                          T.C. Memo. 1996-326



                        UNITED STATES TAX COURT



       DENNIS J. TANG AND ALICE SHU-LING TANG, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 6248-94.                        Filed July 17, 1996.


       Mark G. Goshgarian, for petitioners.

       Roberta A. Duffy, for respondent.


               MEMORANDUM FINDINGS OF FACT AND OPINION

       FAY, Judge:   In the notice of deficiency, respondent

determined deficiencies in petitioners' Federal income taxes and

a penalty in the following amounts:

                                                          Penalty
                                                            Sec.
Year                    Deficiency                        6662(a)
1990                     $31,638                           $6,328
1991                         224                             --
                               - 2 -

     All section references are to the Internal Revenue Code in

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure, unless otherwise

indicated.

     The issues for decision are:

     (1)   Whether petitioners failed to report income during the

1990 and 1991 taxable years.   We hold that they did.

     (2)   Whether petitioners are liable for the accuracy-related

penalty under section 6662(a) for the 1990 taxable year.    We hold

that they are.

                         FINDINGS OF FACT

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

The stipulation and the attached exhibits are incorporated herein

by this reference.   Petitioners resided at 616 Winthrop Road, San

Marino, California, at the time their petition was filed.    On

January 18, 1994, respondent issued a statutory notice of

deficiency to petitioners with respect to their 1990 and 1991

taxable years.

     Petitioners have been married since 1982.    Dennis J. Tang

(petitioner) was born in China.1    Petitioners first came to the

United States to reside in 1987.    Petitioner's passport, issued

by the Republic of China, is in the name of Jung-Jing Tang.




     1
      The record does not reveal where petitioner wife was born.
                                - 3 -

Petitioner is not a U.S. citizen but does hold a "green card".2

Petitioner is known in the United States by the name Dennis Jung

Jing Tang.   Petitioner Alice is known in the United States as

Alice Shu-Ling Tang.    Her Chinese name is Fong Shu-Ling.

     Petitioner received a degree in medicine in Taiwan.     How-

ever, petitioner has never been certified to practice medicine in

the United States.   Petitioner testified that, when he first came

to the United States, he did not need to work because his father,

who owned a hospital in China, was able to provide for his and

his family's support.    Petitioner testified that he did not work

for compensation in the United States at any time during the

years 1987 through 1992.    Petitioner spent approximately 5 or 6

months a year in Taiwan during each of the years in issue.

During 1990, petitioner worked part time as a doctor at Tang's

Clinic in Taiwan.    During 1991, petitioner was employed by George

Realty in California.    During 1992, petitioner was employed by

Galaxy Investment Co. as a real estate salesperson.

     Petitioner is a follower of the principles and spiritual

rules of Taoism.    Petitioner testified that Taoism requires you

to reduce your desires as much as possible while you concentrate

on your physical condition, the ultimate goal being to become

very healthy physically and spiritually.    Petitioner was


     2
      A green card is a registration card issued to an alien as
evidence of the alien's status as a permanent resident of the
United States. Black's Law Dictionary (6th ed. 1990).
                                - 4 -

introduced to Taoism by a schoolmate, Yao Min Ting.3   Yao Min

Ting served as petitioner's Taoism master.    A Taoism master is an

individual who teaches the principles of Taoism to those who do

not yet know them.    One of the beliefs of Taoism requires that

its adherents teach other people who are receptive to the

religion and its spiritual rules.    Taoism promotes the belief

that, in teaching others, a person's own life will be improved.

In accordance with this custom, petitioner taught Taoism to

others.    However, petitioner testified that he did not require

those whom he taught to pay him for their lessons.

     In 1987, petitioner placed an advertisement in the Chinese

Daily News, a Chinese language newspaper.    The advertisement

appeared approximately five times from 1987 through 1991.    The

advertisement was printed in Chinese.    Petitioners' California

phone number was printed on the advertisement.    The advertisement

was placed on a page with several other advertisements, including

at least two ads for Chinese restaurants and two for other

companies.    Petitioners submitted a translation of the advertise-

ment.    Respondent submitted her own translation of the advertise-

ment that differed from petitioners'.4   The title of the adver-

tisement is "The Way to Life Energy".    The advertisement begins


     3
      Petitioner refers to Yao Min Ting also as Ting Yao Min.      We
believe that they are the same person.
     4
      We have attempted to reconcile these translations where
possible.
                                 - 5 -

by setting forth petitioner's qualification as a medical doctor

with many years of experience.    Then it goes on to speak of

petitioner's knowledge of methods to activate life energy so that

self-healing and healing of others is possible.       The advertise-

ment specifically mentions petitioner's knowledge of methods that

would enhance a doctor's healing abilities by better allowing him

to detect viruses and bacteria.    The advertisement does not use

the word "acupuncture"; however, it does imply acupuncture by

referring to energy channels or meridians.       These meridians or

channels are important in the treatment of patients through the

use of acupuncture and acupressure.

     In response to petitioner's advertisement, Dr. Kun C. Chan

contacted petitioner.   Dr. Chan is a doctor of medicine and

acupuncture.   Dr. Chan received a medical degree in China from a

school in the city of Wuhan.   Dr. Chan is licensed to practice

acupuncture in the State of California.       Dr. Chan is a share-

holder of Shanghai Acupuncture Clinic and Institute, Inc.

(Shanghai Clinic), a California corporation.       Dr. Chan had

signatory authority over Shanghai Clinic's bank account.

     Dr. Chan was practicing acupuncture and acupressure during

the years herein at issue.   Acupuncture is a technique whereby a

professional attempts, using thin needles, to puncture the skin.

This process attempts to restore the body's energy flow so that

the yin and the yang are balanced.       The yin and the yang are
                                - 6 -

opposing forces, and the belief is that balancing these forces

keeps a person in optimum health.

     In order to be certified to practice acupuncture in the

State of California, the Board of Medical Quality Assurance

requires that practitioners attend between 15 and 30 hours of

approved classes each year.    To further his education in the

field of acupuncture, Dr. Chan attended seminars required by the

Board of Medical Quality Assurance, telephoned associates in

China, and contacted others who have special knowledge.    Dr. Chan

did not compensate friends in China with whom he discussed

acupuncture for their time or their counsel.    In general,

Dr. Chan paid for continuing education only when it took place in

the form of formal seminars.

     Dr. Chan contacted petitioner because he was intrigued by

petitioner's advertisement which referred to the estra meridians

of acupuncture.   Dr. Chan first met petitioner during August

1987.   The meeting took place at petitioners' home.   During the

meeting, Dr. Chan and petitioner spoke Chinese.    However,

Dr. Chan testified that he was not certain whether he knew

petitioner's Chinese name at that time.

     During the initial meeting, Dr. Chan and petitioner

discussed opening Dr. Chan's eight estra meridians, which would

enhance his own energy patterns and cause him to do good things

automatically, as well as enhance his healing capabilities.

Dr. Chan felt a profound change after his meeting with peti-
                                - 7 -

tioner.   For instance, he felt a tingling in his palms, along

with an attraction between his two hands.    Dr. Chan believed that

this feeling was caused by the opening of his eight estra

meridians.

     Dr. Chan and petitioner did not meet again until 1989.    In

1989, Dr. Chan began meeting with petitioner to learn from him.

Petitioner taught Dr. Chan the rules and beliefs of Taoism during

their meetings.    Petitioner also taught Dr. Chan how to direct

his energy.   Dr. Chan testified that he learned how to hold his

finger over an ache and use energy to treat the pain.    The

lessons were not held at regular intervals, and each lesson

lasted between 2 and 5 hours.    The lessons were held at peti-

tioners' home in San Marino, California.

     Petitioner never sent Dr. Chan an invoice for the instruc-

tional sessions.    However, Dr. Chan claims that petitioner

charged an average of $10,000 for each lesson.    Dr. Chan

indicated that he personally benefited from the techniques,

because his health improved, and the lessons improved his ability

to treat his patients.    The main purpose of the lessons was that

Dr. Chan would be better able to treat his patients.    During the

lessons, petitioner purported to teach Dr. Chan how to position

his fingers in such a way that they would heal patients.

     Dr. Chan generally wrote checks for the cost of the lessons.

Once, a telegraph transfer of money was used instead of a check.

The following checks drawn on the account of Shanghai Clinic were
                                - 8 -

introduced at trial.   Two checks (one from October 9, 1989,5 in

the amount of $10,000, and one from March 12, 1990, in the amount

of $10,000) were made out to Dr. Chan as payee.   The second of

these checks has written in the "Description" area "Reimburse -

Training".   Dr. Chan claims that he had, on these two occasions,

paid petitioner with a personal check, and then Shanghai reim-

bursed him for the cost of the lessons.   Five checks, totaling

$65,000, were made out to Yao Min Ting.   The first check, dated

April 9, 1990, was in the amount of $15,000, and included the

notation "Business Consulting" in the description line of the

check.   The second check, dated May 9, 1990, was in the amount of

$15,000 was also described as a "Business Consulting" fee.     The

third check, dated June 9, 1990, was for $15,000 and was

described as a "Business Consulting Fee".   The fourth check,

dated November 30, 1990, was for $10,000 and was described as a

"Consultation" fee.    The fifth check, dated January 31, 1991, was

for $10,000 and was again described as a "Consultation" fee.

Three checks, totaling $25,600, were made out to Ting Yao Min.

The first, on June 25, 1990, was for $15,000 and was described as

a business consultation fee.   The second dated August 8, 1990,

was for $10,000.   The third check, dated September 17, 1990, was

for $600 and was described as a consultation fee.   One wire




     5
      We note that the 1989 tax year is not herein in issue.
                                - 9 -

transfer of $10,800 was sent to the account of Tang Chiang Ting6

on April 2, 1990.    Dr. Chan claimed that, in April and September

1990, he paid petitioner $15,000 and $10,000,7 respectively, as

compensation for lessons.   No checks were presented to

corroborate this claim.   Shanghai Clinic deducted its expenses

for these lessons as educational and business expenses on its

corporate returns.

     Yao Min Ting visited the United States during 1989 and 1990.

He visited petitioners several times during 1990.   He maintained

a bank account at Sumitomo Bank.   A signature card from Yao Min

Ting's account at Sumitomo Bank of California lists petitioners'

address, 616 Winthrop Road, San Marino, California, as his own.

     Petitioner testified that, in 1990, Dr. Chan offered, merely

as a sign of gratitude on his own volition, to write petitioner a

check for any amount petitioner requested.   Instead, petitioner

instructed Dr. Chan to show his gratitude by sending a gift or

     6
      The record does not reveal who Tang Chiang Ting is or his
relationship with petitioners. However, one of the signatories
on Tang Chiang Ting's account at Sumitomo Bank, to which Shanghai
Clinic transferred $10,800 in payment for Dr. Chan's lessons, was
Jung Chu Fang. Jung Chu Fang also is one of the signatories on
petitioners' bank account at Sumitomo Bank. Furthermore, on
Apr. 2, 1990, the same day as the wire transfer of $10,800 from
Shanghai Clinic to Tang Chiang Ting's account, Jung Chu Fang
wrote a check from Tang Chiang Ting's account to Alice Shu-Ling
Tang for $10,000, ostensibly as a repayment of a loan.
     7
      When questioned by respondent at trial, Dr. Chan could not
remember how much he paid petitioner in September 1990 for a
lesson. He testified that he thought the amount paid was either
$10,000 or $11,000. No further evidence as to the amount of this
payment was brought forth.
                               - 10 -

check to Yao Min Ting, the person from whom petitioner had

learned the principles and philosophy of Taoism.     Petitioner and

Dr. Chan did not discuss a particular amount; instead, Dr. Chan

was to separate his gifts into different installments as he saw

fit.    Dr. Chan contradicts this, saying that the money he paid

was a fee for lessons and not a gift.

       Dr. Chan credibly testified that the checks were not made

out to petitioner only because petitioner requested that they be

made out in other people's names.    Dr. Chan did not question why

petitioner requested that the checks, in payment for lessons

given by himself, were to be made out to other persons.     Dr. Chan

considered petitioner his master and therefore felt he was not in

a position to question him.    Dr. Chan never met nor received any

services from Yao Min Ting.    Shanghai Clinic deducted the amounts

paid for these lessons with petitioner as a business expense.

However, neither Dr. Chan nor his company issued a Form 1099 for

any of the money paid to any individual for petitioner's lessons.

Nonetheless, the notations on almost all of the checks indicate

that they were checks in payment for training or consultation.

                               OPINION

       The Commissioner's deficiency determination is normally

entitled to a presumption of correctness.    Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).     The Court of Appeals for

the Ninth Circuit, the court to which appeal of this case would

lie, requires that the Commissioner come forward with some
                              - 11 -

substantive evidence that the taxpayer received unreported income

before she may rely on the presumption that her determination is

correct.   Delaney v. Commissioner, 743 F.2d 670, 671 (9th Cir.

1984), affg. T.C. Memo. 1982-666; Weimerskirch v. Commissioner,

596 F.2d 358, 360 (9th Cir. 1979), revg. 67 T.C. 672 (1977).

Once the Commissioner has carried her initial burden of

introducing some evidence linking the taxpayer with an income-

producing activity, the burden is on the taxpayer to rebut the

presumption by establishing by a preponderance of the evidence

that the deficiency determination is arbitrary or erroneous.

Rapp v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985).     Peti-

tioner argues that the deficiencies determined by respondent in

her notice of deficiency are in fact arbitrary and excessive.

There is no dispute that petitioner performed certain services

for Dr. Chan, nor is there a dispute that Dr. Chan paid some

money on account of the services petitioner performed.    Peti-

tioner's characterization of the determination as arbitrary is

not sufficient to overcome the presumption of correctness.     Id.;

Petzoldt v. Commissioner, 92 T.C. 661, 690 (1989).   Respondent,

in the case herein, has come forward with sufficient evidence

linking petitioners with unreported income; therefore, the burden

is upon petitioners to establish that the deficiency determina-

tion is arbitrary or erroneous.   The record does not support a

finding that petitioners have carried their burden with respect

to this issue.
                              - 12 -

     Petitioner claims that he is not the individual who ought to

be properly charged with the money Dr. Chan and Shanghai Clinic

paid for the lessons that petitioner taught.   We disagree.

     Petitioner testified that, in 1990, Dr. Chan offered, merely

as a sign of gratitude on his own volition, to write petitioner a

check for any amount petitioner requested.   Instead, petitioner

instructed Dr. Chan to show his gratitude by sending a gift or

check to Yao Min Ting, the person from whom petitioner learned

the principles and philosophy of Taoism.   Petitioner and Dr. Chan

did not discuss a particular amount; instead, Dr. Chan was to

separate his gifts into different installments as he saw fit.

Dr. Chan contradicts this, saying that the money he paid was a

fee for lessons and not a gift.

     Dr. Chan credibly testified that the checks were not made

out to petitioner only because petitioner requested that they be

made out in other people's names.   Dr. Chan did not question why

petitioner requested that the checks, in payment for lessons

given by himself, were to be made out to other persons.

     One of the primary principles of our system of income

taxation is that income must be taxed to the one that earns it.

Commissioner v. Culbertson, 337 U.S. 733, 739-740 (1949).

Attempts to subvert this principle by deflecting income away from

the true earner to another entity, however clever, will not be

successful.   Lucas v. Earl, 281 U.S. 111 (1930).   The choice of

the proper taxpayer revolves around the question of which person
                              - 13 -

or entity in fact controls the earning of the income rather than

the question of who ultimately receives the income.     Wesenberg v.

Commissioner, 69 T.C. 1005 (1978); American Sav. Bank v.

Commissioner, 56 T.C. 828 (1971).    The Supreme Court held in

Helvering v. Horst, 311 U.S. 112, 117 (1940), that the power to

dispose of income is the equivalent of ownership of it.

Therefore, exercising power to procure payment of income to

another is in fact the realization of the income by him who

directed the payment.   In the case herein, it is undisputed that

petitioner performed services for Dr. Chan.    The fact that

petitioner did not need the money Dr. Chan paid for lessons in

order to support his family does not negate the fact that money

earned for the performance of services is income.    Sec. 61(a)(1).

Petitioner, however, contends that he not only did not receive

payment for his services, but he also received no benefit from

the payments to Yao Min Ting, Ting Yao Min, or Tang Chiang Ting.

     The earner of income is not relieved of his tax liability

merely because he chooses not to receive or enjoy the income for

himself.   Lucas v. Earl, supra.    Petitioner performed the

services for which Dr. Chan paid.    Petitioner cannot avoid taxa-

tion simply by requesting that payment be made in the name of

other persons.   We find that all of the amounts paid by Shanghai

Clinic to Yao Min Ting, Ting Yao Min, and Tang Chiang Ting, as

well as a check from 1990 reimbursing Dr. Chan for money paid to

petitioner, were income to petitioners.    Petitioners have pre-
                                - 14 -

sented only their own uncorroborated and self-serving testimony

to support their contentions.    We are not required to accept

their unsubstantiated testimony.    Davis v. Commissioner, 88 T.C.

122, 141 (1987), affd. 866 F.2d 852 (6th Cir. 1989).    We,

however, find no basis to credit Dr. Chan's vague and uncertain

testimony that he paid petitioner $15,000 in April and $10,000 or

$11,000 in September.   Petitioners deny receiving these payments,

and Dr. Chan's testimony that they were paid was unconvincing.

Therefore, we find that petitioners received in 1990 $101,400 and

in 1991 $10,000 in unreported income as a result of petitioner's

teaching activity.

     Petitioner also argues that, despite the fact that he

performed services for Dr. Chan, any money paid by Dr. Chan or

Shanghai Clinic was a gift to Yao Min Ting and Tang Chiang Ting.

Petitioners presented no evidence, other than their own self-

serving testimony, to support their gift theory.    Petitioners

suggest that the amount of each payment, generally at least

$10,000, supports a determination that the payments were gifts

because it is unreasonable to pay someone such a large sum for

lessons.   The Court finds no support for such an argument in the

record.    Dr. Chan credibly testified that he believed the amounts

being paid for the lessons were reasonable in light of the

benefits that he received.   These lessons took place between two

unrelated parties, and there is no evidence to support a conten-

tion that the fee arrangement was made at other than arm's
                               - 15 -

length.    We cannot accept petitioner's uncorroborated testimony

to this effect.   Petitioner's testimony was not forthright, and

we found his testimony not credible.    In contrast, Dr. Chan

credibly testified that it was petitioner who requested that he

pay for the lessons, set the amount, and directed to whom the

checks should be made payable.    We accept his testimony and find

that the weight of the evidence supports this conclusion.

     Respondent determined that petitioners are liable for an

accuracy-related penalty under section 6662(a) for a substantial

understatement in tax for the 1990 tax year.    A substantial

understatement of tax exists when the amount of the understate-

ment for the taxable year exceeds the greater of 10 percent of

the tax required to be shown on the return or $5,000.    Sec.

6662(d)(1).   An underpayment equals the excess of the tax imposed

over the amount shown as tax on the taxpayer's return, plus the

amounts not shown but previously assessed or collected, less

rebates.   Sec. 6664(a).   Petitioners suggest no reasonable cause

for this understatement, nor do we find that one exists.    Because

we hold that petitioners failed to report the amounts paid by

Dr. Chan and Shanghai Clinic to Yao Min Ting, Ting Yao Min, and

Tang Chiang Ting on account of services petitioner rendered and

petitioners reported tax due on their 1990 Federal tax return of

only $8, petitioners are liable for the penalty under section

6662.

                                          Decision will be entered
- 16 -

     under Rule 155.
