                           T.C. Memo. 2004-131



                         UNITED STATES TAX COURT



         THE CONNELL BUSINESS COMPANY, ET AL.,1 Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent


                                                Filed June 1, 2004.
         Docket Nos.    13667-01, 13668-01,
                        13669-01, 13670-01,
                        13671-01.


     Joe Alfred Izen, Jr., for petitioners.

     Richard J. Hassebrock, for respondent.


                           MEMORANDUM OPINION


     GALE, Judge:      Respondent determined deficiencies in

petitioners’ Federal income taxes and accuracy-related penalties



     1
       Cases of the following petitioners are consolidated
herewith: The Connell Family Trust, docket No. 13668-01; The
Connell Vehicle Co., docket No. 13669-01; The Connell Vehicle Co.
#101, docket No. 13670-01; Thomas E. and Sara Anne Connell,
docket No. 13671-01.
                              - 2 -

for the tax years 1995, 1996, and 1997 as follows:

                    The Connell Business Co.
                      docket No. 13667-01

                                      Accuracy-related penalties
    Year         Deficiency                 Sec. 6662(a)

    1995          $17,935                     $3,587.00
    1996           31,946                      6,389.20
    1997           14,394                      2,878.80


                    The Connell Family Trust
                       docket No. 13668-01

                                      Accuracy-related penalties
    Year         Deficiency                 Sec. 6662(a)

    1995          $21,061                     $4,212.20
    1996           32,764                      6,552.80
    1997           25,738                      5,147.60


                     The Connell Vehicle Co.
                       docket No. 13669-01

                     Year         Deficiency

                     1995              $136
                     1996               136


                 The Connell Vehicle Co. #101
                      docket No. 13670-01

                                       Accuracy-related penalties
    Year         Deficiency                  Sec. 6662(a)

    1995           $1,348                      $269.60
    1996            1,338                       267.60
    1997              962                       192.40
                                - 3 -

               Thomas E. and Sara Anne Connell:
                     docket No. 13671-01

                                        Accuracy-related penalties
    Year         Deficiency                   Sec. 6662(a)

    1995          $30,576.26                  $6,115.25
    1996           56,956.65                  11,391.33
    1997           24,371.16                   4,874.23

     Unless otherwise noted, all section references are to the

Internal Revenue Code in effect during the taxable years at

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     After concessions, the issues remaining for decision are:

(1) Whether the notice of deficiency issued to petitioners Thomas

E. and Sara Anne Connell was timely as to the 1995 and 1996 tax

years; and (2) whether respondent is estopped from asserting

deficiencies for the 1995, 1996, and 1997 tax years against

petitioners Thomas E. and Sara Anne Connell because he

prematurely assessed the deficiencies and later abated some, but

not all, of the assessments.2


     2
       Petitioners also contend that respondent has the burden of
proof with respect to all issues in these cases. Respondent
concedes that he has the burden of proof on whether the 6-year
period of limitations under sec. 6501(e)(1)(A) applies with
respect to petitioners Thomas E. and Sara Anne Connell’s 1995 and
1996 returns. We conclude that the burden of proof has not
shifted to respondent under sec. 7491(a) with respect to the
remaining issues. The record in this case establishes that the
examinations of the 1995 and 1996 returns commenced before July
22, 1998, rendering sec. 7491 inapplicable to those years. See
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001(a), 112 Stat. 726. As for 1997,
                                                   (continued...)
                               - 4 -

     For the reasons stated below, we hold that the notice of

deficiency was timely as to the 1995 and 1996 tax years because

it was issued within the 6-year period of limitations provided in

section 6501(e)(1)(A).   We further hold that the premature

assessment of deficiencies for 1995, 1996, and 1997 and

subsequent abatement of those assessments does not bar respondent

from reassessing those deficiencies.

                            Background

     The parties submitted these cases fully stipulated, pursuant

to Rule 122.   The stipulation of facts, supplemental stipulation

of facts, and the attached exhibits are incorporated herein by

this reference.

     Petitioners are Thomas E. and Sara Anne Connell

(petitioners) and four trusts, The Connell Business Co., The

Connell Family Trust, The Connell Vehicle Co., and The Connell

Vehicle Co. #101 (collectively, petitioner trusts).    At the time

they filed their petitions, petitioners resided in Dayton, Ohio,

and the petitioner trusts’ addresses were in Dayton, Ohio.



     2
      (...continued)
petitioners have not met their burden of proving that they have
met the requirements of sec. 7491(a). See H. Conf. Rept.
105-599, at 239 (1998), 1998-3 C.B. 747, 993; S. Rept. 105-174,
at 45 (1998), 1998-3 C.B. 537, 581. For example, there is no
competent evidence establishing that petitioners cooperated
within the meaning of sec. 7491(a)(2)(B). In any event, the
results we reach with respect to petitioners’ estoppel,
admission, and res judicata claims do not depend upon the
allocation of the burden of proof.
                               - 5 -

     Petitioners and the petitioner trusts filed their Federal

income tax returns for 1995, 1996, and 1997 on April 15, 1996 and

1997 and August 15, 1998, respectively.

     Except for the 1997 return filed by The Connell Vehicle Co.

#101, which identified The Connell Family Trust as the

beneficiary, the returns filed by The Connell Vehicle Co. and The

Connell Vehicle Co. #101 identified The Connell Business Co. as

the trusts’ beneficiary.

     The returns filed by The Connell Business Co. identified The

Connell Family Trust as the beneficiary.

     The 1995 and 1996 returns filed by The Connell Family Trust

identified petitioners and The Connell Charitable Trust as

beneficiaries.   The Connell Family Trust return for 1996 reported

distributions of $6,068 to each of the petitioners.

     Petitioners’ individual returns made no reference to the

petitioner trusts or in any way indicated that petitioners were

associated with, beneficiaries of, or recipients of income from,

the petitioner trusts.   With regard to the $6,068 of income

reported as allocated to each of petitioners in the 1996 return

for The Connell Family Trust, petitioners’ 1996 return listed

that income in Schedules C, Profit or Loss From Business, (one

for each petitioner) as “Gross receipts or sales”.    The Schedules

C contain no information that would suggest that The Connell

Family Trust was the source of that income.   Petitioners reported
                                 - 6 -

$6,709.91 and $20,289.03 of gross income in their 1995 and 1996

returns, respectively.

     At some point before April 15, 1998, petitioners were

referred by respondent’s Examination Division to respondent’s

Criminal Investigation Division for a potential criminal fraud

action with respect to their use of the petitioner trusts in

1994, 1995, and 1996.3    While a recommendation was made in 2000

to prosecute petitioners for violations of section 7201 for 1995,

1996, and 1997, no criminal action was initiated, for reasons not

disclosed in the record.

     Respondent issued notices of deficiency to petitioners and

the petitioner trusts for 1995, 1996, and 1997 on August 2, 2001.

The notices were issued more than 3, but fewer than 6, years

after the 1995 and 1996 returns were filed.     Petitioners concede

that the notice issued to them was timely with respect to their

1997 return.

     Petitioners and the petitioner trusts timely mailed their

petitions for the 1995, 1996, and 1997 tax years to the Tax Court

on October 31, 2001.     During the fall/winter of 2001-2002, the

Court experienced significant delays in the receipt of mail




     3
       Although the fraud referral report prepared by the
Examination Division is undated, it is stated therein that the
“earliest statute expiration date” for the years under review is
Apr. 15, 1998, indicating that the referral was being made before
that date.
                                - 7 -

because of anthrax contamination in the U.S. Postal Service,4 and

the petitions did not reach the Tax Court until December 5, 2001.

The Tax Court served the petitions on respondent on December 6,

2001.    Before receiving service of the petitions, respondent

assessed the deficiencies and penalties determined in the notices

of deficiency and notified petitioners and the petitioner trusts

of the assessments.    After receiving service of the petitions,

respondent promptly abated most of the assessments.5    Letters

dated September 16, 2002, were sent to petitioners and the

petitioner trusts notifying them of the abatements.

     The parties have stipulated that the petitioner trusts are

to be disregarded for Federal income tax purposes and that the

income reported on the petitioner trusts’ returns is income of

petitioners and should have been reported on their individual

returns.6

     Petitioners concede that they should have reported

additional gross income of $56,272 and $72,587 in their returns




     4
         See, e.g., Gibson v. Commissioner, T.C. Memo. 2002-218.
     5
       While all of the assessments of the deficiencies against
petitioners for 1995, 1996, and 1997 were abated, respondent
failed to abate $1.09 of the assessment with respect to The
Connell Business Co. for 1997.
     6
       As a result, respondent has conceded the deficiencies
determined with respect to the petitioner trusts.
                                 - 8 -

for 1995 and 1996.7    The parties have resolved their differences

with respect to various other items of income, deductions,

credits, and penalties with respect to the 1995, 1996, and 1997

taxable years.

                              Discussion

1.   Period of Limitations Under Section 6501(e)(1)(A)

     Petitioners argue that respondent is barred from assessing

deficiencies for 1995 and 1996 because the notice of deficiency

was mailed more than 3 years from the dates the returns for those

years were filed.     See sec. 6501(a).    Respondent contends that

petitioners omitted gross income in excess of 25 percent of the

amounts stated in their returns, and therefore he is entitled

under section 6501(e)(1)(A) to assess the deficiencies any time

within 6 years after the 1995 and 1996 returns were filed.

Petitioners answer that the gross income omitted from their

individual returns is disregarded in determining whether the

omitted amount exceeded 25 percent of the gross income reported

in their returns, because the omitted income was adequately


     7
       The parties have stipulated that petitioners earned or
received, but did not report on their individual returns, income
totaling $61,272 and $84,723 in 1995 and 1996, respectively.
However, in handwritten amendments to the stipulations,
respondent appears to concede that the foregoing figures should
be offset by the business income of $5,000 and $12,136 that
petitioners reported on Schedules C in their 1995 and 1996
returns, respectively. In finding the figures listed in the
text, we have resolved this ambiguity in petitioners’ favor. In
any event, these discrepancies have no impact on the issues
remaining for resolution.
                               - 9 -

disclosed, within the meaning of section 6501(e)(1)(A)(ii), by

virtue of having been reported in the returns of the petitioner

trusts.8   Thus, petitioners contend, they did not omit from gross

income an amount in excess of 25 percent of gross income reported

on their individual returns, precluding respondent’s use of the

6-year period of limitations provided in section 6501(e)(1)(A).

     For the reasons explained below, we conclude that

petitioners failed adequately to disclose the gross income

omitted from their 1995 and 1996 returns, and that respondent has

carried his burden of showing that he is entitled to the 6-year

period of limitations set forth in section 6501(e)(1)(A).

Accordingly, the notice of deficiency issued to petitioners is

timely as to the 1995 and 1996 tax years.

     Section 6501(a) provides that “the amount of any tax imposed

by this title shall be assessed within 3 years after the return

was filed”.   Section 6501(e)(1)(A) extends the 3-year period of

limitations to 6 years where the taxpayer “omits from gross

income an amount properly includible therein which is in excess



     8
       Although petitioners at various points claim that the
income they concede should have been reported on their 1995 and
1996 returns was in fact reported on the returns of the
petitioner trusts, the parties’ stipulations do not establish
this fact. Nonetheless, in light of our conclusion, infra, that
any reporting of the income in the returns of the petitioner
trusts may not be considered for purposes of sec.
6501(e)(1)(A)(ii) in these cases, it is immaterial whether all,
or only some, of petitioners’ omitted income was reported in the
returns of the petitioner trusts.
                              - 10 -

of 25 percent of the amount of gross income stated in the

return”.   In computing the amount of gross income omitted, any

amounts “disclosed in the return, or in a statement attached to

the return, in a manner adequate to apprise the Secretary of the

nature and amount of such item” are not taken into account.    Sec.

6501(e)(1)(A)(ii).   Determining whether adequate notice has been

demonstrated is a question of fact, The Univ. Country Club, Inc.

v. Commissioner, 64 T.C. 460, 468 (1975), and respondent has the

burden of demonstrating that the 6-year period for assessments

set forth in section 6501(e)(1)(A) applies, Seltzer v.

Commissioner, 21 T.C. 398, 401 (1953).

      In Colony, Inc. v. Commissioner, 357 U.S. 28, 36 (1958), the

Supreme Court construed the term “omit” in the predecessor of

section 6501(e)(1)(A) as applicable where the return contains “no

clue to the existence of the omitted item.”   In determining

whether adequate disclosure has been made under section

6501(e)(1)(A)(ii), we have similarly looked to see whether the

return offered a “clue” as to the existence, nature, and amount

of omitted income.   Quick Trust v. Commissioner, 54 T.C. 1336,

1347 (1970), affd. 444 F.2d 90 (8th Cir. 1971).   As we stated in

Quick Trust, “this does not mean simply a ‘clue’ which would be

sufficient to intrigue a Sherlock Holmes.   But neither does it

mean a detailed revelation of each and every underlying fact”.

Id.
                              - 11 -

     Section 6501(e)(1)(A)(ii) requires that any disclosure of

gross income be made “in the return, or in a statement attached

to the return”.   Petitioners’ 1995 and 1996 returns did not make

reference to or have attached to them the returns of the

petitioner trusts, or disclose in any manner that petitioners had

any relationship with the petitioner trusts.     Thus, the

individual returns offer no “clue” as to the existence, nature,

or amount of the omitted income.

     Relying on Benderoff v. United States, 398 F.2d 132 (8th

Cir. 1968), petitioners assert that, even though their individual

returns did not disclose the omitted gross income, we must look

beyond petitioners’ returns to the trust returns.     When taken

together, they argue, the individual and trust returns adequately

disclose the omitted gross income.     We rejected this same

argument in Reuter v. Commissioner, T.C. Memo. 1985-607.

     In Reuter, the taxpayers failed to report in their

individual return income attributable to them from an S

corporation.   The individual return contained no indication that

the taxpayers were shareholders of an S corporation or that they

derived any nonsalary income from such a corporation.9       The

taxpayers cited Benderoff v. United States, supra, for the

proposition that consideration must be given not only to their


     9
       The taxpayers disclosed that they received wages from the
S corporation, but they did not indicate that it was an S
corporation or that they were the shareholders thereof.
                              - 12 -

individual return, but also to the return of the S corporation,

in determining whether adequate disclosure had been made under

section 6501(e)(1)(A)(ii), regardless of whether the individual

return made reference to the S corporation’s return.

     In rejecting this argument and the taxpayer’s reading of

Benderoff, we noted that in cases where we have looked beyond a

taxpayer’s individual return for purposes of determining the

adequacy of disclosure, “without exception, the taxpayer’s

individual income tax return * * * contained some reference to a

separate document from which the omission from income could be

ascertained.”   Reuter v. Commissioner, supra (discussing Roschuni

v. Commissioner, 44 T.C. 80 (1965); Rose v. Commissioner, 24 T.C.

755 (1955); and Taylor v. United States, 417 F.2d 991 (5th Cir.

1969), among others).   Because the individual return in that case

contained no reference to the S corporation, we did not look

beyond the individual return to determine whether adequate

disclosure had been made.

     Because petitioners’ 1995 and 1996 returns made no reference

to the petitioner trusts or the trusts’ returns, we hold,

consistent with Reuter v. Commissioner, supra, that petitioners

may not rely on the trusts’ returns to establish that adequate

disclosure of any item of gross income has been made under

section 6501(e)(1)(A)(ii).   Accordingly, the petitioner trusts’
                               - 13 -

returns are not considered when determining the amount of omitted

gross income under section 6501(e)(1)(A).10

     Petitioners reported $6,709.91 and $20,289.03 of gross

income in their 1995 and 1996 returns, respectively.11   Twenty-

five percent of these figures is $1,677.48 and $5,072.26,

respectively.   Petitioners concede that gross income of $56,272

and $72,587 was omitted from their individual returns for 1995

and 1996, respectively.    Thus, regardless of whether some or all

of this omitted income was reported in the returns of the

petitioner trusts, respondent has met his burden of showing that

petitioners omitted from gross income an amount in each year that

exceeded 25 percent of the gross income reported in petitioners’

1995 and 1996 returns.    Accordingly, the 6-year period of

limitations set forth in section 6501(e)(1)(A) applies to

petitioners’ 1995 and 1996 tax years.    Because the notice of



     10
       Petitioners also argue that disclosure must have been
adequate because respondent was in fact sufficiently aware of
petitioners’ use of trusts in 1995 and 1996 to make a criminal
referral before expiration of the 3-year period of limitations
for those years. The test, however, is not whether petitioners’
returns were capable of arousing suspicion; the test is whether
the disclosure in the returns was adequate to apprise respondent
of the nature and amount of the omitted income.
     11
       Respondent concedes, and petitioners have not disputed,
these figures, which include amounts reported on certain
partnership returns as well as amounts reported as tax-exempt
interest. As it would not affect the result in these cases, we
assume (without deciding) that tax-exempt interest may constitute
“gross income stated in the return” for purposes of sec.
6501(e)(1)(A).
                              - 14 -

deficiency was issued to petitioners within 6 years after they

filed their 1995 and 1996 returns, we conclude that the notice of

deficiency was timely, and respondent is not barred on this

ground from assessing the deficiencies at issue.

2.   Estoppel, Admission, and Res Judicata Theories

     Petitioners argue that respondent should be estopped from

asserting deficiencies with respect to 1995, 1996, and 1997

because he prematurely assessed deficiencies for these years and

then abated most, but not all,12 of the assessments.   Petitioners

contend that the abatement of the assessments equitably estops

respondent from claiming that the abated amounts are owed and/or

that respondent has, by virtue of the abatements, admitted that

these amounts are not owed.   Petitioners further claim that

respondent’s assertion of the deficiencies is precluded under the

doctrines of res judicata and collateral estoppel.

     Petitioners’ argument that respondent’s premature assessment

and subsequent abatement of the deficiencies at issue gives rise

to equitable estoppel is factually and legally baseless.

Petitioners have shown no detrimental reliance, and, in any

event, “the abatement of an assessment is not a binding action



     12
       Petitioners seek to make something of the fact that
respondent failed to abate $1.09 of the assessment against The
Connell Business Co. for 1997. However, respondent has conceded
all deficiencies determined with respect to the petitioner
trusts, including that determined for The Connell Business Co. in
1997.
                                - 15 -

that can estop the Commissioner from reassessing a deficiency.”

Serv. Bolt & Nut Co. v. Commissioner, 724 F.2d 519, 524 (6th Cir.

1983), affg. 78 T.C. 812 (1982).13

     In the same vein, petitioners’ contention that the

abatements constitute an admission on respondent’s part regarding

the amount of the deficiencies simply confuses the concepts of

“assessment” and “deficiency”.    While the abatements might be

construed to constitute an admission that the prior assessments

were premature, they in no way constitute admissions as to the

proper amount of the deficiencies.       See Pfeifer v. Commissioner,

T.C. Memo. 1983-437 (“There is no merit to petitioner’s

contention that the abatement [of a premature assessment] was

determinative of his tax liability.”).

     Finally, petitioners’ res judicata and collateral estoppel

claims are utterly frivolous.    These doctrines bar parties that

have previously litigated a matter from relitigating the same

matter.   See, e.g., Hambrick v. Commissioner, 118 T.C. 348, 351

(2002);   Peck v. Commissioner, 90 T.C. 162, 166 (1988), affd. 904

F.2d 525 (9th Cir. 1990).   Petitioners have not even alleged,


     13
       The single case cited by petitioners, Hunt v. United
States, 94 F.Supp. 2d 665 (D. Md. 2000), is readily
distinguishable. There, the Commissioner was equitably estopped
from refusing to pay interest where the taxpayer reasonably and
detrimentally relied on the understanding that he would receive
such interest in settling his Tax Court case and thereby waiving
his right to a deficiency proceeding. Here, petitioners have not
shown, inter alia, that they reasonably or detrimentally relied
on the abatements.
                               - 16 -

much less shown, that any issue in these cases was the subject of

a prior judicial proceeding.

     To reflect the foregoing,

                                         Decisions will be entered

                                    for petitioners in docket Nos.

                                    13667-01, 13668-01, 13669-01,

                                    and 13670-01.

                                         Decision will be entered

                                    under Rule 155 in docket No.

                                    13671-01.
