                     T.C. Summary Opinion 2010-41



                        UNITED STATES TAX COURT



                     TOMASZ KOZIEJ, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 28875-08S.            Filed April 12, 2010.



        Tomasz Koziej, pro se.

        Michael T. Shelton, for respondent.



     DEAN, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.    Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other

case.     Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the years in
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issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     Respondent determined the following deficiencies

in, and the following accuracy-related penalties under section

6662(a) on, petitioner’s Federal income taxes:

                                           Accuracy-Related Penalty
     Year           Deficiency                   Sec. 6662(a)

     2004             $813                          $162.60
     2005            3,492                           698.40

     The issues for decision1 are whether:         (1) Amounts deposited

in petitioner’s bank accounts in excess of his reported income

for 2004 and 2005 constitute income; and (2) petitioner is liable

for accuracy-related penalties under section 6662(a) for 2004 and

2005.

                                 Background

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

The stipulation of facts, the stipulation of settled issues, and

the attached exhibits are incorporated herein by reference.           When

petitioner filed his petition, he resided in Illinois.

     Petitioner timely filed his 2004 and 2005 Federal income tax

returns.    He reported total gross receipts of $6,230 for 2004 and

$13,550 for 2005.




     1
      Petitioner’s eligibility for the earned income credit is a
computational adjustment to be determined consistent with this
opinion.
                               - 3 -

      During the years at issue petitioner worked for a

construction business.

      In a notice of deficiency respondent determined that

petitioner failed to report income of $3,831 for 2004 and $14,454

for 2005.   Respondent further determined that petitioner was

liable for accuracy-related penalties of $162.60 and $698.40 for

2004 and 2005, respectively.

      Petitioner agrees that the disputed amounts were deposited

in his bank accounts in 2004 and 2005 and not reported as income.

Petitioner asserts, however, that these deposits constituted loan

repayments and are thus nontaxable.

                             Discussion

I.   Evidentiary Matters

      In general, the Court conducts trials in accordance with the

rules of evidence for trials without a jury in the U.S. District

Court for the District of Columbia, and accordingly, follows the

Federal Rules of Evidence.   Sec. 7453; Rule 143(a); Clough v.

Commissioner, 119 T.C. 183, 188 (2002).   However, Rule 174(b)

carves out an exception for trials of small tax cases under the

provisions of section 7463(a).   Under Rule 174(b), the Court

conducts small tax cases as informally as possible and

consequently may admit any evidence that the Court deems to have

probative value.   Schwartz v. Commissioner, 128 T.C. 6, 7 (2007).
                                 - 4 -

     Respondent objects to several documents proffered by

petitioner, arguing that they constitute inadmissible hearsay.

     A.   Statements

     Petitioner proffered two statements from friends averring

that they had paid petitioner money in 2004 and 2005 as

repayments of previous loans.     There is no corroborating

evidence, however, beyond petitioner’s testimony, that the

payments petitioner received constituted loan payments.       In

addition, petitioner did not present any evidence that he entered

into a loan agreement with any of the parties, or that the

parties intended to repay him the “lent” funds.     Therefore, the

Court will sustain respondent’s objections.     See Rule 174(b).

     B.   Checks

     Petitioner proffered copies of the front of two checks made

out to “cash”.     Petitioner alleges that these checks were

repayments of loans he previously made to those parties.       There

is no evidence, other than petitioner’s own testimony, that the

checks constituted loan payments as opposed to income.     In

addition, there is no evidence that these checks were actually

presented for payment.

     Because there is no indication that these checks constituted

loan payments or that they were presented for payment, sufficient

grounds exist to sustain respondent’s evidentiary objection.
                                   - 5 -

II.    Burden of Proof

       Generally, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving that those

determinations are erroneous.2      Rule 142(a); see INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, 290

U.S. 111, 115 (1933).

III.       Unreported Income

       Respondent determined deficiencies in petitioner’s Federal

income taxes for 2004 and 2005 by using the bank deposits method.

“The bank deposits method assumes that all money deposited

in a taxpayer’s bank account during a given period constitutes

taxable income, but the Government must take into account any

nontaxable source or deductible expense of which it has

knowledge.”       Clayton v. Commissioner, 102 T.C. 632, 645-646

(1994).

       “The use of the bank deposit method for computing income has

long been sanctioned by the courts.”       Estate of Mason v.

Commissioner, 64 T.C. 651, 656 (1975) (and cases cited thereat),

affd. 566 F.2d 2 (6th Cir. 1977).      “A bank deposit is prima facie

evidence of income and respondent need not prove a likely source

of that income.”       Tokarski v. Commissioner, 87 T.C. 74, 77 (1986)



       2
      Petitioner has not claimed or shown that he meets the
requirements under sec. 7491(a) to shift the burden of proof to
respondent as to any factual issue relating to his liability for
tax.
                                - 6 -

(citing Estate of Mason v. Commissioner, supra at 656-657).     The

burden of showing duplications is on the taxpayer.   Zarnow v.

Commissioner, 48 T.C. 213, 216 (1967).

     Petitioner reported gross receipts of $6,230 for 2004.

That year deposits in his bank accounts totaled $41,061.17.

Respondent determined that $31,000 of petitioner’s unreported

deposits in 2004 was not income.   For 2005 petitioner reported

gross receipts of $13,550.   Respondent calculated that deposits

totaled $202,127.09 in petitioner’s bank accounts in 2005 but

found that $174,123.49 of the unreported deposits was not income.

     Petitioner does not contest that unreported amounts of

$3,831 in 2004 and $14,454 in 2005, as determined by respondent,

were deposited into his bank accounts.   Petitioner asserts that

these amounts constituted loan payments, nontaxable returns of

capital, see, e.g., Franks v. Commissioner, T.C. Memo. 1990-189,

and are thus nontaxable.

     Petitioner testified that he received loan payments from

friends in 2004 and 2005.3   He provided multiple bank statements

to corroborate his testimony.   The bank statements, however, are

uninformative.   The statements simply provide the date and the




     3
      Marian Czarnik also testified that he made a loan payment
to petitioner in the amount of $3,800 in 2004. There is no
corroborating evidence, however, that petitioner lent any money
to Mr. Czarnik or that Mr. Czarnik’s payment to petitioner
constituted a loan payment.
                                 - 7 -

amount of each deposit, and the subject indicates “deposit”.4

The statements do not indicate the source of any of the deposited

funds.    Furthermore, petitioner did not present evidence that he

executed or entered into a loan agreement with any of the

parties.    Such agreement may demonstrate that petitioner intended

to lend money and that the parties intended to repay petitioner

the lent funds.

      On the basis of the foregoing, the Court is unable to find

that the unreported income is attributable to loan payments and

is nontaxable.    Accordingly, respondent’s determinations are

sustained.

IV.   Accuracy-Related Penalty

      Section 6662(a) and (b)(1) and (2) imposes a 20-percent

accuracy-related penalty for any portion of an underpayment that

is attributable to:    (1) Negligence or disregard of rules or

regulations; or (2) a substantial understatement of income tax.5

      Section 6662(c) defines “negligence” to include “any failure

to make a reasonable attempt to comply with the provisions of

this title,” and “disregard” to include “any careless, reckless,

or intentional disregard.”    Negligence also includes any failure



      4
       Several statements contained indecipherable codes.
      5
      Because the Court finds that petitioner was negligent or
disregarded rules or regulations, the Court need not discuss
whether there is a substantial understatement of income tax. See
sec. 6662(b).
                                 - 8 -

by the taxpayer to keep adequate books and records or to

substantiate items properly.   Sec. 1.6662-3(b)(1), Income Tax

Regs.

     The Commissioner bears the burden of production with respect

to the applicability of an accuracy-related penalty determined in

a notice of deficiency.   See sec. 7491(c).    In order to meet the

burden of production under section 7491(c), the Commissioner need

only make a prima facie case that imposition of the penalty or

addition to tax is appropriate.     Higbee v. Commissioner, 116 T.C.

438, 446 (2001).   Once he has met his burden, the burden of proof

is upon the taxpayer to prove that the accuracy-related penalty

does not apply because of reasonable cause, substantial

authority, or the like.   See secs. 6662(d)(2)(B), 6664(c); Higbee

v. Commissioner, supra at 448.

     Respondent determined accuracy-related penalties of $162.60

and $698.40 for 2004 and 2005, respectively.    Petitioner’s tax

liabilities for 2004 and 2005 are attributable to his failure to

report as income his claimed receipt of loan payments.

Petitioner did not keep the records required by the Code to

substantiate receipt of loan payments.    Failure to keep adequate

records is evidence not only of negligence, but also of

intentional disregard of regulations.    See sec. 1.6662-3(b)(1)

and (2), Income Tax Regs.; see also Magnon v. Commissioner, 73

T.C. 980, 1008 (1980).    Petitioner has failed to demonstrate that
                                 - 9 -

he was not negligent, and the Court finds that respondent has met

his burden of production under section 7491(c).

     An accuracy-related penalty is not imposed on any portion of

the underpayment as to which the taxpayer acted with reasonable

cause and in good faith.   Sec. 6664(c)(1).     Section 1.6664-

4(b)(1), Income Tax Regs., incorporates a facts and circumstances

test to determine whether the taxpayer acted with reasonable

cause and in good faith.   The most important factor is the extent

of the taxpayer’s effort to assess his proper tax liability.        Id.

     Petitioner failed to present any evidence or argument as to

why he should not be subject to the accuracy-related penalties

for 2004 and 2005.   Accordingly, respondent’s determinations of

accuracy-related penalties for 2004 and 2005 are sustained.

     To reflect the foregoing,


                                         Decision will be entered

                                  for respondent.
