                         T.C. Memo. 1996-192



                       UNITED STATES TAX COURT



         RUSTY K. LONDON, F.K.A. IRVING LONDON, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15285-90.               Filed April 22, 1996.



     Jeffrey I. Margolis and Randall G. Dick, for petitioner.

     Wilton A. Baker, for respondent.



                          MEMORANDUM OPINION



     PANUTHOS, Chief Special Trial Judge:      This case is before

the Court on the parties' cross-motions for partial summary

judgment.1

     1
        All section references are to the Internal Revenue Code
in effect for the years in issue, unless otherwise indicated.
All Rule references are to the Tax Court Rules of Practice and
                                                   (continued...)
                                   - 2 -

       Respondent filed a motion for partial summary judgment in

which she asserts that petitioner is not entitled to use income

averaging for the taxable years 1980 and 1981.       Petitioner filed

an objection to respondent's motion and also filed a cross-motion

for partial summary judgment.      Petitioner argues that he is

entitled to income averaging for the taxable years 1980 and 1981.

Respondent filed a notice of objection to petitioner's cross-

motion for partial summary judgment.

       Respondent issued a notice of deficiency on April 5, 1990,

determining deficiencies in and additions to petitioner's Federal

income taxes for the taxable years 1980 through 1982 as follows:

                                       Additions to Tax
Year       Deficiency   Sec. 6653(a)    Sec. 6653(a)(1)     Sec. 6661

1980       $76,748.00     $3,837               ---             ---
1981       125,013.15        ---            $6,250.65          ---
1982        47,634.00        ---             2,381.70      $11,908.50


       The notice of deficiency determined a number of adjustments

related to Merit Securities issues.        See Seykota v. Commissioner,

T.C. Memo. 1991-234, supplemented by T.C. Memo. 1991-541.       A

timely petition was filed invoking the jurisdiction of this

Court.     Soon after the pleadings were closed, the parties filed a

stipulation of settlement of tax shelter adjustments wherein they

agreed to be bound by the test case litigation in Seykota v.

Commissioner, supra.

       1
      (...continued)
Procedure.
                               - 3 -

     The notice of deficiency also determined that petitioner was

not entitled to income averaging for the taxable years 1981 and

1982 because he was unable to substantiate the base period

years.2   An amendment to petition was filed wherein petitioner

claimed entitlement to income averaging for the taxable years

1980 and 1981.3

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    Florida Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    Summary judgment may be

granted with respect to all or any part of the legal issues in

controversy--

     if the pleadings, answers to interrogatories,
     depositions, admissions, and any other acceptable
     materials, together with the affidavits, if any, show
     that there is no genuine issue as to any material fact
     and that a decision may be rendered as a matter of law.

Rule 121(b); Naftel v. Commissioner, 85 T.C. 527, 529 (1985).

     Given that the parties have filed cross-motions for partial

summary judgment, it is apparent that each of them believes that

the issue before us is ripe for summary adjudication and that

there is no genuine issue as to any material fact.




     2
        No taxable income was reported on the 1980 return; thus,
income averaging was not utilized.
     3
        The respective motions filed by the parties do not
discuss the issue of income averaging for the taxable year 1982;
accordingly, the Court assumes that the parties have resolved
that question.
                                - 4 -

     The following is a summary of the relevant facts that do not

appear to be in dispute.    They are stated solely for purposes of

deciding the pending motions and are not findings of fact for

this case.    Fed. R. Civ. P. 52(a); Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994).

Background

     Petitioner computed his income tax liability for the taxable

years 1978 and 1979 utilizing income averaging.    The 4 base years

for 1978 were 1974 through 1977, and the 4 base years for 1979

were 1975 through 1978.    The 1978 and 1979 Federal income tax

returns were examined by respondent.    On the income averaging

schedules (Schedules G) attached to the 1978 and 1979 returns,

petitioner reflected zero taxable income for 1976 and 1977.

Schedules G also reflected base period income for 1976 and 1977

as $2,2004 and zero, respectively.

     A notice of deficiency was issued to petitioner for the

taxable years 1978 and 1979.    The adjustments in the notice of

deficiency increased his distributive share of income from two

partnerships.   The notice of deficiency did not disallow the use

of income averaging.   When the 1978 and 1979 tax years were




     4
        The Schedule G attached to the 1978 return required a
taxpayer to add to taxable income for 1976 the exemption amount
($2,200) in order to arrive at base period income.
                               - 5 -

resolved5 between the taxpayer and the Internal Revenue Service

Appeals Office, the computation of the deficiencies for those

years permitted the use of income averaging based on the amounts

of taxable income for the base years reflected by petitioner.

     The 1976 and 1977 Federal income tax returns are not

available.   Petitioner is unable to locate copies of those

returns, and respondent asserts that the original 1976 and 1977

returns have been destroyed.   In an affidavit, petitioner asserts

that the amounts reflected for 1976 and 1977 on the Schedules G

attached to the 1978 and 1979 returns were correct.   Accordingly,

petitioner asserts that taxable income was correctly reported on

the 1976 and 1977 Federal income tax returns.   Transcripts of

account reflect the filing of the 1976 and 1977 Federal income

tax returns and further reflect amounts of adjusted gross

income.6

     Petitioner further asserts that there were no investments in

partnerships and corresponding claims for distributive share of

losses in 1976 and 1977, which items were the subject of

adjustments for the years 1978 through 1982.    Respondent does not

have any information or evidence that the amounts reflected as

     5
        The matter was settled administratively; thus, no
petition was filed in response to the 1978 and 1979 notices of
deficiency.
     6
        The transcript reflects the amounts of $863 and $1,304
for 1976 and 1977. While not clear from this document, the
parties have explained these amounts to represent adjusted gross
income.
                               - 6 -

taxable income for 1976 and 1977 on the income averaging

schedules of the 1978 and 1979 returns are not correct.

Discussion

     As applicable for the years in issue, sections 1301 through

1305 provided for income averaging.    In order for a taxpayer's

liability to be computed under the income averaging provisions,

the correct taxable income for the base period years must be

determined.   Unser v. Commissioner, 59 T.C. 528 (1973).    The tax

years in question are 1980 and 1981.    Thus, the question is

whether petitioner has adequately established his correct taxable

income for the years 1976 through 1980.7    In their cross-motions

for partial summary judgment, the parties do not disagree as to

the evidence that is available, and ask the Court to decide if,

based on such evidence (or lack of evidence), petitioner, as a

matter of law, qualifies for income averaging.

     The only years of base period income put in question by the

pending motions are 1976 and 1977.     Since the 1976 and 1977 tax

returns, or copies thereof, are not available, petitioner has

presented other circumstantial evidence through documents and an

affidavit to establish correct taxable income.    Respondent has

     7
        The base years for 1980 are 1976 through 1979. The base
years for 1981 are 1977 through 1980. Respondent does not
question the base years 1978 and 1979. Petitioner's income for
1980 is a matter in issue in this proceeding because 1980 was one
of the years for which a deficiency was asserted by respondent.
Thus, the fact that petitioner's income for that year has yet to
be adjudicated is not an obstacle to his claim for income
averaging. See Ryza v. Commissioner, T.C. Memo. 1977-64.
                               - 7 -

not set forth any specific facts or presented any evidence nor

has she disputed the assertions made by petitioner.   Based on

this record, we find that petitioner has established correct

taxable income for 1976 and 1977.   Having established that, there

is no impediment to petitioner's obtaining the benefits of income

averaging for the taxable years 1980 and 1981.

     Petitioner argues that there is ample case law that stands

for the proposition that, when a taxpayer presents respondent

with evidence of correct taxable income for a base year,

respondent must do more than simply argue that the tax year has

not been examined.   Lynch v. Commissioner, T.C. Memo. 1983-173.

In this case, petitioner has provided some documentary evidence

and made factual assertions that tend to establish correct

taxable income for 1976 and 1977.   The documents consist of a

transcript of account reflecting adjusted gross income for 1976

and 1977, income averaging schedules attached to tax returns for

1978 and 1979 reflecting taxable income for 1976 and 1977, a

statutory notice of deficiency for 1978 and 1979, and a

settlement agreement for 1978 and 1979.   Neither the statutory

notice nor the settlement agreement disallowed use of income

averaging based on the income for 1976 and 1977 reported on the

schedules attached to the 1978 and 1979 returns.   Moreover,

petitioner has filed an affidavit making unrefuted assertions

that the 1976 and 1977 taxable income was correct as so reported.
                                - 8 -

     Respondent has not asserted that the information provided by

petitioner is incorrect.    Compare Ryza v. Commissioner, T.C.

Memo. 1977-64, where respondent presented evidence of unexplained

deposits to establish that the taxpayer's base year income was

not correct as reported.    See also Royster v. Commissioner, T.C.

Memo. 1985-258, affd. 820 F.2d 1156 (11th Cir. 1987).

Respondent's position is simply that petitioner has not said or

done enough to prove base year income.

     There is no evidence in this case that the taxable income

for 1976 and 1977 is not accurate as claimed by petitioner.

Compare Padow v. Commissioner, T.C. Memo. 1987-250, affd. 843

F.2d 1388 (4th Cir. 1988); Olive v. Commissioner, T.C. Memo.

1983-195; Abernathy v. Commissioner, T.C. Memo. 1978-370.     In

fact, respondent accepted petitioner's base year income for 1976

and 1977 when the parties resolved the deficiencies for 1978 and

1979.   While we do not suggest that respondent is bound by

acceptance of the base year income in resolving the 1978 and 1979

tax years, respondent has not presented any assertions or

argument that she has reason to not accept those amounts for

purposes of this case.   Nor has respondent taken any other action

to show that the base years' taxable income is not correct.      Cf.

Ryza v. Commissioner, supra.

     We hold that petitioner is entitled to income averaging for

the taxable years 1980 and 1981 utilizing the base year income

reflected in this record.
                                 - 9 -

     The parties have presented substantial argument with respect

to the effect of a prior motion filed by respondent wherein, for

purposes of the motion, respondent computed petitioner's 1980 and

1981 tax liabilities allowing income averaging.    The Court

subsequently permitted respondent to withdraw that motion.     We do

not deem the filing or withdrawal of said motion to be relevant

or a discussion thereof necessary for our holding herein.

     An appropriate order will be issued denying respondent's

motion for partial summary judgment and granting petitioner's

motion for partial summary judgment.

     To reflect the foregoing,

                                         An appropriate order will

                                    be issued.
