                  T.C. Summary Opinion 2001-68



                     UNITED STATES TAX COURT



     GEORGE STEVE SASSER AND TAMMY R. SASSER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3318-99S.                       Filed May 10, 2001.


     George Steve Sasser and Tammy R. Sasser, pro sese.

     Ross M. Greenberg, for respondent.


     ARMEN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.1    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.



     1
        All subsequent section references are to the Internal
Revenue Code in effect for 1996, the taxable year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                               - 2 -

     Respondent determined a deficiency in petitioners' 1996

Federal income tax in the amount of $2,144.

     The issue for decision is whether petitioner George Steven

Sasser received unreported income in his business as a self-

employed carpet installer.   We hold that he did to the extent set

forth below.

Background

     Some of the facts have been stipulated, and they are so

found.   Petitioners resided in DeFuniak Springs, Florida, at the

time that their petition was filed with the Court.

     Petitioners are a married couple.   Throughout the year in

issue, petitioner wife (Mrs. Sasser) was a licensed practical

nurse and petitioner husband (Mr. Sasser) was a self-employed

carpet installer.   Mrs. Sasser maintained the family accounts and

assisted Mr. Sasser in keeping records related to the income and

expenses of his business.

     Mr. Sasser installed carpets for Evans Carpet City (Evans

City) of DeFuniak Springs, Florida, and he may also have

installed carpets for one or more homebuilders.   Evans City sold

both residential and commercial carpeting and utilized the

services of several different installers to lay carpet that it

sold.

     Evans City and Mr. Sasser followed an established business

practice whereby Evans City would contact Mr. Sasser when an
                               - 3 -

installation job was available.   Depending on the degree of

difficulty in completing a particular carpet installation, Mr.

Sasser had the discretion to either work alone or associate

himself with another carpet installer or other assistant.

     From time to time, Mr. Sasser associated himself with

another carpet installer, Lester Roach (Mr. Roach), whose

services were also utilized by Evans City.   For jobs where Mr.

Sasser was contacted first by Evans City, he might contact Mr.

Roach if he needed assistance with an installation.   Similarly,

for jobs where Mr. Roach was contacted first by Evans City, he

might contact Mr. Sasser if he needed assistance with an

installation.

     If Mr. Sasser was contacted first by Evans City to perform

an installation, Evans City would pay for the labor involved by

issuing a check payable solely to Mr. Sasser, who would in turn

pay Mr. Roach for his services.   Similarly, if Mr. Roach was

contacted first by Evans City to perform an installation, Evans

City would pay for the labor involved by issuing a check payable

solely to Mr. Roach, who would in turn pay Mr. Sasser for his

services.

     Mr. Sasser regarded his arrangement with Mr. Roach as an

even exchange whereby “usually, we kind of trade it off.    I’d

help him out on jobs.   He would help me out on jobs”.   As a

result, Mr. Sasser did not keep track of the number of times that
                                - 4 -

he and Mr. Roach worked together, but he estimated that they

jointly performed about 10 installations.

     Petitioners maintained two checking accounts with Regions

Bank throughout 1996.    Although one account was denominated a

“personal” account and the other a “business” account,

petitioners commingled income from Mr. Sasser’s business between

the two accounts, and they utilized the personal account for most

of their financial transactions.    In 1996, petitioners made total

deposits of $29,096 to the personal account and total deposits of

$1,518 to the business account.

     In 1996, Mrs. Sasser received wages net of withheld taxes in

the amount of $17,267.

     In 1996, petitioners received a refund of Federal income tax

for the taxable year 1995 in the amount of $1,730.    The refund

was not deposited in either of petitioners’ checking accounts.

     In December 1996, petitioners obtained a cash advance from a

credit card company in the amount of $1,500.

     During 1996, Mrs. Sasser deposited amounts received from her

brother in petitioners’ personal checking account.    Mrs. Sasser’s

brother, who lived next door to petitioners, was a construction

worker who did not have a checking account, and he was not

financially responsible.    Mrs. Sasser then paid certain of her

brother’s bills by issuing checks drawn on petitioner’s personal

checking account.   Mrs. Sasser received approximately $300 per
                               - 5 -

month from her brother in 1996 for this purpose.

     Petitioners timely filed a Federal income tax return, Form

1040, for 1996.   Petitioners attached to their return Schedule C,

Profit or Loss From Business, relating to Mr. Sasser’s business.

     On his Schedule C, Mr. Sasser reported gross receipts in the

total amount of $5,635.   This amount corresponds with the amount

of nonemployee compensation reported on a Form 1099-MISC that

Evans City issued to Mr. Sasser.   Insofar as his arrangement with

Mr. Roach was concerned, Mr. Sasser did not claim any reduction

in gross receipts for cost of labor, nor did he claim any

deduction for subcontract labor.

     In the notice of deficiency, respondent determined that

petitioners failed to report $8,352 of nonemployee compensation.

Respondent’s determination is based on a Form 1099-MISC filed by

Mr. Roach claiming that he paid $8,352 to Mr. Sasser in 1996.

Respondent sought to confirm this specific item adjustment by a

bank deposits analysis that demonstrated, in respondent’s view,

that Mr. Sasser had between $6,730 and $11,829 of unreported

income in 1996.

Discussion

     At trial, respondent called Mr. Roach as a witness and

introduced Mr. Roach’s “daily planner” as an exhibit.   In

respondent’s view, Mr. Roach’s testimony and records corroborate

the Form 1099-MISC showing the payment of $8,352 of nonemployee
                                - 6 -

compensation to Mr. Sasser.   Cf. Portillo v. Commissioner, 932

F.2d 1128 (5th Cir. 1991), affg. in part and revg. in part T.C.

Memo. 1990-68.   We disagree.

     We did not find Mr. Roach to be a credible witness.     See

Diaz v. Commissioner, 58 T.C. 560, 564 (1972); Kropp v.

Commissioner, T.C. Memo. 2000-148.      Moreover, his records were

not contemporaneous and were patently unreliable.     Indeed, in

responding to a question raised at trial by the Court regarding

the methodology employed in keeping his records, Mr. Roach

testified: “I don’t know how all them numbers come up out there.”

Later Mr. Roach apologized for the state of his records, saying:

“And I’m sorry if it ain’t computer-digited and all that.”

Finally, apart from our evaluation of his demeanor at trial, we

note that Mr. Roach had a financial interest in the Form 1099-

MISC that made him less than a disinterested witness.

     Respondent also relies on a bank deposits analysis to

support his deficiency determination.     See Price v. United

States, 335 F.2d 671, 677 (5th Cir. 1964); Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986).     Under one variation of the

analysis, respondent contends that Mr. Sasser had $11,829 of

unreported income in 1996:


        Deposits to personal account             $29,096
        Less: Mrs. Sasser’s net wages            -17,267
        Unreported income                         11,829
                                  - 7 -

     Under the other variation of the analysis, respondent

contends that Mr. Sasser had at least $6,730 of unreported income

in 1996:


       Deposits to personal account               $29,096
       Less: Mrs. Sasser’s net wages              -17,267
       Balance                                     11,829
       Less: Dec.‘96 credit card advance          - 11,500
       Balance                                     10,329
       Less: Deposits attributable to
             Mrs. Sasser’s brother                -13,600
       Unreported gross receipts                    6,729
        1
           If proven


     Neither variation of respondent’s bank deposits analysis

takes into account the $1,730 tax refund that petitioners

received in 1996.      This “omission” is appropriate because the

refund was not deposited in either of petitioners’ checking

accounts and therefore need not be accounted for insofar as the

bank deposits analysis is concerned.

     The gross receipts reported by Mr. Sasser on his Schedule C

were also not taken into account by either variation of

respondent’s bank deposits analysis.      In this regard,

respondent’s position seems to be that there was no commingling

of Mr. Sasser’s gross receipts between petitioner’s personal and

business checking accounts.      However, this position is contrary

to the weight of the evidence, and our findings reflect the fact

that Mr. Sasser’s gross receipts were commingled between

petitioners’ two accounts.
                              - 8 -

Conclusion

     Based on our findings of facts and conclusions of law, we

hold that Mr. Sasser received unreported income in 1996 in the

amount of $2,612, determined as follows:


        Deposits to personal account            $29,096
        Plus: Deposits to business account       +1,518
        Total deposits                           30,614
        Less: Mrs. Sasser’s net wages           -17,267
        Balance                                  13,347
        Less: Reported gross receipts            -5,635
        Balance                                   7,712
        Less: Dec.‘96 credit card advance       - 1,500
        Balance                                   6,212
        Less: Deposits attributable to
              Mrs. Sasser’s brother               -3,600
        Unreported gross receipts                  2,612


     Reviewed and adopted as the report of the Small Tax Case

Division.

     In order to give effect to the foregoing,



                                           Decision will be entered

                                      under Rule 155.
