                          T.C. Memo. 2005-292



                        UNITED STATES TAX COURT



                    JAMES B. CLARK, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9559-04.                Filed December 21, 2005.



     James B. Clark, pro se.

     Inga C. Plucinski and Marion K. Mortensen, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:     Respondent determined deficiencies in

petitioner’s Federal income tax, an addition to tax, and

penalties as follows:

                                 Addition to tax and penalties
     Year      Deficiency        sec. 6651(a)(1) sec. 6662(a)

     1998        $7,494              $776.75       $1,498.80
     2000        14,163                --           2,832.60
     2001         5,754                --           1,150.80
                               - 2 -

     The issues for decision1 are:

     1.   Whether petitioner had gross income and deductions in

the amounts respondent determined for 1998, 2000, and 2001.   We

hold he did.

     2.   Whether petitioner is liable for the addition to tax

for failure to timely file under section 6651(a)(1)2 for 1998,

and for the accuracy-related penalty under section 6662(a) for

1998, 2000, and 2001.   We hold that he is.

                         FINDINGS OF FACT

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




     1
        We ordered the parties to file posttrial briefs.
Respondent did so; petitioner did not. Under these
circumstances, we may hold petitioner in default on all issues
for which he bears the burden of proof. See Stringer v.
Commissioner, 84 T.C. 693, 704-708 (1985), affd. without
published opinion 789 F.2d 917 (4th Cir. 1986); Furniss v.
Commissioner, T.C. Memo. 2001-137; McGee v. Commissioner, T.C.
Memo. 2000-308. However, we decide this case on the record as it
stands. We base our understanding of petitioner’s position on
his petition and trial testimony.
     2
        Section references are to the Internal Revenue Code as
amended and in effect for the years in issue.
                                - 3 -

A.   Petitioner

     Petitioner resided in Salt Lake City, Utah, when the

petition was filed.   He was married to Brenda J. Clark (Mrs.

Clark) during the years in issue.

     Petitioner studied finance at Idaho State University.    He

has a degree in accounting from Brigham Young University.    Over

the years, petitioner has worked as a distribution clerk, truck

driver, stockbroker, and restaurant owner and as sole proprietor

of a business known as Totally Awesome Internet (TAI).

     Petitioner and his family formerly lived in Idaho.

Petitioner moved to Salt Lake City in June 1997 to work for Boise

Cascade Office Products, but he did not work for that company

after November 25, 1997.   His family moved to Salt Lake City in

1998.   Petitioner worked intermittently for Dell Super Computers

during the years in issue.

B.   Petitioner’s Tax Returns

     Petitioner and Mrs. Clark filed a joint Form 1040, U.S.

Individual Income Tax Return, for 1998, which respondent received

on November 19, 2000.   On that return, they reported $56,991 of

gross income, $3,820 of taxable income, $2,022 tax due, and

$6,409 tax withheld, and they claimed a $4,387 refund.    They

deducted $35,304 for moving expenses and $9,767 for itemized

deductions.   Petitioner kept few if any records.   About $20,000
                                - 4 -

of the amount he deducted for moving expenses was the cost of

replacing the roof on his house in Idaho.

     In May 1999, petitioner organized a corporation named

Totally Awesome Internet Services, Inc. (TAIS, Inc.).     TAIS,

Inc., was dissolved in April 2000.      After dissolution, petitioner

continued to operate the business as a sole proprietorship.

     Petitioner prepared and he and Mrs. Clark timely filed a

joint income tax return for 2000.    They reported $16,417 of

income, $13 tax due, and $2,616 tax withheld, and they claimed a

$2,603 refund.   On a Schedule C, Profit or Loss from Business,

included with that return, they reported $1,682 in gross receipts

and sales for TAI and deducted $12,289 in business expenses.

     Jackson Hewitt Tax Service prepared and electronically

filed a joint income tax return for 2001 for petitioner and Mrs.

Clark.   On that return, they reported $42,878 of income, $36,781

of itemized deductions, $28 tax due, and $4,551 tax withheld, and

they claimed a $4,523 refund.   They deducted $22,131 of

unreimbursed employee expenses petitioner allegedly incurred in

2001.

C.   Respondent’s Examination of Petitioner’s Tax Returns for
     1998, 2000, and 2001

     Respondent selected petitioner and Mrs. Clark’s 1998 Federal

income tax return for examination on August 17, 2001.     Petitioner

and Mrs. Clark executed a Consent to Extend the Time to Assess
                                - 5 -

Tax for 1998.    Respondent later expanded the audit to include

their 2000 and 2001 joint returns.

     During 1998, 2000, and 2001, petitioner and Mrs. Clark

maintained a joint checking account with the Veterans’

Administration Medical Center University Federal Credit Union

(VAMCU).    Respondent’s tax examiner (the examiner) reviewed

petitioner and Mrs. Clark’s bank statements, including monthly

statements for the VAMCU joint checking account, and conducted a

bank deposits analysis.    The examiner concluded, on the basis of

the bank deposits analysis, that petitioner and Mrs. Clark failed

to report taxable income of $9,131 for 1998 and $11,167 for 2001.

The examiner also concluded that petitioner failed to report

$37,175 in gross receipts and sales on Schedule C for 2000.

     The examiner asked petitioner to substantiate the moving

expenses that he and Mrs. Clark had deducted on their 1998 tax

return.    In response, petitioner gave to the examiner (1) two

checks purportedly payable to Dave’s Moving and Storage, and (2)

a summary of moving expenses purportedly from Dave’s Moving and

Storage.    Petitioner fabricated these items.   Dave’s Moving and

Storage did not exist.    The examiner adjusted petitioner and Mrs.

Clark’s itemized deductions for 1998.

     The examiner asked petitioner to substantiate the Schedule C

business expenses that he and Mrs. Clark deducted on their 2000

tax return and the unreimbursed employee business expenses that
                               - 6 -

they deducted on their 2001 return.     Petitioner did not

substantiate any of those deductions.     Some of the amount

petitioner deducted as unreimbursed employee expenses was job

hunting expenses.   The examiner did not attribute any income to

them on the basis of deposits in the account of TAIS, Inc.

                              OPINION

A.   Whether Petitioner Had Gross Income in the Amounts
     Respondent Determined for 1998, 2000, and 2001

     Petitioner contends that respondent overstated the amounts

of petitioner’s unreported gross income for 1998, 2000, and 2001.

We disagree.

     If a taxpayer does not maintain adequate books and records,

the Commissioner may reconstruct the taxpayer’s income by any

reasonable method which clearly reflects income, sec. 446(b);

Holland v. United States, 348 U.S. 121, 130-132 (1954), including

the bank deposits method, Parks v. Commissioner, 94 T.C. 654, 658

(1990); Estate of Mason v. Commissioner, 64 T.C. 651, 656 (1975),

affd. 566 F.2d 2 (6th Cir. 1977).   Bank deposits are prima facie

evidence of income.   Tokarski v. Commissioner, 87 T.C. 74, 77

(1986); Estate of Mason v. Commissioner, supra at 656-657.

Petitioner did not keep adequate books and records for the years

in issue.   The examiner used the bank deposits method to estimate

petitioner’s gross income for those years.

     Petitioner contends that the examiner incorrectly counted

his transfers of funds from one account to another in 1998, 2000,
                                 - 7 -

and 2001 as income.   We disagree.   The examiner testified and her

bank deposits worksheet shows that she did not count funds

transferred from one account to another as income to petitioner

for 1998, 2000, and 2001.

     Petitioner contends that the examiner improperly treated

overdraft transfers as taxable receipts.   We disagree.   The

examiner testified and her bank deposits worksheet shows that she

recorded overdraft transfers first as receipts, and then as

transfers from receipts, and so she did not treat overdraft

transfers as taxable receipts.

     Petitioner made no other arguments relating to respondent’s

determination of his and Mrs. Clark’s gross income.    We sustain

respondent’s determination of petitioner’s gross income for 1998,

2000, and 2001.

B.   Whether Petitioner Had More Deductions Than Respondent
     Allowed for 1998, 2000, and 2001

     Petitioner contends that he had more deductions than

respondent allowed for 1998, 2000, and 2001.    Specifically,

petitioner contends that he had substantial amounts of moving

expenses in 1998, business expenses in 2000, and unreimbursed

employee expenses in 2001.

     1.   Moving Expenses

     Generally, a taxpayer may deduct moving expenses paid or

incurred during a taxable year in connection with beginning

qualifying work at a new qualifying location.    Sec. 217(a).   A
                                - 8 -

taxpayer may deduct as moving expenses only the cost of

transporting household goods and personal effects and travel,

including lodging but not meals, from the former residence to the

new residence.   Sec. 217(b).   Petitioner bears the burden of

proving he may deduct moving expenses.3    Petitioner did not

substantiate any of the claimed moving expenses.    Petitioner

testified that about $20,000 of the $34,304 that he deducted as

moving expenses is the amount he spent to replace the roof on his

Idaho home.    That expense is not deductible under section 217(b).

     2.   Business Expenses

          a.     Telephone Expenses

     Petitioner contends that he had about $11,000 in telephone

expenses for TAI in 2000.   He testified that telephone expenses

of about $11,000 were eventually paid.    Petitioner offered no

telephone bills showing amounts owed or bank records to show that

he paid any telephone bills in 2000 or at any time.    We conclude

that petitioner may not deduct any amount as a telephone business

expense for 2000.

          b.     Internet Uplink Services Expense

     Petitioner testified that he paid about $47,000 to an entity

known as Viawest for Internet uplink services, and he contends

that he may deduct that amount for 2000.    We disagree.


     3
        Petitioner does not contend (nor does the record support
a conclusion) that the burden of proof is shifted to respondent
under sec. 7491(a).
                                 - 9 -

Petitioner prepared and gave the examiner a summary of Viawest

expenses for TAIS, Inc.     Petitioner had no invoices or copies of

canceled checks showing that he incurred or paid those amounts.

     Petitioner offered in evidence a summary of payments TAIS,

Inc., made to Viawest and a set of Viawest invoices.

Respondent’s counsel and the examiner could not reconcile the

summary of payments TAIS, Inc., made to Viawest with respondent’s

bank deposits analysis, and petitioner could not explain the

discrepancy.     Petitioner did not offer into evidence or make

available to respondent’s counsel all of the documents on which

the summary of payments was purportedly based.     See Fed. R. Evid.

803(6), 1006.     Petitioner gave respondent copies of Viawest

invoices for the first time at trial.     Respondent asked for bank

records to show that petitioner paid the amounts stated in those

invoices.     The Court gave petitioner 45 days following trial to

provide respondent with bank records to corroborate the summary

of payments and the Viawest invoices described above.     Petitioner

did not do so.4    We conclude that petitioner may not deduct any

amount for Internet uplink services expense in 2000.

            c.    Conclusion

     We conclude that petitioner has not proven that he is

entitled to deduct any business expenses for 2000.



     4
        By order, the summary of payments and the Viawest
invoices described above were not admitted in evidence.
                                 - 10 -

     3.   Unreimbursed Business Expenses

     Petitioner contends that he had $21,355 in unreimbursed

employee expenses in 2001.     We disagree.   Petitioner did not

offer any persuasive evidence showing that he may deduct any of

these amounts.    There is no evidence that petitioner paid any

amounts for unreimbursed employee business expenses in 2001.

     We conclude that petitioner may not deduct any amount for

unreimbursed employee business expenses in 2001, and we sustain

respondent’s determination of petitioner’s deficiencies for 1998,

2000, and 2001.

C.   Whether Petitioner Is Liable for the Addition to Tax for
     Failure To Timely File Under Section 6651(a)(1) for 1998,
     and for the Accuracy-Related Penalty Under Section 6662(a)
     for 1998, 1999, and 2000

     Section 7491(c) places on the Commissioner the burden of

producing evidence that it is appropriate to impose a particular

addition to tax or penalty.     To meet that burden, the

Commissioner need not produce evidence relating to defenses such

as reasonable cause or substantial authority.      Higbee v.

Commissioner, 116 T.C. 438, 446 (2001); H. Conf. Rept. 105-599,

at 241 (1998), 1998-3 C.B. 747, 995.

     Respondent has met the burden of production with respect to

the addition to tax for failure to timely file a return for 1998

by showing that petitioner and Mrs. Clark filed a joint 1998

return on November 19, 2000.    Respondent has met the burden of

production with respect to the accuracy-related penalty under
                              - 11 -

section 6662(a) by showing that petitioner has no records and

submitted false documents to the examiner.

     Petitioner made no argument that he was not liable for the

addition to tax for failure to file under section 6651(a)(1) for

1998, or for the accuracy-related penalty under section 6662(a)

for 1998, 2000, and 2001.   We conclude that petitioner is liable

for the addition to tax for failure to file under section

6651(a)(1) for 1998, and for the accuracy-related penalty under

section 6662(a) for 1998, 2000, and 2001.

     To reflect the foregoing,


                                              Decision will be

                                         entered for respondent.
