                  T.C. Memo. 2010-224



                UNITED STATES TAX COURT



          YURY LILIANA TRIBIN, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 3714-09.                 Filed October 14, 2010.



     Using the bank deposits method, R determined
deficiencies in Federal income tax for P’s 2002, 2003
and 2004 tax years.

     Held: Bank deposits representing cash receipts from
P’s sister that P used to make payments on a car loan on her
sister’s behalf are not includable in P’s income. The
remaining unexplained bank deposits are includable in P’s
taxable income.



Yury Liliana Tribin, pro se.

Timothy L. Smith, for respondent.
                                 - 2 -

                MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:     This case is before the Court on a petition

for redetermination of alleged deficiencies in petitioner’s

income tax for 2002, 2003 and 2004 tax years.       Respondent

determined that petitioner is liable for Federal income tax

deficiencies of $2,146, $8,301, and $8,096 for her 2002, 2003,

and 2004 tax years, respectively.1       After concessions by both

respondent and petitioner,2 the only issue remaining for decision

is whether various unidentified cash deposits are includable in

petitioner’s income for her 2002, 2003, and 2004 tax years.

                           FINDINGS OF FACT

         Some of the facts have been stipulated, and the stipulation

of settled issues, the stipulated facts, and the accompanying

exhibits are hereby incorporated by this reference.       At the time

she filed her petition, petitioner resided in Florida.

     Petitioner was an independent contractor of Closets and

Closets, Inc., during the 2002, 2003, and 2004 tax years.


     1
      Unless otherwise noted, all values have been rounded to the
nearest whole dollar amount.
     2
      For the tax years 2002, 2003, and 2004 petitioner has
conceded depreciation and sec. 179, I.R.C., expense adjustments
of negative $1,800, $14,400, and $17,400, respectively, claimed
on Schedules C, Profit or Loss From Business, of her Forms 1040,
U.S. Individual Income Tax Return. Respondent has conceded that
the unexplained bank deposits for May 6, 2003, of $1,444, May 23,
2003, of $2,085, July 6, 2004, of $2,280, July 19, 2004, of
$1,039, and December 14, 2004, of $613 should not be included in
income.
                                 - 3 -

Closets and Closets, Inc., specialized in the redesigning of

closets and paid petitioner commissions on sales of closet

designs.   Petitioner reported income on Forms 1040, U.S.

Individual Income Tax Return, for the 2002, 2003 and 2004 tax

years.

     Petitioner moved to the United States only 2 years before

the tax years at issue and was raising three children on her own.

During the tax years at issue petitioner opened her home to a

number of her relatives who periodically stayed with her. For

example, petitioner’s ex-husband’s sister-in-law, Beatriz Agudelo

(Ms. Agudelo), lived in petitioner’s home while she was pregnant

because she wanted to give birth in the United States.

     Twice during 2002 petitioner’s sister from Colombia, Claudia

Tribin-Mora (Ms. Tribin-Mora), stayed with petitioner.    On her

second visit in November of 2002 Ms. Tribin-Mora advanced $5,000

to petitioner.   Sometime during February or March of 2003 Ms.

Tribin-Mora decided to purchase a car.    Since Ms. Tribin-Mora

lacked a valid U.S. Social Security number, petitioner purchased

the car and obtained the loan in her own name on Ms. Tribin-

Mora’s behalf.   As repayment of the $5,000 advance received from

Ms. Tribin-Mora, petitioner made payments on the car loan until

Ms. Tribin-Mora secured a job.    Once Ms. Tribin-Mora secured

employment, she gave petitioner cash each month to make that
                               - 4 -

month’s car loan payment and petitioner transferred the money to

the automobile finance company by writing a check.

     During the 2002, 2003, and 2004 tax years petitioner

maintained two checking accounts at Washington Mutual Bank.    She

also maintained a checking account at Dade County Federal Credit

Union during the last part of 2002 and 2003.

     Respondent determined that petitioner failed to maintain or

submit for examination complete and adequate books and accounts

of her income-producing activities for 2002, 2003, and 2004.

Respondent reconstructed petitioner’s income by analyzing

petitioner’s bank deposits in her three checking accounts.

Respondent determined that petitioner had total bank deposits of

$61,196, $111,043, and $65,564 for 2002, 2003, and 2004,

respectively.   Respondent then reduced those amounts by the

identifiable deposits reported in income, nontaxable deposits,

and transfers for each of 2002, 2003, and 2004.   After

concessions, unidentified taxable deposits of $11,656, $15,619,

and $16,087 for the 2002, 2003, and 2004 tax years, respectively,

remain at issue.

     Respondent issued a notice of deficiency on November 14,

2008, determining alleged income tax deficiencies of $2,146,

$8,301, and $8,096 for the 2002, 2003, and 2004 tax years.

Petitioner filed a timely petition with this Court on February
                                 - 5 -

18, 2009, denying that she owes the deficiencies.    A trial was

held on January 12, 2010, in Miami, Florida.



                                OPINION

I.   Burden of Proof

     Section 61(a) specifies that “Except as otherwise provided”,

gross income includes “all income from whatever source

derived”.3   The Commissioner’s determination of a taxpayer’s

liability for an income tax deficiency is generally presumed

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

determination is improper.    See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).

     Where unreported income is involved, the presumption of

correctness applies once the Commissioner introduces some

substantive evidence reflecting that the taxpayer received

unreported income.     Hardy v. Commissioner, 181 F.3d 1002, 1004

(9th Cir. 1999), affg. T.C. Memo. 1997-97; Dodge v. Commissioner,

981 F.2d 350, 354 (8th Cir. 1992), affg. in part and revg. in

part 96 T.C. 172 (1991).    If the Commissioner introduces such

evidence, the burden shifts to the taxpayer to show by a

preponderance of the evidence that the deficiency was arbitrary


     3
      Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended and in effect for the
tax years at issue. All Rule references are to the Tax Court
Rules of Practice and Procedure.
                                - 6 -

or erroneous.4   Hardy v. Commissioner, supra.   As explained below,

respondent has introduced sufficient evidence connecting

petitioner with the unreported income.    Consequently,

respondent’s determination is entitled to the presumption of

correctness.

II.   Recordkeeping Requirements

      The taxpayer must maintain adequate records to substantiate

her income and deductions.    Sec. 6001 (the taxpayer “shall keep

such records”); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992).    As in this case, when the taxpayer fails to maintain

adequate books and records, the Commissioner is authorized to use

whatever method he deems appropriate to determine the existence

and amount of taxpayer’s income so long as it clearly reflects

income.    Sec. 446(b); Mallette Bros. Constr. Co., Inc. v. United

States, 695 F.2d 145, 148 (5th Cir. 1983); Gowni v. Commissioner,

T.C. Memo. 2004-154.    The Commissioner has wide discretion in

determining which method to apply, and reconstruction of the

taxpayer’s income “need only be reasonable in light of all

surrounding facts and circumstances.”    Gowni v. Commissioner,

supra.    Petitioner did not comply with the requirements of




      4
      Although sec. 7491(a) may shift the burden of proof to the
Commissioner in specified circumstances, as we explain below,
petitioner has fallen far short of satisfying the prerequisites
under sec. 7491(a)(1) and (2) for such a shift.
                                - 7 -

section 6001 and section 1.6001-1, Income Tax Regs., in that she

failed to maintain adequate books and records.

III. Bank Deposits Method of Proof

       Respondent used the bank deposits method of proof to

reconstruct petitioner’s income for 2002, 2003 and 2004.

“Deposits in a taxpayer’s bank account are prima facie evidence

of income, and the taxpayer bears the burden of showing that the

deposits were not taxable income but were derived from a

nontaxable source.”    Welch v. Commissioner, 204 F.3d 1228, 1230

(9th Cir. 2000), affg. T.C. Memo. 1998-121.    “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) (citing DiLeo v.

Commissioner, 96 T.C. 858, 868 (1991), affd. 959 F.2d 16 (2d Cir.

1992)).    After the deposits have been shown to be “in the nature

of income and to exceed what the taxpayer had reported as

income,” it becomes the taxpayer’s responsibility to show that

the deposits were nontaxable.    Dodge v. Commissioner, supra at

354.

       Most of petitioner’s unexplained deposits were small cash

deposits, and she provided little or no corroborating evidence

that those deposits were not taxable.    However, with respect to a
                                - 8 -

series of transactions between petitioner and her sister, Ms.

Tribin-Mora, we find that petitioner did present sufficient

evidence as to the source of the deposits and that they should

not be included in income.

     At trial, petitioner testified credibly that in November

2002 Ms. Tribin-Mora lent her $5,000 with the expectation that

petitioner would repay it.    Petitioner did not introduce any

documents relating to this loan or otherwise specify its terms.

However, the date on Ms. Tribin-Mora’s visa corroborates

petitioner’s testimony that Ms. Tribin-Mora entered the United

States in November of 2002.

     Further evidence of this loan is the automobile transaction

petitioner entered into on behalf of her sister in 2003.

Generally, a taxpayer may conduct his business in whatever form

he chooses and “must accept the [resulting] tax disadvantages.”

Higgins v. Smith, 308 U.S. 473, 477 (1940); see also Commissioner

v. Natl. Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 152

(1974).   However, the Commissioner may look beyond the mere form

of the transaction to determine its true substance.    See Gregory

v. Helvering, 293 U.S. 465, 469-470 (1935).    Respondent has

“determined that * * * [petitioner] purchased the vehicle for

* * * [her] sister in the tax year 2003” as stated in the notice

of deficiency.   Petitioner then began repaying the initial $5,000

loan “little by little” by making payments on Ms. Tribin-Mora’s
                                   - 9 -

car.       When Ms. Tribin-Mora secured employment, she began giving

petitioner cash for the car payments.        The following table

summarizes the loan payments petitioner made and demonstrates

that certain unexplained bank deposits closely track the checks

written to the automobile finance company.        It shows each check

date, the check number, the amount of the check, the date of the

alleged corresponding cash deposit, and its amount.

 Check Date         Check No.    Amount    Cash Deposit Date   Amount
  4/21/03              324      $400.25         4/17/03            $400
  5/18/03              338       400.25         5/13/03            400
  6/19/03              349       400.25         6/24/03            620
  7/15/03              365       400.25           (1)
  8/18/03              387       400.25
  9/19/03              410       400.25         9/22/03            400
  10/18/03             429       400.25        10/29/03            450
  11/20/03             441       400.25        11/25/03            205
  12/12/03             452       400.25

       1
      No deposits of this size were questioned by respondent in
July, August, or December of 2003; therefore, petitioner did not
provide any explanation for the payments for those months.


           Ignoring the form of this transaction and focusing on the

substance, we find that by incurring indebtedness to acquire a

car for her sister’s benefit, petitioner was in essence lending

the amount of the debt proceeds to her sister, Ms. Tribin-Mora.

Ms. Tribin-Mora then made payments against the car loan by

initial use of a portion of the $5,000 loan she had made to
                               - 10 -

petitioner in November of 2002 and later through petitioner who,

in turn, repaid the money to the automobile finance company.

Because petitioner was merely a conduit for the car loan and the

cash payments, the deposits to her account made with her sister’s

funds do not constitute taxable income to petitioner.   See Aiken

Indus., Inc. v. Commissioner, 56 T.C. 925, 934 (1971)

(disregarding the conduit in a two-tier loan arrangement

involving a nominal borrower interposed between the lender and

the entity actually using the loan proceeds).

     We find that there is sufficient creditable evidence

corroborating petitioner’s testimony that the $5,000 deposit in

2002 was a loan from her sister and, therefore, not includable in

petitioner’s income.   See United States v. Rochelle, 384 F.2d

748, 751 (5th Cir. 1967) (citing James v. United States, 366 U.S.

213, 219 (1961)).   We also find that the deposits during 2003

that correspond to the automobile finance payments were merely

paid through petitioner as a conduit and do not constitute

income.5   Therefore the $11,656 of identified but still disputed

taxable deposits for 2002 will be reduced by the $5,000 loan, and

the $15,619 of the remaining identified but still disputed




     5
      In 2004, petitioner purchased another car and there is no
evidence that petitioner continued to make payments for her
sister on the 2003 automobile loan. Petitioner has not claimed
that any of the unidentified deposits in 2004 was for a car loan
payment.
                               - 11 -

taxable deposits, after concessions, for 2003 will be reduced by

the cash deposits identified as car payments totaling $2,475.

     At trial, petitioner presented no evidence corroborating her

minimal self-serving statements concerning the remaining

unidentified deposits.    Because she failed to keep adequate

records, petitioner was forced to rely on her admittedly faulty

memory to explain the multiple small cash deposits.     Petitioner

explained that she “tried to remember all these, but it’s

impossible for me * * * to think about where the money comes from

and this comes from and try to find out.”

     Although petitioner had a difficult time remembering the

sources of the cash deposits, she stated that it “wasn’t income

because this money coming from my country, from my family” and

that “Some of the deposits were gifts.    Not all.   Some of the

deposits were loans.”    Petitioner presented no documentary

evidence of the claimed additional gifts or the loans, nor any

circumstantial evidence similar to that concerning the $5,000

loan and car transaction.6   We are unpersuaded by petitioner’s

vague self-serving testimony that the deposits were loans or

gifts.   See Page v. Commissioner, 58 F.3d 1342, 1346 (8th Cir.




     6
      We note that had petitioner substantiated the unidentified
deposits as loans or gifts they would not be included in her
taxable income. See sec. 102(a); United States v. Rochelle, 384
F.2d 748, 751 (5th Cir. 1967).
                                - 12 -

1995), affg. T.C. Memo. 1993-398; Schneebalg v. Commissioner,

T.C. Memo. 1988-563.7

      Petitioner also claimed that while her ex-husband’s sister-

in-law, Ms. Agudelo, lived in her home, she gave petitioner cash.

However, petitioner presented no evidence corroborating the

source of those deposits, and Ms. Agudelo did not testify.     Even

if petitioner’s claims are true, the payments may have been for

rent or rent and board, and, if so, may still be includable in

income.   Sec. 61(a)(2), (5).

IV.   Conclusion

      We find that the $5,000 loan to petitioner from Ms. Tribin-

Mora made in 2002 and the cash deposits totaling $2,475 in 2003

corresponding to the payments made by petitioner on behalf of Ms.

Tribin-Mora are not includable in petitioner’s income.   The

remaining still-disputed and unexplained bank deposits identified

by respondent are includable in petitioner’s taxable income.




      7
      We note that “‘Arithmetic precision was originally and
exclusively in * * * [petitioner’s] hands, and [she] had a
statutory duty to provide it...[H]aving defaulted in [her] duty,
[she] cannot frustrate the Commissioner’s reasonable attempts by
compelling investigation and recomputation under every means of
income determination. Nor should [she] be overly chagrined at
the Tax Court’s reluctance to credit every word of [her] negative
wails.’” Page v. Commissioner, 58 F.3d 1342, 1348 n.6 (8th Cir.
1995) (quoting Rowell v. Commissioner, 884 F.2d 1085, 1088 (8th
Cir. 1989), affg. T.C. Memo. 1988-410), affg. T.C. Memo. 1993-
398.
                             - 13 -

     The Court has considered all of petitioner’s contentions,

arguments, requests, and statements.    To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

     To reflect the foregoing,


                                      Decision will be entered

                                 under Rule 155.
