                                                                         F I L E D
                                                                  United States Court of Appeals
                                                                          Tenth Circuit

                                                                          JUL 22 1999
                      UNITED STATES COURT OF APPEALS

                                     TENTH CIRCUIT                   PATRICK FISHER
                                                                              Clerk


 SARKIS N. BALABANIAN; BAKA
 S. BALABANIAN,

           Petitioners-Appellants,                       No. 98-9015
 vs.                                                 (T.C. No. 15947-95)
                                                   (T.C. Memo. 1997-565)
 COMMISSIONER OF INTERNAL
 REVENUE,

           Respondent-Appellee.


                              ORDER AND JUDGMENT *


Before KELLY, MCWILLIAMS, and BRISCOE, Circuit Judges.


       Petitioners Sarkis N. Balabanian and Baka S. Balabanian appeal an adverse

determination by the United States Tax Court. See Balabanian v. Commissioner,

74 T.C.M. (CCH) 1439 (1997). Because the parties are familiar with the

underlying facts, and they are set out by the tax court, we do not restate them

unless pertinent for the issues on review.

       Petitioners claim that the tax court erred in (1) determining that money


       *
        This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
ultimately received by them was reportable as income on their tax return for 1990

rather than for 1993; and (2) finding them subject to penalties under 26 U.S.C. §

6662. In addition, we must determine whether Petitioners timely filed their notice

of appeal. Our jurisdiction arises under 26 U.S.C. § 7482(a), and we affirm.



A. Timely Filing of Notice of Appeal

      As a preliminary matter, we must determine whether Petitioners timely filed

their notice of appeal within 90 days after the entry of the tax court’s decision.

See Fed. R. App. P. 13(a)(1). The notice of appeal was filed on May 8, 1998, a

little over five months past the December 29, 1997 entry of the tax court’s

decision. Petitioners timely filed a Motion for Enlargement of Time to File,

which was granted on January 22, 1998. Given the granting of that motion,

Petitioners timely filed a Motion to Reconsider and a Motion to Vacate or Revise

the Decision. The motion to Vacate or Revise certainly terminated the running of

the time to appeal until it was decided on February 11, 1998. See Fed. R. App. P.

13(a)(2) (“If, under Tax Court rules, a party makes a timely motion to vacate or

revise the Tax Court’s decision, the time to file a notice of appeal runs from the

entry of the order disposing of the motion or from the entry of a new decision,

whichever is later.”); see also Okon v. Commissioner, 26 F.3d 1025, 1026 (10th

Cir. 1994). Thus, we have jurisdiction to hear this appeal.


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B. Year of Reportable Income

      Petitioners claim that the tax court erred in determining that they received

income as a result of dealings with M&L and its principle, Robert Joseph, in

1990, rather than in 1993, after they settled with the bankruptcy trustee. We

uphold the tax court’s findings of fact unless they are clearly erroneous, see

Jeppsen v. Commissioner, 128 F.3d 1410, 1415 (10th Cir. 1997), and conclude

that the court committed no error in finding that the Balabanians received income

in 1990 as a result of dealings with M&L and Mr. Joseph.

      A taxpayer is required to keep those records necessary to establish gross

income. See 26 U.S.C. § 6001; see also United States v. Gosnell, 961 F.2d 1518,

1520 (10th Cir. 1992). Petitioners kept inadequate records of their income. They

were advised by their tax preparer that if they came out ahead in any given year

from the check exchanges with M&L, the difference would constitute income. In

addition, they failed to record or report any of the interest or broker’s fees or car

payments credited or paid to them by M&L and there was an unexplained deposit

to their account in the amount of $207,000. When the taxpayer’s records are

inadequate, the government may reconstruct income and expenses in any

reasonable manner, see Anaya v. Commissioner, 983 F.2d 186, 188 (10th Cir.

1993); Gosnell, 961 F.2d at 1518, as the government did here using a bank

deposits analysis.


                                          -3-
      Once the deficiency is determined, the taxpayer bears the burden of proving

that “the determination is arbitrary and erroneous.” Gosnell, 961 F.2d at 1520

(internal quotation marks and citations omitted). Unexplained bank deposits are

prima facie evidence of income and need not be refuted by the government. See

Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). Petitioners have failed to

demonstrate that the government erred in its analysis of their income.

      Their argument that the tax court improperly applied the claim of right

doctrine to find that the money Petitioners received from the check scheme was

taxable in 1990 is not persuasive, and totally ignores the other unexplained items.

“There is a claim of right when funds are received and treated by a taxpayer as

belonging to him.” Healy v. Commissioner, 345 U.S. 278, 282 (1953). The tax

court found that the Balabanians claimed the money as their own in 1990, did not

make any claim in the bankruptcy estate until 1993, denied liability regarding the

trustee’s claim against them, and had been told that, if they were ahead of M&L

at the close of the taxable year, they were liable to report that amount as income.

See Balabanian, 74 T.C.M. (CCH) 1439 (1997). We cannot say that the court

clearly erred in so finding, and these facts support its proper application of the

claim of right doctrine.

      We uphold the tax court’s decision because the Balabanians have not

carried their burden of overcoming the presumption of correctness accorded to the


                                         -4-
Commissioner’s assessment. The tax court made extensive findings of fact after

hearing testimony and making its own credibility determinations, and these

findings are amply supported by the record and the law. See LDL Research &

Dev. II, Ltd. v. Commissioner, 124 F.3d 1338, 1344 (10th Cir. 1997) (a trial

court’s witness credibility determinations are entitled to great deference).



C. Penalty Assessment under 26 U.S.C. § 6662

         Petitioners also assert that the tax court erred in upholding the

Commissioner’s assessment of a penalty for substantial understatement under 26

U.S.C. § 6662(b)(2). Specifically, they contend that no penalty should be applied

because there was reasonable cause for the underpayment and they acted in good

faith. See 26 U.S.C. § 6664 (precluding penalties under § 6662(c)(1) if the

taxpayer establishes that he underpaid in good faith, based on reasonable cause);

see also Richardson v. Commissioner, 125 F.3d 551, 554 (7th Cir.1997). We

uphold the Tax Court’s factual findings with respect to § 6662 unless they are

clearly erroneous. See Little v. Commissioner, 106 F.3d 1445, 1449 (9th Cir.

1997).

         We cannot say that the tax court erred in finding that Petitioners had not

established good faith. The taxpayer bears the burden of proving reasonable

cause. See Craddock v. Craddock, 149 F.3d 1249, 1254-55 (10th Cir. 1998).


                                            -5-
Petitioners maintained inadequate records to determine their appropriate tax

liability and were advised by their tax return preparer that any excess in their

favor at the end of the year was taxable income. We agree with the tax court that

the Balabanians have not met their burden, and this conclusion is supported by the

record and the law.

      AFFIRMED.

                                        Entered for the Court


                                        Paul J. Kelly, Jr.
                                        Circuit Judge




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