent’s audit, petitioner did not cooperate with

respondent’s agents, and petitioner did not provide to

respondent’s agents the books and records relating to the roofing

business.    Also, petitioner mailed to respondent letters

reflecting frivolous tax protester arguments.

     On audit and in the notices of deficiency for the years in

issue, using the bank deposits method of proof and the specific

item method of proof for interest income earned on the checking

account balance, respondent determined that petitioner received

unreported taxable income in the following total amounts:


                         Year        Amount
                         1993       $517,236
                         1994        477,903
                         1995        333,780
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Because of lack of documentation provided during the audit,

respondent did not allow petitioner any deductions for expenses

relating to the roofing business, and respondent charged

petitioner with the above total amounts for each year as

unreported taxable income.

     For each year, respondent also determined that petitioner

was liable for the fraudulent failure to file addition to tax

under section 6651(f).   In the alternative, for each year,

respondent determined that petitioner was liable for the

negligent failure to file addition to tax under section

6651(a)(1).

     As a protective measure, on audit of Rebecca and Richard

Adair for 1993, 1994, and 1995, respondent charged to the Adairs

the same total amounts of unreported income relating to the bank

deposits that were charged to petitioner.


                                OPINION

     Under section 61, gross income includes all income from

whatever source derived.    See Commissioner v. Glenshaw Glass Co.,

348 U.S. 426, 431 (1955).    Taxpayers are required to maintain

sufficient records to allow respondent to determine their correct

Federal income tax liability.    See sec. 6001.   Taxpayers with

income above the exemption amount are required to file Federal

income tax returns.   See sec. 6012.
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     Generally, respondent’s determinations are presumed correct,

and taxpayers have the burden of proving that respondent’s

determinations are erroneous.   See Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).

     Generally, bank deposits are treated as prima facie evidence

of taxable income.   See Woodall v. Commissioner, 964 F.2d 361,

364 (5th Cir. 1992), affg. T.C. Memo. 1991-15; Parks v.

Commissioner, 94 T.C. 654, 658 (1990); Tokarski v. Commissioner,

87 T.C. 74, 77 (1986).

     Where taxpayers fail to present evidence regarding the

proper division between them of income received from a jointly

operated business, respondent and the courts may approximate the

amount of income to be charged to each taxpayer.     See Arouth v.

Commissioner, T.C. Memo. 1992-679.      An equal division of income

may be appropriate where taxpayers fail to provide any evidence

of a more appropriate division of the income.     See Cannon v.

Commissioner, 533 F.2d 959, 960 (5th Cir. 1976), affg. Ash v.

Commissioner, T.C. Memo. 1974-219; Puppe v. Commissioner, T.C.

Memo. 1988-311.

     Where evidence exists that taxpayers incurred expenses

relating to their business, it may be appropriate to allow an

estimate of the business expenses.      See Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85
                                 - 7 -

T.C. 731, 743 (1985); Sherrer v. Commissioner, T.C. Memo. 1999-

122.

       For 1993, 1994, and 1995, IRS Publication 1136, Statistics

of Income Bulletin, reflected the following average net profit

margin for roofing contractors:


                                     Average
                                    Net Profit
                        Year          Margin
                        1993           20%
                        1994           25%
                        1995           18%


       As indicated, respondent’s tax deficiencies against

petitioner are based on deposits to the checking account with no

allowance for labor and material costs which obviously were

incurred in the roofing business.     We conclude that for each year

it is appropriate to apply to the checking account deposits that

are specifically identifiable as gross receipts of the roofing

business (namely, those deposits that represent the checks

received from Roof Technologies and Vaughn Roofing) the average

net profit margin established by respondent for roofing

contractors and to allow estimated business expense deductions

for the business expenses so calculated.

       Petitioner has presented no evidence as to how income from

the roofing business should be divided between himself and

Rebecca and Richard Adair.     We conclude that one-half of the
                                           - 8 -

 income determined under the bank deposits method of proof is

 taxable to petitioner.

           In the related case of Adair v. Commissioner, T.C. Memo.

 2000-110, docket Nos. 12103-97 and 20465-97, also filed this

 date, we charge the Adairs with the other half of the income of

 the roofing business relating to deposits into the checking

 account.

           For each year in issue, our calculations of petitioner’s

 taxable income are set forth below.                The bank deposits that are

 identified as gross receipts of the roofing business are

 multiplied by the average net profit margin for roofing

 contractors, producing a partial taxable income figure for the

 roofing business.          Added to this partial net income figure are

 the unidentified bank deposits to calculate total taxable income

 relating to the deposits to the checking account, one-half of

 which is then charged to petitioner.

       Bank Deposits                    Net Income
       Identified as                    of Roofing
       Gross Receipts      Average      Business on     Unidentified                One-half
         of Roofing       Net Profit    Identified          Bank       Taxable    Charged to
Year      Business          Margin     Bank Deposits      Deposits     Income*    Petitioner
1993      $490,009            20%         $ 98,002        $ 17,727     $115,875      $57,938
1994       426,843            25%          106,711          51,061      157,939       78,970
1995       197,965            18%           35,634         133,369      169,032       84,516

       *    As indicated, also included in the taxable income for each year is interest
            income relating to the checking account in the respective amounts of $146,
            $167, and $29.



           Under section 6651(f), an addition to tax of up to 75

 percent applies where the failure to file a Federal income tax

 return is due to fraudulent conduct.                  See DiLeo v. Commissioner,
                                 - 9 -

959 F.2d 16 (2d Cir. 1992), affg. 96 T.C. 858, 873 (1991).

Respondent has the burden of proving fraud by clear and

convincing evidence.   See sec. 7454(a); Rule 142(b); Bagby v.

Commissioner, 102 T.C. 596, 607 (1994).

     Indicia of fraud include:    (1) Understatements of income;

(2) inadequate books and records; (3) failure to file tax

returns; (4) implausible or inconsistent explanations; and

(5) lack of cooperation with tax authorities.    See Bradford v.

Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.

Memo. 1984-601; Clayton v. Commissioner, 102 T.C. 632, 647

(1994); Petzoldt v. Commissioner, 92 T.C. 661, 699-700 (1989);

Recklitis v. Commissioner, 91 T.C. 874, 910 (1988).

      Petitioner has not alleged any nontaxable sources of

income, and the roofing business constitutes the likely taxable

source of the deposits into the checking account.

     With regard to fraudulent intent, the evidence establishes

for each year in issue that petitioner realized significant

income that he failed to report, that petitioner failed to

provide to respondent’s agents books and records relating to the

roofing business, that petitioner failed to file income tax

returns, that petitioner failed to pay significant tax

liabilities that he owed, that petitioner did not cooperate with

respondent, and that petitioner made erroneous tax protester

objections to the tax laws.   The evidence establishes that
                             - 10 -

petitioner fraudulently failed to file his Federal income tax

returns for 1993, 1994, and 1995.

     Section 6654(a) provides for an addition to tax for failure

to make timely estimated income tax payments.   Petitioner has not

proven that an exception applies, and for each year in issue,

petitioner is liable for the section 6654 addition to tax.

     To reflect the foregoing,

                                         Decisions will be entered

                                    under Rule 155.
