                         T.C. Memo. 1996-496



                       UNITED STATES TAX COURT


          JOSEPH M. AND SYBIL G. KAWAL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5850-95.                  Filed November 4, 1996.


     Joseph M. Kawal, pro se.

     Rosemarie D. Camacho, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     CHIECHI, Judge:    Respondent determined the following defi-

ciency in, addition to, and accuracy-related penalty on petition-

ers' income tax:
                                - 2 -

                       Addition to Tax    Accuracy-Related Penalty
                            Section                Section
    Year Deficiency       6651(a)(1)1              6662(a)
    1992    $14,735          $1,335                 $2,947
        The issues for decision are:

       (1) Do petitioners have unreported income for 1992?   We hold

that they do to the extent stated herein.

       (2) Are petitioners liable for self-employment tax under

section 1401(a)?    We hold that they are to the extent stated

herein.

       (3) Are petitioners liable for the addition to tax under

section 6651(a)(1)?    We hold that they are to the extent stated

herein.

       (4) Are petitioners liable for the accuracy-related penalty

under section 6662(a)?    We hold that they are to the extent

stated herein.

                           FINDINGS OF FACT

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

       Petitioners resided in Hollis, New York, at the time the

petition was filed.

       Although petitioners did not request an extension of time

within which to file their Federal income tax return for 1992,

they filed a joint U.S. individual income tax return for that

year (1992 return) on May 24, 1993.      Petitioners reported $8,938

1
   All section references are to the Internal Revenue Code in
effect for the year at issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 3 -

of income in their 1992 return (reported income).   The reported

income consisted of $4,345 of income from petitioner Joseph M.

Kawal's part-time work for Linden Lumber and Home Center (Linden

Lumber), $4,568.38 of income from petitioner Sybil G. Kawal's

work for Best Care Agency (Best Care), and $25 of interest

income.   During 1992, Linden Lumber paid petitioner Joseph M.

Kawal in cash and Best Care paid petitioner Sybil G. Kawal by

check.

     During 1992, petitioner Joseph M. Kawal2 also worked part-

time for Jimmy Messenger Service, Inc. (JMS), a delivery service

owned and operated at all relevant times by Mr. Jimmy Mahabir,

a.k.a. Malcolm Mahabir (Mr. Mahabir), for which petitioner had

begun working in 1990 at a time when he was an unemployed,

illegal alien.   During 1992, petitioner worked for JMS 2 to 2-1/2

hours during the evenings, 5 evenings a week, took no vacations

and no holidays, and earned $175 a week from JMS (JMS compensa-

tion).

     During 1992, petitioners maintained a checking account at

Manufacturers Hanover Bank (checking account), which was in the

name of petitioner and to which petitioners had sole access.

During that year, petitioners made deposits into the checking

account that totaled $45,906 (bank deposits).   During 1992,

petitioners did not usually deposit into the checking account any

2
   Hereinafter, references to petitioner in the singular are to
petitioner Joseph M. Kawal.
                                - 4 -

of the income that petitioner received from Linden Lumber.

During that year, generally, the amounts of the deposits into the

checking account varied and the timing of those deposits was

neither consistent nor regular.   To illustrate, the bank state-

ments for the checking account (bank statements) for September

and October 1992 showed the following deposits:

              Date of Deposit      Amount of Deposit
             Sept. 11, 1992             $1,500.00
             Sept. 15, 1992              1,750.00
             Sept. 21, 1992              1,567.52
             Oct. 1, 1992                1,076.28
             Oct. 2, 1992                1,021.00
             Oct. 13, 1992               1,130.66
             Oct. 23, 1992               1,268.77
             Oct. 28, 1992                 838.84
     When petitioner began working for JMS in 1990, pursuant to

an arrangement that Mr. Mahabir had with him (Mr. Mahabir's

arrangement), petitioner received checks from JMS (JMS checks) in

amounts that exceeded the amount of compensation to which he was

entitled for his part-time work there.    Under that arrangement,

in 1990 and throughout the period during which petitioner did not

have a bank account, petitioner cashed the JMS checks at Linden

Lumber, retained an amount equal to his JMS compensation, and

used the balance (i.e., the excess of each JMS check over the

amount of petitioner's JMS compensation, which excess is herein-

after referred to as Mr. Mahabir's money) for the benefit of Mr.

Mahabir, his family, and/or certain of Mr. Mahabir's acquain-

tances by, inter alia, returning it to Mr. Mahabir and/or his
                               - 5 -

family in the form of checks or cash, paying grocery bills for

which Mr. Mahabir and/or his family were, or agreed to be,

responsible, and paying other people to whom Mr. Mahabir owed

money.   Sometime after 1990, when petitioner opened the checking

account, he began depositing the JMS checks into that account,

instead of cashing them at Linden Lumber.    However, in all other

respects, Mr. Mahabir's arrangement with petitioner continued

through 1992.

     When petitioner obtained a Social Security number (Social

Security number) in either 1991 or 1992, he asked Mr. Mahabir to

use it, but Mr. Mahabir would not do so.    Around 1992 or 1993,

petitioner, who was concerned that he was depositing Mr.

Mahabir's money into petitioners' checking account and using it

on behalf of Mr. Mahabir, his family, and/or certain of Mr.

Mahabir's acquaintances and who believed that Mr. Mahabir would

fire him if he refused to continue complying with Mr. Mahabir's

arrangement, raised his concerns with Mr. Mahabir and informed

him that he wanted to discontinue Mr. Mahabir's arrangement.    At

that point, Mr. Mahabir fired him.

     JMS prepared a Form 1099-MISC (Form 1099) that showed that

Joseph Kawal received $49,200 in nonemployee compensation from

JMS during 1992.   The Social Security number shown on the Form

1099 is not the Social Security number of petitioner.
                                 - 6 -

                              OPINION

     Petitioners bear the burden of proving that respondent's

determinations in the notice of deficiency are erroneous.    Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Unreported Income

     The parties agree that during 1992 petitioner received

compensation from JMS, which he did not report in petitioners'

1992 return, in an amount equal to at least $175 a week, or

$9,100 for that year.3   Their dispute is whether during 1992

petitioner received more than $9,100 in compensation from JMS.

While acknowledging that during 1992 he received more than $9,100

from JMS, petitioner contends that the amount that he received in

excess of $9,100 belonged to Mr. Mahabir and that, pursuant to

Mr. Mahabir's arrangement, petitioner was required to use such

excess for the benefit of Mr. Mahabir, his family, and/or certain

of Mr. Mahabir's acquaintances.    Respondent contends that the

Form 1099, as well as petitioners’ bank statements, shows that

petitioner was permitted to retain for his benefit all money

received from JMS during 1992.

     Our resolution of this case depends upon our assessment of

the credibility of the following witnesses who testified at


3
   Petitioners reported in their 1992 return all income received
from Linden Lumber and Best Care.
                                 - 7 -

trial:    Petitioner;4 Kenny Jaimungal (Mr. Jaimungal); Mr.

Mahabir; his wife, Germaine Mahabir (Mrs. Mahabir); and his son,

Jason Mahabir (Jason Mahabir).    We do not question the general

credibility of either petitioner or Mr. Jaimungal.    However, we

have serious questions about the general credibility of Mr.

Mahabir, Mrs. Mahabir, and Jason Mahabir.

     We believed petitioner's testimony, and have found as facts,

that during 1992 petitioner worked at JMS 2 to 2-1/2 hours during

the evenings, 5 evenings a week, for which he was paid $175 a

week.    Mr. Jaimungal's testimony corroborated petitioner's

testimony with respect to the number of hours during 1992 that

petitioner worked each evening for JMS.

     We did not believe the testimony of Mr. Mahabir or his son5

that during 1992 petitioner was required to be available to make

deliveries for JMS from approximately 6 p.m. to 7 a.m. each day

(i.e., he was required to be "on call").    Nor did we believe the

testimony of Mr. Mahabir that petitioner was compensated in the

amount of $49,200 during 1992 for being on call during those

times.    In this connection, Mr. Mahabir testified that, as the

owner of JMS, he typically had income of about $50,000 a year.

We are incredulous that JMS paid petitioner $49,200 in compensa-



4
   Petitioner Sybil G. Kawal was present during the trial, but
she did not testify.
5
   The testimony of Mrs. Mahabir was completely evasive, vague,
and unreliable.
                                 - 8 -

tion during 1992, when Mr. Mahabir, the owner of JMS, had annual

income from that business of only about $50,000.

     If, as Mr. Mahabir and his son Jason Mahabir testified,

petitioner was required during 1992 to be on call on a regular

basis for 13 hours a day, 5 days a week, we presume that he would

have been paid at regular intervals in equal amounts for those

services.   However, petitioners' bank statements for 1992 showed

that, generally, the amounts of the deposits into the checking

account varied and the timing of those deposits was neither

consistent nor regular.

     We also note that there is documentary evidence in the

record that petitioner used Mr. Mahabir's money for the benefit

of Mr. Mahabir and his family.    For example, the record contains

a check written by petitioner and endorsed by Mrs. Mahabir.    The

record also contains two checks, each in an amount in excess of

$1,000, that were payable to S&B West Indian Grocery Store and

that petitioner testified, and we have found as facts, were used

to pay grocery bills for which Mr. Mahabir and/or his family

were, or agreed to be, responsible.

     Based on the entire record before us, we find that during

1992 petitioner received compensation for his part-time work at

JMS in the amount of $175 a week that petitioners did not report

as compensation in their 1992 return.    Accordingly, petitioners

have unreported income from JMS for 1992 of $9,100.
                                 - 9 -

Self-employment Tax

     Respondent determined that the income that petitioner

received from JMS during 1992 is self-employment income and that

petitioners are liable for self-employment tax on that income

under sections 1401 and 1402.    Except for the amount of compensa-

tion that petitioner received from JMS during 1992, petitioners

do not contest respondent's determination under sections 1401 and

1402.

     On the record before us, we find that petitioners are liable

for 1992 for self-employment tax on $9,100 of income from JMS

that they did not report in their 1992 return.

Section 6651(a)(1)

     Respondent determined that petitioners are liable for 1992

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

file timely their 1992 return.    Except for the amount of compen-

sation that petitioner received from JMS during 1992, petitioners

do not contest respondent's determination under section

6651(a)(1).

     On the record before us, we find that petitioners are liable

for 1992 under section 6651(a)(1) for the addition to the tax

attributable to $9,100 of income from JMS that they did not

report in their 1992 return.

Section 6662(a)

     Respondent determined that petitioners are liable for 1992

for the accuracy-related penalty under section 6662(a) because
                              - 10 -

petitioners were negligent in failing to report petitioner's

income from JMS.   Except for the amount of the compensation that

petitioner received from JMS during 1992, petitioners do not

contest respondent's determination under section 6662(a).

     On the record before us, we find that petitioners are liable

for 1992 under section 6662(a) for the accuracy-related penalty

on the underpayment of tax attributable to $9,100 of income from

JMS that petitioners did not report in their 1992 return.

     To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
