                        T.C. Memo. 1996-479



                      UNITED STATES TAX COURT




                 MIRIAM LAWRENCE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


           JOSEPH AND MARGARET ABRAHAM, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos.   4263-92, 4278-92.       Filed October 23, 1996.



     Towner S. Leeper and John E. Leeper, for petitioners.

     Gerald L. Brantley, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     DAWSON, Judge:   These consolidated cases were assigned to

Special Trial Judge Lewis R. Carluzzo pursuant to the provisions
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of section 7443A(b)(4) and Rules 180, 181 and 183.1   The Court

agrees with and adopts the Special Trial Judge's opinion, which

is set forth below.

                OPINION OF THE SPECIAL TRIAL JUDGE

     CARLUZZO, Special Trial Judge:    These consolidated cases are

before the Court on petitioners' motions for awards of reasonable

administrative and litigation costs, pursuant to section 7430.

     A hearing was conducted on petitioners' motions in Houston,

Texas.   The following witnesses testified at the hearing:   Miriam

Lawrence, petitioner in docket No. 4263-92; Alfonso Red, the

revenue agent who conducted the relevant examinations; Sharon L.

Haddad, a certified public accountant retained by petitioners

after the cases were docketed; and Gene Hill, the Appeals officer

responsible for settling the cases.    In addition, petitioners'

attorneys in these cases testified with respect to the extent and

value of the services they rendered.    See Rule 201(a); rule

3.7(a)(2), Model Rules of Professional Conduct of the American

Bar Association.



     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code as amended and in effect for the relevant
period. References to sec. 7430 are to the version in effect as
amended by sec. 6239(d) of the Technical and Miscellaneous
Revenue Act of 1988, Pub. L. 100-647, 102 Stat. 3743. Unless
otherwise indicated, all Rule references are to the Tax Court
Rules of Practice and Procedure.
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                          FINDINGS OF FACT

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

The stipulations of fact and the exhibits attached thereto are

incorporated herein.   Joseph Abraham and Margaret Abraham are

husband and wife.   At the time when the petitions were filed in

these cases all of petitioners resided in El Paso, Texas.

     Joseph Abraham (Abraham) was an attorney at law who

practiced and maintained his law offices in El Paso, Texas.

Miriam Lawrence (Lawrence) was his executive secretary and office

manager.   She had been employed by him from July of 1969 until

February of 1993.   During the years 1986 and 1987, Lawrence was

also engaged in a real estate business and some form of home-

based clothing and jewelry sales business.

     Revenue Agent Alfonso Red (Agent Red), conducted an

examination of the Abrahams' 1987 joint Federal income tax

return.    He also examined Lawrence's 1986 and 1987 Federal income

tax returns.   In the course of his examinations, among other

things, Agent Red reviewed bank statements relating to numerous

bank accounts maintained by Abraham and bank statements and

canceled checks of several bank accounts maintained by Lawrence.

He discovered that substantial funds were being withdrawn from

bank accounts maintained by Abraham and deposited into bank

accounts maintained by Lawrence, and vice versa.
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     Using the bank deposits analysis indirect method of

determining income, Agent Red concluded that Lawrence understated

her income for the years 1986 and 1987.    Agent Red also concluded

that many of the deposits made into Abraham's bank accounts from

checks drawn on one of Lawrence's bank accounts represented

income to him.   The major adjustments (the omitted income

adjustments)2 in the notices of deficiency were made in

accordance with the conclusions drawn by Agent Red as a result of

his reviews of the various bank accounts maintained by either

Abraham or Lawrence.    Because petitioners focused on these

adjustments in connection with the motions here under

consideration, we do likewise.

I. Federal Income Tax Returns

     None of the relevant Federal income tax returns were placed

in the record.   However, from other evidence presented we have a

limited understanding of what information was contained on

petitioners' returns.

     A. Miriam Lawrence

     Lawrence untimely filed her 1986 Federal income tax return

in October of 1988.    She reported her salary from her employment



     2
      In the notice of deficiency pertaining to Lawrence the
adjustment is entitled "Income". In the Abrahams' notice of
deficiency the adjustment is entitled "Gross receipts".
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with Abraham in the amount of $39,969.    In addition, on a

Schedule C she reported $3,453 in gross receipts from her other

businesses.   After various deductions she reported taxable income

of $8,193 for the year 1986.

     Her 1987 Federal income tax return was apparently timely

filed.   For that year she reported $39,847 in salary from her

employment with Abraham, and on a Schedule C, $8,743 in gross

receipts from her other businesses.    After various deductions she

reported taxable income of $18,617 for the year 1987.

     As best we can tell from the record, there was nothing on

Lawrence's returns that indicated that she was indebted to

Abraham during the years 1986 and 1987.

     B. Joseph and Margaret Abraham

     On a Schedule C included with the Abrahams' 1987 Federal

income tax return, Abraham reported gross receipts in the amount

of $1,344,364 from his law practice.   Although there is some

information with respect to specific expenses deducted on the

Schedule C, the record does not reveal whether petitioners

reported a net profit or loss from Abraham's practice of law.    We

are unsure as to the extent, nature, or source of other income

that might have been reported on their return.    It appears that

the Abrahams elected to itemize deductions for the year 1987.    On
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their 1987 return they reported taxable income in the amount of

$36,338.

     As best we can tell from the record, there is nothing on the

Abrahams' return that indicates that Abraham was a creditor of

Lawrence during the year 1987.

II. Bank Accounts and Business Records

     A. Miriam Lawrence

     During the year 1986 Lawrence maintained at least two

checking accounts.   During that year she made deposits into these

accounts in excess of $743,000.    Of this amount, $438,940

consisted of checks drawn on one of the accounts maintained by

Abraham, and $24,260 consisted of currency deposits of $500 or

more.   She wrote checks totaling over $790,000 on these two

accounts.   Included in this amount were in excess of $150,000 in

checks written to Abraham, over $144,000 in checks written to

Texas National Bank; almost $75,000 in checks written to American

Finance Co.; over $14,000 in checks written for furniture and

fixtures; over $26,000 in checks written to department stores;

over $23,000 in checks written to American Express; a check or

checks in the amount of $29,449.50 written to the Internal

Revenue Service; $13,063.07 in checks written to El Paso Country

Club; and over $6,500 in checks written for jewelry.
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     During the year 1987 Lawrence maintained at least four

checking accounts and one savings account.   For the year 1987 she

made deposits into these accounts in excess of $2,500,000.     Of

this amount, in excess of $1,900,000 consisted of checks drawn on

one of the accounts maintained by Abraham, and $189,271 consisted

of currency deposits of $500 or more.   She wrote checks totaling

over $2,500,000 on these accounts.    Included in this amount were

in excess of $388,000 in checks written to Abraham, over $370,000

in checks written to Texas National Bank; over $116,000 in checks

written to Continental National Bank; over $150,000 in checks

written to American Finance Co.; over $40,000 in checks written

for furniture and fixtures; over $65,000 in checks written to

department stores; over $74,000 in checks written to American

Express; a check or checks in the amount of $3,193 written to the

Internal Revenue Service; $42,650 in checks written for furs;

over $18,000 in checks written for jewelry; and $8,500 in checks

made payable to herself.

     In both years, apparently some of the checks written to

banks were for the purchase of cashier's checks.

     Other than the bank statements that she kept with respect to

her various accounts, Lawrence did not maintain any books or

records that recorded her income and deductions for the years
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1986 and 1987, with respect to either her employment with Abraham

or her other businesses.

     B. Joseph and Margaret Abraham

     There is no information in the record with respect to any

personal bank accounts maintained by the Abrahams during 1987.

     In connection with his law practice and other business or

investment interests, Abraham maintained between 5 and 13 bank

accounts.   During the year 1987, checks drawn on an account of

Lawrence's and cashier's checks purchased with funds from one of

her accounts totaling more than $1,200,000 were deposited into

the accounts of Abraham.

     For each of at least five of the accounts, Abraham

maintained a general ledger.    In connection with his law

practice, he kept various other types of books and records,

including a cash receipts journal and something referred to by

Lawrence as a "daily cash requirements" journal.

III. Respondent's Examinations

     The examination of Lawrence's 1986 Federal income tax return

started in February of 1989.    Initially it was assigned to

Revenue Agent Frances Thicke.    On July 23, 1990, the examination

was transferred to Agent Red.    After reviewing the case file,

Agent Red discovered that several bank statements were missing.

He was also concerned that the transactions reflected on the bank
                               - 9
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statements that he did have appeared to be unusually large in

relation to the amount of income reported on Lawrence's 1986

return.

     After Agent Red was assigned Lawrence's examination, it was

expanded to include the year 1987, and she was duly notified

through her then representative.   On August 14, 1990, at his

first meeting with Lawrence's representative, Agent Red expressed

his concern over the transactions occurring between Lawrence and

Abraham.   Agent Red was told that the transactions reflected on

the bank statements were believed by the representative to be

loans and repayments between the two individuals.   At this

meeting, Agent Red issued an information document request (IDR)

to Lawrence's representative requesting certain missing bank

statements; all books and records relating to Lawrence's business

activities; a list of all her bank accounts for the years 1986

and 1987; and other information.   Lawrence did not comply with

Agent Red's request for the missing bank statements and list of

bank accounts.

     Because of the relationship between Lawrence and Abraham,

Agent Red was assigned the examination of the Abrahams' 1987

Federal income tax return.   On July 23, 1990, Agent Red mailed an

initial appointment letter to the Abrahams along with an IDR

requesting among other things certain books and records relating
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to Abraham's law offices; information with respect to the sale of

certain property; information relating to certain investments;

and "[records] of all loans and repayments."

     In Agent Red's letter to the Abrahams, he requested an

initial conference date of August 10, 1990; however, due to the

unavailability of the Abrahams' attorney, Towner Leeper, the

meeting was postponed until September 5, 1990.   On September 4,

1990, Agent Red was advised in a telephone conference with Towner

Leeper that Abraham had been examined for prior years, similar

issues had been raised, and the matter had ultimately been

settled, mostly by concession on the Government's part.   Towner

Leeper wanted Agent Red to review the materials of the prior

examination before Agent Red started the current examination.

They scheduled a meeting for the next day.   Prior to the meeting,

Towner Leeper telephoned Agent Red and advised him that he was

having difficulty locating the file from the prior examination

and that he did not want to meet until he found the file.    Agent

Red indicated that he was going to begin the examination by

visiting Abraham's law offices the next day.   Agent Red was

advised by Towner Leeper that if he did so he would be

"physically removed from the premises."   Apparently Agent Red

waited for the information from Towner Leeper.   On October 23,
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1990, Towner Leeper met with Agent Red and provided certain

records relating to the prior examination of Abraham.

     Due to other responsibilities and the delays he encountered

in attempting to obtain information with respect to Lawrence's

examination, Agent Red did not work on petitioners' examinations

from late October 1990, through January of 1991.

     On February 13, 1991, Agent Red met with Towner Leeper and

Lawrence.   Lawrence was present at this meeting in her capacity

as Abraham's office manager.   Towner Leeper did not represent her

at this time with respect to her own examination.    At this

meeting Agent Red was provided with some of the records that he

had requested in his July 23, 1990, IDR to the Abrahams.    He

still had not received the information he requested in the IDR

issued to Lawrence on August 14, 1990.

     On March 15, 1991, Agent Red issued a second IDR to the

Abrahams.   He again asked for the daily log of cash receipts and

the cash receipts journal.   He also asked for an "explanation of

the large [number] of transfers between accounts."    In response

to the IDR of March 15, 1991, Agent Red met with Towner Leeper

and Lawrence on March 26, 1991.   Agent Red was not provided with

the information he had requested in the IDR.

     On May 28, 1991, in a letter to the respective

representatives of petitioners, Agent Red requested that the
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limitations periods relating to the examinations be extended for

a period of 1 year until October of 1992.     Petitioners agreed to

extend the periods only until December 31, 1991, an extension of

2 months.

     On June 3, 1991, Agent Red issued another IDR to Lawrence

requesting the same information that had been requested in the

August 14, 1990, IDR, as well as additional information on other

subsequently discovered bank accounts.

     Because the IDR's issued to Lawrence were not fully complied

with, Agent Red issued summonses to various banks in July of 1991

seeking certain of the information that Lawrence failed to

provide.    After receiving some records directly from Lawrence and

some of the missing bank statements from the banks, Agent Red

prepared check and deposit spreadsheets for each of Lawrence's

bank accounts.   On August 27, 1991, he issued yet another IDR to

Lawrence and attached copies of the spreadsheets he had prepared

from the bank records.   He requested that Lawrence identify the

source of each deposit listed on the spreadsheets and explain the

purpose of the checks written on the accounts.     The response date

for the IDR was September 12, 1991.     On September 11, 1991,

Lawrence telephoned Agent Red and requested a 1-week extension,

to which he agreed.
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     While waiting for the information on Lawrence's examination,

on September 16, 1991, Agent Red issued an IDR to the Abrahams

and provided a copy of it to Towner Leeper.    Among other things,

the IDR specifically requested records and information with

respect to "loans made by taxpayers to all third parties

(including Miriam Lawrence) in 1987".     With respect to many of

Abraham's bank accounts reviewed by Agent Red, the IDR requested

an explanation as to "why are a large amount of transfers being

made from and to this account from other accounts?"    Once again,

Agent Red requested the daily logs of cash receipts and the cash

receipts journals for Abraham's law practice.    The response date

for this IDR was September 27, 1991.

     Also on September 16, 1991, Lawrence telephoned Agent Red

and asked that the response date for the August 27, 1991, IDR

issued to her be extended once again.     This time she requested

that it be extended until October 15, 1991.    In addition, she

indicated that she needed to have her records returned to her so

that she could respond.   In response to her request, Agent Red

asked that she extend the period of limitations until March 15,

1992.   She declined to do so.    On September 24, 1991, Lawrence

retrieved what records she had provided to Agent Red.

     On September 27, 1991, the response date for the September

16, 1991, IDR issued to the Abrahams, Agent Red telephoned Towner
                              - 14
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Leeper.   Towner Leeper advised Agent Red that the information was

being gathered and would be provided by October 31, 1991.

     Given the lack of cooperation that Agent Red was

experiencing in the examinations of petitioners, after consulting

with his group manager, he decided to issue summonses to Lawrence

and to the Abrahams.   Agent Red had previously issued summonses

in about 5 percent of his cases.    The summonses were issued on

October 1, 1991.   In each case, the summons requested information

relating to loans and repayments.

     The summons issued to Lawrence was returnable on October 15,

1991.   On that date she appeared at the summons conference with

Towner Leeper, who now represented her.    At the conference

Lawrence either refused, or failed to provide, any explanation

with respect to the checks she had written on, or deposited in,

her accounts.   With respect to any loans between her and Abraham,

she indicated that the only documentation for the loans consisted

of the canceled checks between the two.    She did not know the

outstanding balance of her indebtedness to Abraham, and with

respect to any interest that he charged her, she indicated that

she was charged "the going rate at the time of the loans."

     The conference with respect to the summons issued to the

Abrahams took place on October 16, 1991.    Abraham appeared

together with his representative, Towner Leeper.    The conference
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started at 9 a.m. and Agent Red was advised that Abraham had to

leave by 10 a.m. for a court appearance.       Abraham failed to

respond to many of the questions put to him at the summons

conference.    Abraham stated that he had outstanding loans to

Lawrence during 1987.    He further stated that he did not know the

terms of the loans, other than that the interest he charged her

was minimal.

IV.   The Notices of Deficiency

      On December 26, 1991, respondent issued a notice of

deficiency to Lawrence determining deficiencies in her 1986 and

1987 Federal income taxes in the amounts of $273,222 and

$793,894, respectively.    Respondent also determined that she was

liable for various additions to tax for those years.       The

deficiencies resulted from the following adjustments to her

income:
     Description                        1986              1987

      Income                         $563,635          $2,065,546
      Contract labor                    1,636

      The notice of deficiency with respect to the Abrahams was

issued by respondent on December 31, 1991, in which a deficiency

in their 1987 Federal income tax in the amount of $908,168 was

determined.    Respondent also determined that they were liable for

various additions to tax for the year in issue.
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The deficiency resulted from the following adjustments to their

income:


            Description                        1987

      Gross receipts                       $1,661,551
      Interest expense-Sch. C                 116,321
      Schedule C expenses: attorney           225,054
      Schedule C expenses: La Posta            37,286
      Schedule E: Fall Mansion                 40,202
      Capital gains and losses                407,576
      Itemized deductions                     (11,351)

      The bases for the adjustments made in the notices of

deficiency were the conclusions formed by Agent Red as a result

of his examinations.

V.   The Docketed Cases

      The petitions were filed in these cases on February 27,

1992.     In each case petitioners assigned error to all of the

adjustments made in the notices of deficiency.

      With respect to the omitted income adjustment, in her

petition Lawrence alleged that "the revenue agent used the bank

deposit method to determine that petitioner had realized

additional income without any inquiry of petitioner to identify

the nature of the deposits."      Likewise, the Abrahams, in an

amendment to their petition, alleged that the "unreported income

was determined under the bank deposit plus cash expenditure

method without inquiry into non-taxable transfers and loans, no
                               - 17
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consideration of beginning cash, nor any likely source of

income."

     The petitions were filed on behalf of petitioners by Towner

Leeper, who remains counsel of record in these cases.

     In connection with the adjustments resulting from Agent

Red's review of the various bank accounts, the positions taken by

respondent in her answers are the positions that respondent took

in the notices of deficiency; that is, unexplained bank deposits

represent taxable income to the depositor.

     After the cases were docketed, they were assigned to Appeals

Officer Gene Hill.   Sharon Haddad (Haddad), a certified public

accountant, was hired by petitioners in connection with Appeals

Officer Hill's consideration of the cases.   Petitioners requested

that the Court continue the cases from a scheduled trial session

so that Haddad would have additional time to complete an analysis

of Agent Red's examination prior to meeting with Appeals Officer

Hill.   Haddad eventually completed her analysis and prepared

several reports that focused on the adjustments made to the

Abrahams' income.    Her analysis and reports were limited to the

year 1987.   One of the reports (the transfer report) that she

prepared contained a side-by-side comparison of the numerous bank

account transactions between Abraham and Lawrence.   The transfer

report did little more than reproduce certain of Abraham's
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records, and in a different format, present schedules prepared by

Agent Red.   Haddad testified to this effect at the hearing.

     In preparing the transfer report Haddad relied upon the

representations made to her by petitioners, or on their behalf by

their attorneys, that the questioned deposits reflected on the

various bank statements did not represent taxable income to

either Abraham or Lawrence.   Haddad also had access to certain

records of Abraham's law practice that had not been provided to

Agent Red.   Specifically she was given what were referred to by

Lawrence as "daily cash requirements" journals.

     On August 5, 1993, Appeals Officer Hill was presented with

the reports prepared by Haddad.   Based upon his review of these

reports, on August 26, 1993, he advised petitioners'

representatives of respondent's concession of the omitted income

and other adjustments.   On October 13, 1993, the Court entered

stipulated decision documents in these cases.   In connection with

petitioners' motions here under consideration, the stipulated

decisions were vacated and filed as stipulations of settlement on

November 19, 1993.

                              OPINION

     Generally, section 7430 provides that in order to be

entitled to an award for reasonable administrative and litigation

costs the claimant must be a "prevailing party".   Sec. 7430(a).

In order to be considered a prevailing party, the claimant must
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establish that:    (1) The position of the United States in the

proceeding was not substantially justified; (2) the claimant

prevailed with respect to the amount in controversy or with

respect to the most significant issue presented; and (3) the

claimant met the net worth requirements of 28 U.S.C. sec.

2412(d)(2)(B) on the date the petition was filed.    In addition

to the above, the claimant must also establish that all

administrative remedies have been exhausted insofar as litigation

costs are concerned; that the claimant has not unreasonably

protracted the proceedings; and that the amount of costs claimed

is reasonable.    Sec. 7430(b)(1), (4).   The moving party bears the

burden of proof with respect to each of the above-listed

elements.    Rule 232(e).

     Respondent objects to petitioners' motions on several

grounds.    First, she argues that her position was substantially

justified.    Secondly, she argues that petitioners have

unreasonably protracted the proceedings.    Thirdly, she argues

that Abraham has failed to satisfy the net worth requirements.

Fourthly, she argues that a fee arrangement between counsel and

petitioners precludes any award under section 7430.    Lastly,

respondent argues that the amounts of costs and attorney's fees

that petitioners are seeking are not reasonable.
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I. The Substantial Justification of Respondent's Position

     Until her Appeals officer conceded the cases in response to

information not previously provided to the revenue agent,

respondent's position in this matter was that the unexplained

bank deposits to the accounts of Lawrence and Abraham represented

taxable income to each as computed in the notices of deficiency.

     Whether respondent's position is substantially justified is

a question of fact.   We resolve such issues by the application of

a reasonableness standard.    See Pierce v. Underwood, 487 U.S. 552

(1988) (construing similar language in the Equal Access to

Justice Act, 28 U.S.C. sec. 2412 (1988)).    In considering the

reasonableness of respondent's position, we take into account

what she knew at the time that she took the position based on the

information available to her at that time.   See Rutana v.

Commissioner, 88 T.C. 1329, 1334 (1987).

     Petitioners claim that, even without their cooperation,

Agent Red had the obligation to go further in his examinations.

They claim that Haddad had no more information than Agent Red did

and that she was able to satisfy respondent's Appeals officer

that the deposits in question did not represent taxable income to

either Abraham or Lawrence.   Respondent argues that Agent Red was

entitled to ask for and receive explanations with respect to the
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many transactions reflected on the bank statements.     According to

respondent, petitioners had an obligation to cooperate with Agent

Red during the course of the examinations, and their failure to

do so resulted in the adjustments made in the notices of

deficiency.

     We agree with respondent.   Initially we note that

petitioners' statements in the petitions alleging that Agent Red

never asked for an explanation with respect to the deposits in

question are patently frivolous.     The IDR's served upon

petitioners and their representatives asked for such an

explanation in clear terms in the early stages of the

examinations.   Likewise, during the summons conferences, which

were attended by at least one counsel of record in these cases,

petitioners were specifically questioned about the circumstances

surrounding any loans among them.3     To the extent that any

explanations were given, for example, as to the amount of

interest charged on loans, the explanations were inconsistent.

Furthermore, in the Abrahams' case, reference in the amendment to

petition to Agent Red's failure to take into account "non-taxable



     3
      We cannot help but question the bona fides of petitioners'
allegations on this point due to the fact that counsel was
present at the summons conferences and aware of the issuance and
contents of the various IDR's. See Rule 33.
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bank transfers" and "beginning cash" is erroneous in part and

irrelevant in part.   Agent Red did not include in Abraham's

income what were identified in his records as bank transfers, and

because the omitted income adjustment was based upon specific

items, and not upon a net worth analysis, there was no need to

consider "beginning cash".   In many respects, we view

petitioners' motions here under consideration as having no more

merit than the above-mentioned allegations made in their

respective pleadings.

     Petitioners' contention that Agent Red had access to the

same information that Haddad had access to is also meritless.

Not only did Haddad prepare her reports with petitioners'

cooperation, she had been given the "daily cash requirements"

journals that were withheld from Agent Red.

     There is a long line of authority for the proposition that

unexplained bank deposits are presumptively from taxable sources.

See, e.g., Price v. United States, 335 F.2d 671, 677 (5th Cir.

1964); DiLeo v. Commissioner, 96 T.C. 858, 868 (1991), affd. 959

F.2d 16 (2d Cir. 1992).   Agent Red was entitled to rely upon such

a presumption in the absence of any reasonable explanation to the

contrary.   We do not view the tentative explanation given to

Agent Red in August of 1990 by Lawrence's then representative, or
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the statements made by Lawrence and Abraham at the summons

conferences, to constitute reasonable explanations, particularly

in view of the extent and magnitude of the transactions, the

inconsistent statements made concerning interest, and the

complete lack of any corroborating documentation on the point.

     After listening to 2 days of testimony and reviewing

literally thousands of pages of exhibits, the Court still has not

heard a reasonable explanation for the transactions occurring

between Abraham and Lawrence.    If the transactions represented

loans between the two, the loans were not reflected as such on

any documents.

     The fact that Appeals Officer Hill accepted Haddad's

transfer report as support that neither Abraham nor Lawrence

realized taxable income from the various bank transactions

occurring between the two is certainly not conclusive that Agent

Red's adjustments and the position of respondent that resulted

therefrom were unreasonable.    We have many times stated that the

Commissioner's concession of an issue does not necessarily lead

to a finding that her position was not substantially justified.

See, e.g., Wilfong v. United States, 991 F.2d 359, 364 (7th Cir.

1993); Sokol v. Commissioner, 92 T.C. 760, 765 (1989); Wasie v.

Commissioner, 86 T.C. 962, 968-969 (1986).    Furthermore, in this
                              - 24
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case, what the Appeals officer considered to be critical

information was not provided to Agent Red.   Haddad's reports were

not prepared until after the close of Agent Red's examinations.

     Petitioners contend that a similar issue, involving items of

omitted income, was raised and conceded by the Government in a

prior examination of Abraham's income tax return for an earlier

year.   Petitioners argue that it was unreasonable for respondent

to once again pursue the issue.   There is nothing in the record,

however, that indicates the level of Abraham's cooperation during

a prior examination or what explanations were provided.    In any

event, our view of the significance of a prior examination

differs from petitioners'.   We note that in his July 23, 1991,

initial appointment letter to the Abrahams, Agent Red

acknowledged that it might be unproductive to examine matters

that had been previously considered and resolved.   We do not view

unexplained bank deposits to fit within the category of

previously examined matters referred to in that letter.

     Petitioners' attack on the reasonableness of respondent's

position is severely undermined by their failure to cooperate

with Agent Red during the examinations.   Cf. Inman v.

Commissioner, T.C. Memo. 1996-16.   Agent Red requested, and was

entitled to receive, explanations for the transactions reflected
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on the various bank statements that he reviewed during the course

of petitioners' examinations.     It was petitioners' obligation to

provide the explanations.

      In view of the amounts involved in the questioned

transactions and petitioners' failure to cooperate, Agent Red

acted reasonably under the circumstances.    With the period of

limitations about to expire, he concluded his examinations and

adjusted petitioners' incomes based upon the information

available to him at the time.

      Accordingly, we hold that respondent's positions in the

administrative and litigation proceedings were substantially

justified.

II.   Respondent's Other Objections to Petitioners' Motions

      Because the requirements of section 7430 are in the

conjunctive, Minahan v. Commissioner, 88 T.C. 492, 497 (1987),

our holding that respondent's position was substantially

justified operates in and of itself to deny petitioners' motions.

Consequently, we need not address respondent's other objections

to the motions.

      To reflect the foregoing,
    - 26
      26 -

    Appropriate orders and decisions

will be entered.
