                        T.C. Memo. 2001-293



                      UNITED STATES TAX COURT



         BOB J. AND ERNESTENE SAMS, ET AL.,1 Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 16023-99, 16024-99,     Filed November 5, 2001.
                 18739-99.



     Frederick W. Southern, Jr. (specially recognized), for

petitioners Ernestene Sams, Carter Bonding Co., and Sherri Lynn

Sullivan.

     Bruce K. Meneely, for respondent.




     1
      Cases of the following petitioners are consolidated
herewith: Carter Bonding Company, Inc., docket No. 16024-99; and
Sherri Lynn Sullivan, f.k.a. Sherri Lynn Reavis, f.k.a. Sherri
Lynn Faulkenberry, docket No. 18739-99.
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                  MEMORANDUM FINDINGS OF FACT AND OPINION

       COHEN, Judge:       Respondent determined deficiencies in and

additions to tax and penalties with respect to petitioners’

Federal income taxes as follows:

Bob J. & Ernestene Sams
Docket No. 16023-99

       Year        Deficiency       Sec. 6651(a)(1)      Sec. 6662

       1994        $16,793            $4,133             $3,358.60
       1995         35,955                –               7,191.00

Carter Bonding Company, Inc.
Docket No. 16024-99

Year          Deficiency     Sec. 6651(a)(1)   Sec. 6655(a)   Sec. 6662(a)

1994           $11,095            $555             –            $2,219
1995            23,386           5,847            $610            –

Sherri Lynn Sullivan
Docket No. 18739-99

       Year        Deficiency       Sec. 6651(a)(1)      Sec. 6654

       1992       $11,835                $2,959             $517
       1993         4,740                 1,185              197
       1994        26,928                 6,732            1,387
       1995        44,771                11,193            2,443

       For reasons discussed below, the only issue remaining in

these cases is whether the gross income of petitioner Carter

Bonding Company, Inc. (Carter Bonding), should be determined by

reference to the fees charged for bail bonds written during the

years in issue, as reported to the Oklahoma Insurance Commission,

or whether Carter Bonding’s gross income was a lesser amount as

claimed by petitioners.         Unless otherwise indicated, all section
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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.

                          FINDINGS OF FACT

     At the time that the petitions were filed, Bob J. and

Ernestene Sams (the Samses) resided in Tulsa, Oklahoma.    Carter

Bonding had its principal place of business in Tulsa, Oklahoma.

Sherri Lynn Sullivan (Sullivan) resided in Broken Arrow,

Oklahoma.

     Carter Bonding was in the bail bond business during 1994 and

1995.   The stock of Carter Bonding was owned by Ernestene Sams

(Sams), who was the president of Carter Bonding, and by Sullivan,

who was the vice president of Carter Bonding.    Sullivan is the

daughter of the Samses.

     Sams and Sullivan wrote bonds in 1994 and 1995 for Carter

Bonding.    However, most of the bonds written during those years

were written by Sullivan because Sams was sick.    Sams conducted

business for Carter Bonding primarily over the telephone and did

not go into the office much during those years.

     Carter Bonding charged a fee, or bond premium, in an amount

that was up to 15 percent of the face amount of the bail bond,

for the service of writing the bail bond.    Depending on the

circumstances of the particular client, Carter Bonding received

full, partial, or no payment of the bond premium at the time the
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bond was written.    Premiums were paid by cash, by check, in

person, or by mail.    Each premium payment received was recorded

in an accounts receivable ledger that was maintained by client

name and included the date and amount of the payment and the

client’s account balance.    A receipt was issued to each client

who made a bond premium payment.    To assure payment, Carter

Bonding sought cosigners for the bonds and pursued litigation to

recover the unpaid fees.

     Sams terminated Sullivan’s employment with Carter Bonding in

1996.   On January 3, 1997, Sams sent a letter to Sullivan

demanding the return of Carter Bonding’s books and records.

Sullivan’s employment with Carter Bonding resumed in the middle

of 1999.

     Carter Bonding filed Monthly Professional Bondsman Reports

with the Oklahoma Insurance Department in 1994 and 1995,

reflecting the total amount of the bond premiums that Carter

Bonding charged to its clients during each monthly reporting

period.    On the reports filed with the Oklahoma Insurance

Department, Carter Bonding reported total premiums of $140,520 in

1994 and $164,885 in 1995.

     Carter Bonding employed an accountant to prepare its Federal

income tax returns.    The accountant reported gross receipts based

on the bank deposits of Carter Bonding.    Carter Bonding reported

gross receipts of $75,565 on its 1994 Federal income tax return.
                                 - 5 -

A Federal tax return prepared for 1995 for Carter Bonding

reflected gross receipts of $64,939.     That return, however, was

not filed by Carter Bonding.

     Respondent determined that Carter Bonding received and

failed to report income in the amounts of $64,955 in 1994 and

$164,885 in 1995.   The amount for 1994 represents the difference

between the total premiums reported to the Oklahoma Insurance

Department and the bank deposits used in preparing Carter

Bonding’s Federal income tax return for 1994.    The amount for

1995 represents the total premiums reported to the Oklahoma

Insurance Department because Carter Bonding did not file an

income tax return for 1995.    Respondent determined that the

unreported income constituted constructive dividends to the

Samses and to Sullivan.

     Respondent also determined that the Samses and Sullivan had

unreported income equal to deposits in their personal bank

accounts.   Respondent has now conceded that the amounts of

constructive dividends to the Samses and to Sullivan should be

only the amounts deposited in their personal bank accounts and

should not include the unreported income to Carter Bonding.     The

Samses and Sullivan have not disputed that the unexplained

deposits in their personal bank accounts were constructive

dividends from Carter Bonding.    Other adjustments in the

statutory notices, such as unreported rental income of Sullivan,
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have either been expressly conceded by either respondent or

petitioners or abandoned by petitioners.

                               OPINION

     Petitioners contend that respondent improperly used the

premium amounts reported to the Oklahoma Insurance Department

rather than using the bank deposits to determine Carter Bonding’s

gross receipts for 1994 and 1995.    Petitioners argue that they

collected only approximately 45 percent of the bond premiums

charged, which were the amounts reflected on the face of the

bonds written and the amounts reported to the State authority.

They failed to produce the accounts receivable records that

allegedly supported these contentions, blaming, at various times,

Sullivan and another employee of Carter Bonding.    At trial,

Sullivan belatedly produced a handwritten journal of doubtful

authenticity.    Based on our observation of the witnesses and

review of the entire record, we cannot accept petitioners’ claim

that the uncollected premiums during the years in issue

approximated $65,000 in 1994 and $100,000 in 1995.

     Respondent was entitled to use the reports filed with the

Oklahoma Insurance Department to reconstruct Carter Bonding’s

income in the absence of adequate books and records.    See United

States v. Gosnell, 961 F.2d 1518, 1520 (10th Cir. 1992); Webb v.

Commissioner, 394 F.2d 366, 371-372 (5th Cir. 1968), affg. T.C.

Memo. 1966-81;    Meneguzzo v. Commissioner, 43 T.C. 824 (1965).
                                - 7 -

The reconstruction need only be reasonable in light of all facts

and circumstances.   Giddio v. Commissioner, 54 T.C. 1530 (1970).

Petitioners have not persuaded us that the gross receipts so

determined should be reduced.   We do not believe petitioners’

unsupported claim that only 45 percent of the fees charged were

received.   We have no reliable basis for any estimate of the

amounts not paid.

     To reflect concessions by respondent,

                                             Decisions will be entered

                                        under Rule 155.
