                  T.C. Memo. 1997-180



                UNITED STATES TAX COURT



            JAMES C. ESTRADA, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 6241-95.              Filed April 15, 1997.



     P created two "trusts". P and O then formed a
partnership (NAA) to perform nurse anesthetic services,
listing O and one of the "trusts", T, as partners. P
and O were the only people who performed services on
behalf of NAA.
     Held: P is taxed on any income transferred to the
"trust".
     Held, further, P is liable for additions to tax
under sec. 6651(a), I.R.C.
     Held, further, P is liable for additions to tax
under sec. 6654(a), I.R.C.


Jeffrey A. Dickstein, for petitioner.

Andrew H. Lee, for respondent.
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                  MEMORANDUM FINDINGS OF FACT AND OPINION


        LARO, Judge:      James C. Estrada petitioned this Court to

redetermine respondent's determination of the following Federal

income tax deficiencies and additions thereto:1

                                          Additions to Tax
                                        Sec.               Sec.
Year           Deficiency            6651(a)(1)          6654(a)

1991             $8,191                $2,048               $470
1992              7,513                 1,878                327

       We must decide:

       1.      Whether petitioner failed to report income for 1991 and

1992.       We hold that he did;

       2.      whether petitioner is liable for the section 6651(a)(1)

addition to tax for 1991 and 1992.           We hold that he is;

       3.      whether petitioner is liable for the section 6654(a)

addition to tax for 1991 and 1992.           We hold that he is.

       Unless otherwise indicated, section references are to the

Internal Revenue Code applicable to the years in issue.             Rule



       1
       In her second amendment to answer, respondent increased
petitioner's deficiencies and additions to tax as follows:

                                          Additions to Tax
                                        Sec.               Sec.
Year           Deficiency            6651(a)(1)          6654(a)

1991            $35,773                $8,943              $2,059
1992             28,405                 7,101               1,239
                               - 3 -

references are to the Tax Court Rules of Practice and Procedure.

Dollar amounts are rounded to the nearest dollar.

                          FINDINGS OF FACT

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

The stipulations and the exhibits attached thereto are

incorporated herein by this reference.    Petitioner resided in

Alta Loma, California, when he petitioned the Court.

     Petitioner is a nurse anesthetist.      Petitioner rendered

nurse anesthetist services on behalf of a partnership called

Newport Anesthesia Associates (NAA) for approximately 30 to 40

hours a week for 10 to 15 months during the years in issue.

Since 1987, NAA has operated as a partnership, using petitioner's

address as its address.   The partnership agreement was entered

into between Renato Oania (Oania) and James C. Estrada CRNA Trust

(CRNA Trust) and was signed by Oania and petitioner; petitioner

signed the partnership agreement on behalf of the CRNA Trust.

Petitioner and Oania are the only people who have worked for and

administered anesthesia for NAA.

     Dr. Peter J. Voloshin (Dr. Voloshin) has worked as a plastic

surgeon since 1986.   During 1991 and 1992, Dr. Voloshin operated

a business entitled Newport Institute of Surgery, P. James

Voloshin, M.D., Inc. (NIS).   Dr. Voloshin's business maintained

operating room facilities and required the services of a nurse

anesthetist.
                               - 4 -

     NAA provided anesthesia services to NIS for which it

received payments during 1991 and 1992, some of which were handed

directly to petitioner.   A portion of the payments included

compensation for anesthetic services rendered by petitioner; NIS'

books indicated "Jim patient payments" for payments made by

patients to petitioner.   NAA also received payments for

anesthesia services from insurance companies.    In 1991 and 1992,

respectively, NAA received total income of $255,769 and $212,940

from insurance companies and NIS and had $39,334 and $39,952 in

total deductions.

     Petitioner had control over funds received by NAA and

deposited into NAA's account in Security Pacific Bank before the

funds were transferred to the CRNA Trust.   NAA has disbursed

funds from its checking account, payable directly to the CRNA

Trust.   Petitioner has deposited checks issued by NIS into NAA's

bank account and has signed checks on NAA's account; Security

Pacific Bank honors only checks bearing an authorized signature.

When Oania withdrew funds from the NAA bank account, he divided

each amount 50/50 with petitioner.

     Petitioner also had control of funds deposited into the CRNA

Trust bank account at Security Pacific Bank.    Petitioner was

authorized to sign checks drawn on the account.

     Petitioner, as grantor, formed the James C. Estrada Family

Trust (Family Trust) on June 10, 1978.   The Family Trust

Agreement provided that petitioner's address was the trust
                                 - 5 -

address.   There is no evidence to indicate whether the CRNA Trust

and the Family Trust are one in the same.

     NAA filed 1991 and 1992 Federal tax returns, signed by

petitioner as general partner.    On the Schedule K-1, Partner's

Share of Income, Credits, Deductions, Etc., attached to NAA's

1991 and 1992 returns, NAA reported the 1991 and 1992 income of

both the CRNA Trust and Oania as $80,505 and $72,130,

respectively.   In the notice of deficiency, respondent determined

that petitioner failed to report income of $23,133 and $21,750

for 1991 and 1992, respectively.    In respondent's second

amendment to answer filed on January 6, 1997, respondent

increased petitioner's 1991 and 1992 income tax by "50 percent of

$55,425" and "50 percent of $28,728", respectively.    There is no

evidence to indicate that either the CRNA Trust or the Family

Trust ever filed returns or paid taxes for the years in issue.

                              OPINION

1.   Unreported Income

     Respondent determined that petitioner earned compensation

from his nurse anesthetic services that he failed to include in

gross income.   Petitioner argues that the CRNA Trust earned the

disputed income, rather than he.    We agree with respondent that

the compensation is taxable to petitioner.

     Petitioner must prove that respondent's determinations set

forth in her notice of deficiency are incorrect.    Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933); Potts, Davis & Co.
                                 - 6 -

v. Commissioner, 431 F.2d 1222 (9th Cir. 1970), affg. T.C. Memo.

1968-257.   Respondent must prove any increase in those

deficiencies asserted in her amended answer.     Rule 142(a); see

also Robinson v. Commissioner, 102 T.C. 116, 124 (1994), affd. in

part and revd. on another issue 70 F.3d 34 (5th Cir. 1995);

Estate of Bowers v. Commissioner, 94 T.C. 582, 595 (1990).

     Section 61(a) defines gross income as "all income from

whatever source derived."    Sec. 61(a)(1).   This definition

includes 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); Hawkins v. United

States, 30 F.3d 1077, 1079 (9th Cir. 1994).

     Although a taxpayer has the legal right to minimize his

taxes through legally permissible means, see Gregory v.

Helvering, 293 U.S. 465, 469 (1935), this right does not permit

the taxpayer to structure a paper entity to avoid tax when that

entity lacks economic reality.    See Markosian v. Commissioner,

73 T.C. 1235, 1241 (1980).    When the form of the transaction has

not altered any cognizable economic relationships, we look

through that form and apply the tax law according to the

substance of the transaction.     Furman v. Commissioner, 45 T.C.

360 (1966), affd. per curiam 381 F.2d 22 (5th Cir. 1967).

     Our review of the record shows that petitioner is liable for

deficiencies for the subject years equal to the amounts asserted

by respondent in here second amendment to answer.     The record
                               - 7 -

shows that petitioner administered the anesthesia and received

the compensation for his services.     We find that the trust was

not a separate taxpaying entity for three primary reasons:

(1) Petitioner, not the trust, controlled the earning of the

compensation at issue, (2) petitioner controlled the CRNA Trust

bank account, and (3) petitioner treated 50 percent of the money

paid to NAA as his own.

     First, we find that petitioner clearly controlled the

compensation in question.   Dr. Voloshin and Oania testified that

petitioner and Oania performed anesthetic services for which they

were compensated.   Oania and petitioner were the only people who

performed services for NAA.

     In addition, petitioner clearly had control over the CRNA

Trust bank account and partial control over the NAA bank account.

A person may be treated as the owner of an account if he or she

can derive readily realizable economic value from the account,

and a person derives such value when "he or she has the freedom

to dispose of the account funds at will."     Chu v. Commissioner,

T.C. Memo. 1996-549.   Oania, petitioner's partner, testified that

he and petitioner split the profits of NAA equally, and that

petitioner sometimes deposited checks issued by NIS into the NAA

bank account.   Canceled checks from the NAA bank account show

petitioner as the signatory.   Petitioner was also authorized to

sign checks drawn on the CRNA Trust bank account.
                                 - 8 -

     Petitioner's attorney ineffectively attempted to elicit

testimony that compensation for petitioner's services was paid to

the CRNA Trust.   During direct examination, Oania testified that

he does business on a day-to-day basis with petitioner, and that

he divides the compensation from the anesthetic services with

petitioner.   Then, during redirect examination petitioner's

attorney attempted to change Oania's testimony.

     Q    You were asked if you divide the money from Newport
          Anesthesia Associates 50/50 with James Estrada?

     A    Yes, I divide ---

     Q    You answered yes?

     A     --- we divide that, yes, sir.

     Q    What you mean is you divide it with the James C.
          Estrada CRNA Trust, don't you?

     A    That's correct.

     Q    Your partner?

     A    Yeah, um-hmm.

     Q    And in fact, that's what the tax returns show, is
          it not?

     A    Yes.

     Q    The various K-1s that are attached to those two
          returns?

     A    That's correct, sir.

     Q    And you didn't mean to infer that actually Mr.
          Estrada got the money, did you?

     A    I didn't mean that.
                                - 9 -

Immediately following petitioner's counsel's examination of the

witness, however, Oania confirmed during re-cross-examination

that he actually works with and shares compensation with

petitioner.

     Q      Mr. Oania, when you divide up the funds, the person
            that you sit down with, or stand up with when you
            divide up the funds is James C. Estrada?

     A      The person, yes.

     On the basis of the record, we find that petitioner

performed services for NAA, and was compensated for performing

them.    Since petitioner treated the money "paid" to the CRNA

Trust as his own, the total amount "paid" to the CRNA Trust

during the years in issue was includable in petitioner's gross

income.

2.   Addition to Tax Under Section 6651(a)(1)

     Respondent determined additions to tax under section 6651(a)

for petitioner's 1991 and 1992 taxable years.    In order to avoid

this addition to tax, petitioner must prove that his failure to

file was:    (1) Due to reasonable cause and (2) not due to willful

neglect.    Sec. 6651(a); Rule 142(a); United States v. Boyle, 469

U.S. 241, 245 (1985); United States v. Nordbrock, 38 F.3d 440

(9th Cir. 1994).    A failure to file a timely Federal income tax

return is due to reasonable cause if the taxpayer exercised

ordinary business care and prudence and, nevertheless, was unable

to file the return within the prescribed time.    Sec. 301.6651-

1(c)(1), Proced. & Admin. Regs.     Willful neglect means a
                               - 10 -

conscious, intentional failure to file or reckless indifference.

United States v. Boyle, supra at 245.

     Petitioner has offered no evidence to show that his failure

to file was due to reasonable cause and not willful neglect.

Accordingly, we sustain respondent's determination under section

6651(a)(1) for petitioner's 1990 and 1991 taxable years.

3.   Addition to Tax Under Section 6654(a)

     Respondent further determined an addition to tax under

section 6654(a) for each of the years in issue, asserting that

petitioner failed to pay estimated tax.     This addition to tax is

mandatory unless petitioner proves that he met one of the

exceptions contained in section 6654.     Recklitis v. Commissioner,

91 T.C. 874, 913 (1988).    Petitioner has offered no evidence to

show that any of the statutory exceptions apply.    Accordingly, we

sustain respondent's determination under section 6654(a) for

petitioner's 1990 and 1991 taxable years.

     We have considered all arguments made by petitioner for

contrary holdings and, to the extent not discussed above, find

them to be without merit.

     To reflect the foregoing,


                                          Decision will be entered

                                     under Rule 155.
