                        T.C. Memo. 1995-512



                      UNITED STATES TAX COURT



                 HENRY DELETIS, JR., Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8917-93.                Filed October 26, 1995.



     Henry Deletis, Jr., pro se.

     Amy Dyar Seals, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     PARKER, Judge:   Respondent determined deficiencies in

petitioner's Federal income tax and additions to tax for fraud as

follows:

                                                Additions to Tax
           Year            Deficiency             Sec. 6653(b)

           1966            $14,374.82               $8,113.44
           1967            108,045.72               54,022.86
                               - 2 -

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the taxable years before

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

Practice and Procedure.

     After concessions,1 the issues for decision are:

     1. Whether petitioner had unreported income in the amounts

of $37,636.73 and $148,518.66 from the sale of stolen cars in the

taxable years 1966 and 1967, respectively;

     2. whether petitioner had unreported dividend income of

$15,922.84 from Bud-N-Jan Stables, Inc. in taxable year 1967; and

     3. whether petitioner is liable for the addition to tax for

fraud under section 6653(b) for each year.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The Stipulation of Facts, Supplemental Stipulation of Facts, and

the exhibits attached thereto are incorporated herein by this

reference.

     Henry Deletis, Jr. (petitioner) resided in Fayetteville,

North Carolina, at the time he filed his petition in this case.

Stolen Car Sales

     Petitioner worked for Herbert J. Caplan, Inc., a Buick

dealership (the dealership), in Brooklyn, New York, for 14 years;


     1
       Petitioner has conceded interest income of $5.73 and $3.15
for the 1966 and 1967 taxable years, respectively, and wage
income of $12,324.95 for 1967. Respondent has conceded $10 of
the income from the stolen cars for taxable year 1967, so that
the claimed amount is $148,518.66 rather than $148,528.66.
                                - 3 -

he was the used car sales manager.      Petitioner was a trusted

employee, and he had a close personal relationship with the

dealership owner, Herbert Caplan (Caplan), in the nature of a

father-and-son relationship.   Petitioner and Caplan went to the

race track together and gambled on the horses.

     During 1966 and 1967, petitioner sold some of the

dealership's new and used cars, pocketed the proceeds, and did

not repay the dealership for the cars.      Petitioner deposited

substantial amounts of these proceeds into his personal bank

account at Bankers Trust Company.    Deposits to petitioner's

account during 1966 exceeded $117,000; during 1967, the deposits

amounted to nearly $278,000.   Petitioner's wages from the

dealership were $15,886.10 in 1966 and $12,324.95 in 1967.

Records of the dealership reflected the sales of certain new cars

to individual owners, complete with deposits and financing

through Bankers Trust Company; the dates of those sales fell in

1966 and 1967.   However, those purchasers proved to be

fictitious.    In actuality, petitioner had sold these new cars to

used car dealers.

     In 1966, petitioner received $42,050 from the sale of 11 new

cars; he also sold three additional new cars the selling prices

of which are unknown but the invoice prices of which totaled

$13,911.   In 1967, petitioner received $89,200 from the sale of

23 new cars.   Petitioner made payments to the bank on the loans
                               - 4 -

obtained for these new cars.   These loan payments totaled

$4,448.85 in 1966 and $32,099.38 in 1967.

     Petitioner also sold some of the dealership's used cars

directly to used car dealers, without fictitious intermediate

buyers.   During 1967, petitioner sold 38 used cars to dealers

Herman Weisberger (Weisberger) and Morton Best (Best) for which

he received $59,830.   Petitioner sold an additional 23 used cars,

whose value totaled $55,525, to other dealers during 1967.

     In November of 1967, Caplan consulted with the Buick

Regional Office concerning the dealership's cash flow problem;

the amount of cash was not commensurate with the volume of

business that was apparently being done.    Thereafter, the

dealership conducted a physical inventory of its cars.

Petitioner assisted by providing a list of those used cars that

he had sold without remitting the proceeds to the dealership.

Caplan discharged petitioner on or before December 1, 1967.

Petitioner, Weisberger, and Best offered to make restitution to

the dealership for the stolen proceeds.    On December 8, 1967,

Caplan sent a letter prepared by his attorney to the dealership's

insurance company reporting the loss.   On December 11, 1967, Best

provided Caplan with a list of 38 cars that Best had purchased

from petitioner without receiving State of New York Department of

Motor Vehicle Certificates of Sale (Forms MV-50).2   The


     2
       Apparently, the seller is to issue the Form MV-50 to the
purchaser in order for the purchaser to have title to the
                                                   (continued...)
                                - 5 -

dealership ultimately claimed and was allowed an embezzlement

loss on its corporate income tax returns for 1966 and 1967.

Petitioner's Story

     Petitioner stated that this scheme started in 1965.

Petitioner admitted that it was his idea to "move a few cars",

supposedly in order to help Caplan keep the dealership, but that

the plan expanded to include many cars.   Petitioner admits that

"maybe I got a little greedy, and I took approximately $40,000

from that money".    The dealership, according to petitioner, was

experiencing financial difficulties resulting from the low volume

of sales and the costs of purchasing a new location and building

a showroom, after the previous landlord had refused to renew the

lease.   Petitioner said the downpayments on the new cars were

actually monies transferred from the downpayments on used cars

sales.   Petitioner testified that it would have been impossible

to maintain this scheme of "moving" cars, obtaining financing,

transferring deposits, and making payments on the loans without

someone in authority sanctioning these actions.   Petitioner

indicated that the dealership was holding checks for sales that

they had noted on the books as paid.

     According to petitioner, General Motors Acceptance

Corporation (GMAC), a subsidiary of General Motors, conducted a

review of the dealership approximately a year before the ultimate


     2
      (...continued)
vehicle, a prerequisite to the purchaser's legally reselling the
car.
                                 - 6 -

discovery of the misappropriation in late 1967.     Petitioner

alleges that during this review, Caplan instructed him to

cooperate with the auditors and show the auditors the checks they

were holding.   Petitioner stated that several of these checks

were from Weisberger and that petitioner was holding them until

Weisberger could make good on them.      Petitioner said he explained

the dealership's long-term relationship with Weisberger to the

auditors and that nothing came of that review.

     Petitioner insisted that he kept only $40,000 of the

proceeds.   Petitioner asserted that it was the Buick Motor

Division that initiated the late 1967 review, rather than Caplan

asking for assistance.     Petitioner also stated that before this

review occurred, he told Caplan about the $40,000 he took and

about Weisberger's outstanding checks.     Petitioner did not

explain where the rest of the proceeds went.     Petitioner never

repaid Caplan for any of the money he took.     The record contains

no evidence to corroborate petitioner's version of the events

relating to the scheme.3


     3
       Best testified that he could not recall any of the events
about which petitioner questioned him. Caplan is now deceased.
Petitioner's testimony and post-trial briefs were largely efforts
to blame everyone else. However, his efforts at blame shifting
failed to explain the deposits of large sums of money into his
personal bank account or to explain what happened to that money.
The Court did not find petitioner to be a credible witness, even
as to events that were well documented. For example, he insisted
he only stole a little over $40,000 during 1966 and 1967 and
insisted that he had pleaded guilty only to the theft of that
amount. However, count three to which he pleaded guilty was that
he had received taxable income of $92,168.61 in 1967 as to which
                                                   (continued...)
                                 - 7 -

Bud-N-Jan Stables, Inc.

     In late 1966, petitioner and his then wife, Janet Singer

Deletis (Singer), organized Bud-N-Jan Stables, Inc. (the Stables)

for the purpose of racing horses.    Petitioner and Singer were the

only two stockholders.    Petitioner was president and treasurer of

the Stables until December of 1967.      The Stables had a bank

account at Bankers Trust Company.    The Stables owned about 12

horses worth almost $40,000 located in Maryland.      The Stables

used the services of three trainers:      P.J. Johnson, Mario

Padoranni, and Oliver Cutshaw.    During 1967, the Stables raced

its horses and won race purses totaling $39,304.      The Stables did

not file a Federal corporate income tax return for the taxable

year 1967.

     Petitioner invested some of the proceeds from the stolen car

sales into the Stables.   Petitioner contends that the only

portion of the car sales proceeds that he kept was the $40,000

that he invested in the Stables.    See supra note 3.    Petitioner

testified that he agreed to give the Stables to Caplan to pay off

the money petitioner stole from the dealership, but that in

December of 1967, Singer "stole" the Stables from him before he

could do so.   Petitioner signed an agreement whereby petitioner

transferred his interest in the Stables to Singer in exchange for

promissory notes; however, petitioner never received the notes.



     3
      (...continued)
he willfully and knowingly attempted to evade taxes.
                                 - 8 -

Petitioner stated that when he went to Maryland to liquidate the

Stables, he was unable to do so since the trainers had been

instructed by Singer not to do business with him now that Singer

was in control of the Stables.

     The next day when petitioner returned to New York,

petitioner found that Singer had changed the locks on their

house.    The following day, Singer moved everything out of the

house, and petitioner did not know where she went.       By the time

petitioner located Singer, she had sold some of the horses.

Petitioner sued to recover the Stables, but the court dismissed

his action in 1968 or later.    Petitioner divorced his wife at

about that same time.

Petitioner's Criminal Indictments, Fugitive Status, and Pleas

     On January 29, 1968, petitioner was arrested on a charge of

grand larceny for stealing cars from the dealership.       The Grand

Jury of Kings County, New York, indicted petitioner and

Weisberger on 13 counts of grand larceny first degree for the

theft of the proceeds from the unauthorized sales of 13 of the

dealership's new cars during 1967.       On November 4, 1970,

petitioner pleaded guilty to attempted grand larceny second

degree.    Petitioner failed to appear for sentencing on January

28, 1971, and a bench warrant was issued for his arrest.

Petitioner was a fugitive from justice from 1971 until early

1987.    Petitioner claimed he left town when another dealership
                                - 9 -

salesman told him that Caplan's alleged underworld friends were

going to harm petitioner.

     On March 22, 1973, petitioner was indicted on two counts of

income tax evasion for the taxable years 1966 and 1967 and on one

count of willfully making and subscribing to a false income tax

return for the taxable year 1966.    An arrest warrant was issued.

After being a fugitive from justice for some 16 years, petitioner

surfaced in early 1987.    On July 31, 1987, petitioner pleaded

guilty to one count of income tax evasion pursuant to section

7201 for the taxable year 1967.    The count to which he pleaded

guilty was that he had received taxable income of $92,168.61 in

1967 as to which he willfully and knowingly attempted to evade

taxes.

Petitioner's Federal Income Tax Returns

     Petitioner filed a joint Federal individual income tax

return with Singer for the taxable year 1966.    He reported his

dealership wages of $15,886.10 and no other income.    The

signatures of both petitioner and Singer are dated April 17,

1967, but the envelope in which the return was mailed was

postmarked May 18, 1967.    No extension of time for filing was

requested.   Petitioner did not file a Federal individual income

tax return for the taxable year 1967.

     Respondent used the specific-items method to determine

petitioner's unreported income from the car sales.    Special Agent

Nahmias of the Criminal Investigation Division of the Internal
                               - 10 -

Revenue Service (Nahmias) conducted an independent investigation.

Nahmias traced the stolen cars to the third-party used car

dealers who purchased them and determined the amounts paid to

petitioner for these cars.    He interviewed the dealers involved

and reviewed the canceled checks, the falsified new car invoices,

and the loan payments.    Nahmias allowed petitioner deductions of

$18,324.27 and $56,036.34 for 1966 and 1967, respectively, for

the deposits, loan payments, and insurance expenses on the stolen

cars.

     For the taxable year 1966, respondent determined that

petitioner had failed to report $5.73 in interest income and

$37,636.73 in net income from the sale of the stolen cars,4

resulting in a deficiency in tax of $14,374.82.       Respondent also

determined an addition to tax for fraud under section 6653(b) in

the amount of $8,113.44.    Respondent issued the notice of

deficiency for taxable year 1966 on February 5, 1993.

     Revenue Agent Metz (Metz) prepared a corporate return for

the Stables for the taxable year 1967.       Metz had none of the

Stables' business records, so he calculated income and expenses

through inquiries to third-party sources.       Metz used the American

Racing Manual Statistics to determine the amounts won by the


     4
         The net income figure represents:

                 Income from car sales    $42,050.00
                 Income from car sales     13,911.00
                 Total income             $55,961.00
                 Total expenses          - 18,324.27
                   Net income             $37,636.73
                                - 11 -

Stables' horses ($39,304) and used this as the Stables' gross

income.    Petitioner agrees that the Stables had gross receipts of

that amount in 1967.     Metz estimated the Stables' expenses to

total $23,281.16.     These estimated expenses included sundries

($335.30), jockey fees ($2,483), insurance ($1,881.96), workmen's

compensation ($174), fees for two trainers (P. J. Johnson, $1,313

and Mario Padoranni, $7,473.90), and loss on the sale of horses

($9,620).    No   fees were included for trainer Oliver Cutshaw.

The sources for most of these estimates are unknown; no

documentation of the expenses was presented at trial.      Metz

determined the names of the officers of the Stables from the bank

account and insurance records.     Not knowing who was in control of

the Stables, Metz attributed the Stables' corporate income to

both petitioner and Singer as dividend income.

     There is no evidence of any payments by the Stables to, or

on behalf of, petitioner.

     For the taxable year 1967, respondent determined that

petitioner had failed to report wage income of $12,324.95,

dividend income from the Stables of $15,922.84 ($16,022.84 net

income of Stables - $100 dividend exclusion), interest income of

$3.15, and net income from the sale of stolen cars of

$148,528.66,5 resulting in a deficiency in tax of $108,045.72.


     5
          The net income figure represents:

                  Income from car sales    $89,200.00
                  Income from car sales     59,830.00
                                                        (continued...)
                               - 12 -

Respondent determined an addition to tax for fraud under section

6653(b) in the amount of $54,022.86.      Respondent issued the

notice of deficiency for taxable
                             OPINION
                                 year 1967 on February 5, 1993.

     This is a fraud case in which respondent must prove fraud by

clear and convincing evidence, and petitioner must prove any

error in the deficiency determinations by a preponderance of the

evidence.    Zack v. Commissioner, 692 F.2d 28, 29 (6th Cir. 1982),

affg. T.C. Memo. 1981-700; sec. 7454(a); Rule 142.       If respondent

does not prove fraud for the taxable year 1966, the statute of

limitations will bar the assessment of the deficiency and

additions to tax for that year.    Sec. 6501(a) and (c)(1).

Petitioner is collaterally estopped to deny fraud for the taxable

year 1967 since he pleaded guilty to tax evasion pursuant to

section 7201 for that year.    Amos v. Commissioner, 360 F.2d 358

(4th Cir. 1965), affg. 43 T.C. 50 (1964); Arctic Ice Cream Co. v.

Commissioner, 43 T.C. 68 (1964).     Moreover, petitioner failed to

file a tax return for 1967, so a tax deficiency and addition to

tax may be assessed "at any time".      Sec. 6501(c)(3).   Thus, for

reasons of fraud and failure to file a return, no limitations

period applies to 1967.    Sec. 6501(c)(1) and (3).

Fraud




     5
        (...continued)
                 Income from car sales       55,535.00
                 Total income              $204,565.00
                 Total expenses           - 56,036.34
                   Net income              $148,528.66
                                - 13 -

     Fraud is never presumed.    Beaver v. Commissioner, 55 T.C.

85, 92 (1970).   Respondent cannot rely on petitioner's failure to

satisfy his burden of proof as to the underlying deficiency for

1966.   Otsuki v. Commissioner, 53 T.C. 96, 106 (1969).       Section

6653(b), as it read for 1966 and 1967, imposed an addition to tax

of 50 percent of the underpayment if any part of the underpayment

is due to fraud.    To uphold imposition of this penalty,

respondent must prove by clear and convincing evidence two

elements:    (1) the existence of an underpayment of tax each year,

and (2) that some part of the underpayment is due to fraud.

Hebrank v. Commissioner, 81 T.C. 640, 642 (1983).

     Petitioner has admitted the existence of the car-sales

scheme which he says began in 1965.      Petitioner has admitted that

he kept at least a portion of the proceeds from this scheme

during 1966 and 1967, the $40,000 he says he invested in the

Stables.    These proceeds are unreported taxable income to

petitioner.   Respondent, therefore, has established an

underpayment of tax for each year.

     Fraud is an intentional wrongdoing.     To establish fraud,

respondent must show that the taxpayer specifically intended to

evade a tax believed to be owing.     Stoltzfus v. United States,

398 F.2d 1002, 1004 (3d Cir. 1968); Stephenson v. Commissioner,

79 T.C. 995, 1005 (1982), affd. 748 F.2d 331 (6th Cir. 1984).

Since intent can seldom be established by direct proof, it must

be gleaned from all the facts and circumstances in the entire
                               - 14 -

record.    Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983); Hicks

Co. v. Commissioner, 56 T.C. 982, 1019 (1971), affd. 470 F.2d 87

(1st Cir. 1972).   Fraudulent intent may be inferred from

circumstantial evidence, such as proof of conduct the likely

effect of which is to mislead or conceal.     Spies v. United

States, 317 U.S. 492, 499-500 (1943); Foster v. Commissioner, 391

F.2d 727, 733 (4th Cir. 1968), affg. in part, revg. and remanding

in part T.C. Memo. 1965-246; Stephenson v. Commissioner, 79 T.C.

at 1006.

     Courts frequently list various factors or "badges of fraud"

from which fraudulent intent may be inferred.    Although such

lists are nonexclusive, some of the factors this Court has

considered indicative of fraud are (1) understatement of income,

(2) inadequate records, (3) failure to file tax returns, (4)

implausible or inconsistent explanations of behavior, (5)

concealment of assets, (6) failure to cooperate with the tax

authorities, (7) filing false Forms W-4, (8) failure to make

estimated tax payments, (9) dealing in cash, (10) engaging in

illegal activity, and (11) attempting to conceal illegal

activity.    Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992)

(citing Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th Cir.

1986), affg. T.C. Memo. 1984-601).

     Petitioner has understated his income.    Although petitioner

presented Caplan with a list of some of the missing cars during

the inventory, he has not presented any evidence to show he kept
                                - 15 -

records of his income from this scheme.      He engaged in an illegal

activity and attempted to conceal that fact from his employer,

the bank originating the new car loans, and the dealership's

auditors, as well as from the tax authorities.      He omitted the

income from his 1966 return, and he failed to file a return for

1967.

     Based on this course of conduct, we find that petitioner

acted fraudulently during 1966, and his 1966 Federal income tax

return was fraudulent with the intent to evade tax.      The doctrine

of collateral estoppel bars petitioner from contesting the

addition to tax for fraud under section 6653(b) for taxable year

1967.     Amos v. Commissioner, supra; Arctic Ice Cream Co. v.

Commissioner, supra.     Petitioner pleaded guilty to a charge of

receiving taxable income of $92,168.61 in 1967 as to which he

willfully and knowingly attempted to evade taxes.      Accordingly,

petitioner will be held liable for the additions to tax for fraud

for both 1966 and 1967, and the statute of limitations does not

bar respondent from assessment of the deficiencies and additions

to tax for either year.

Diverted Dealership Income

        Section 61 defines gross income to mean all income from

whatever source derived.     This definition encompasses all

"accessions to wealth, clearly realized, and over which the

taxpayers have complete dominion."       Commissioner v. Glenshaw

Glass Co., 348 U.S. 426, 431 (1955).      It includes funds acquired
                               - 16 -

through embezzlement, misappropriation, and the sale of stolen

goods.   James v. United States, 366 U.S. 213 (1961); Norman v.

Commissioner, 407 F.2d 1337 (3d Cir. 1969), affg. T.C. Memo.

1968-40; Naegle v. Commissioner, 378 F.2d 397 (9th Cir. 1967),

affg. T.C. Memo. 1965-212;    Lydon v. Commissioner, 351 F.2d 539

(7th Cir. 1965), affg. T.C. Memo. 1964-27; Schira v.

Commissioner, 240 F.2d 672 (6th Cir. 1957), affg. T.C. Memo.

1956-35.

     Respondent asserts that petitioner has unreported income for

the taxable years 1966 and 1967, in the amounts of $37,636.73 and

$148,518.66, respectively, from the sales of cars which

petitioner misappropriated from the dealership during those

years.   The record shows that petitioner received at least those

net amounts.   Petitioner admits to the existence of the car-sales

scheme, but alleges that the purpose of the scheme was to provide

funds to allow Caplan to keep the dealership.   Petitioner admits

to using $40,000 of the proceeds, but insists that is all he

stole.   However, substantial amounts of the proceeds were

deposited into a bank account over which petitioner had sole

access and control.

     The "mere receipt and possession of money does not by itself

constitute taxable income."    Lashells' Estate v. Commissioner,

208 F.2d 430, 435 (6th Cir. 1953), affg. in part and revg. in

part a Memorandum Opinion of this Court.   Where a person collects

funds merely as an agent, the funds do not constitute income to
                               - 17 -

him.   Liddy v. Commissioner, 808 F.2d 312, 314 (4th Cir. 1986),

affg. T.C. Memo. 1985-107.    The money that a taxpayer, acting as

a conduit, must transmit to someone else is not income.      Diamond

v. Commissioner, 56 T.C. 530, 541 (1971), affd. 492 F.2d 286 (7th

Cir. 1974).

       If petitioner had been holding the proceeds under Caplan's

direction for the benefit of the dealership, then such funds

would not be income to petitioner.      However, petitioner has not

presented any evidence as to the disposition of any of these car

funds in his bank account.    Petitioner's testimony that he

informed Caplan of the missing $40,000 and of Weisberger's checks

indicates that Caplan was unaware of these items and that

petitioner had great control over this scheme.     Without any

evidence to support petitioner's position that he was holding the

proceeds as Caplan's agent or as the dealership's agent, we must

find that the proceeds from the illegal car sales were income to

petitioner.    As petitioner has not shown respondent's figures to

be incorrect,    we hold that the net proceeds are taxable income

to petitioner.

Stables' Income

       Respondent has calculated the Stables' income for the

taxable year 1967 and attributed it to petitioner as a dividend.

Petitioner contends that respondent has not allowed for all of

the Stables' expenses, that he was not an owner of the Stables by
                              - 18 -

the end of 1967, and that he suffered a loss when Singer "stole"

the Stables from him.

     Generally, the income of a corporation is taxed to the

corporation.   A corporation is recognized as a separate legal

entity from its stockholders for Federal income tax purposes if

either:   (1) The formation of the corporation was based on a

legitimate business purpose; or (2) after formation, the

corporation actually conducted a legitimate business.       National

Carbide Corp. v. Commissioner, 336 U.S. 422 (1949); Moline

Properties, Inc. v. Commissioner, 319 U.S. 436, 438-439 (1943).

Where a corporation constitutes a mere shell and was not either

formed or conducted for any nontax business purpose, its

existence will be disregarded for Federal income tax purposes

even though validly incorporated under State law.     Noonan v.

Commissioner, 52 T.C. 907, 910 (1969), affd. 451 F.2d 992 (9th

Cir. 1971); Wenz v. Commissioner, T.C. Memo. 1995-277.

     A dividend is a distribution of property from a corporation

to a shareholder out of the corporation's earnings and profits;

the entire amount of the dividend is includable in the

shareholder's gross income.   Secs. 61(a)(7), 301, 316.     Dividends

may be formally declared or constructive.    Truesdell v.

Commissioner, 89 T.C. 1280, 1295 (1987).    "A constructive

dividend is paid when a corporation confers an economic benefit

on a stockholder without expectation of repayment."     Wortham

Machinery Co. v. United States, 521 F.2d 160, 164 (10th Cir.
                                - 19 -

1975); Williams v. Commissioner, 627 F.2d 1032, 1034 (10th Cir.

1980), affg. T.C. Memo. 1978-306.

     There is no dispute as to the Stables' gross receipts from

the purses won by its horses.    Respondent estimated the Stables'

expenses and deductions from third-party sources, no evidence of

which was presented.   Respondent attributed all of the resulting

net income ($16,022.84) to petitioner.   Petitioner is correct

that respondent did not allow for all of the Stables' expenses in

that fees for one of the trainers were not included.    However,

petitioner is not before this Court on behalf of the Stables to

contest its liability, but in his individual capacity; thus, we

need not address the correct amount of the Stables' taxable

income.6

     There is no evidence that petitioner received an actual or

constructive distribution from the Stables.   Respondent has not

alleged that the Stables was a sham corporation so that its

existence as a separate legal entity should be ignored.    We find

that the Stables was organized for the business purpose of racing

horses and did race its horses.    The Stables' income should not

be attributed to petitioner as dividend income.

     Petitioner has argued that he is entitled to a loss for his

share of the Stables which Singer "stole" from him.    Section



     6
       In some cases, taxpayers must establish the correct amount
of a corporation's earnings and profits in order to show that the
distribution received was a return of a capital contribution
rather than a dividend. However, this is not such a case.
                              - 20 -

165(a) allows for a deduction for any loss sustained during the

taxable year and not compensated for by insurance or otherwise.

The amount of the deduction is determined using the adjusted

basis of the property.   Sec. 165(b).   Petitioner has not

established the date of the loss, nor his basis in the Stables.7

For these reasons, petitioner is not entitled to a loss

deduction.

     To reflect the above concessions and holdings,


                                          Decision will be entered

                                    under Rule 155.




     7
       It appears that after petitioner went to court to contest
the Dec. 1967 transfer to Singer, the court's dismissal left
petitioner with an uncollectible debt. The loss would be that of
the debt, not the Stables, and would have occurred in 1968 at the
earliest, not in 1967.
