                         T.C. Memo. 2002-105



                       UNITED STATES TAX COURT



                VIRGINIA L. DIMON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                 CHARLES F. DIMON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 6594-01, 6595-01.     Filed April 25, 2002.


     Charles F. Dimon, pro se.

     Thomas J. Fernandez, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined deficiencies in, and

additions to, petitioners’ respective Federal income tax (tax),

as follows:
                                - 2 -

Petitioner Virginia L. Dimon

                                      Additions to Tax Under
 Year     Deficiency          Sec. 6651(a)(1)1         Sec. 6654
 1996       $11,773              $2,919.75              $626.61


Petitioner Charles F. Dimon

                                      Additions to Tax Under
 Year     Deficiency          Sec. 6651(a)(1)          Sec. 6654
 1996       $43,776               $10,944              $2,329.98


     The issues remaining for decision2 are:

     (1) Did Mr. Dimon receive $127,970 of nonemployee compensa-

tion during 1996?   We hold that he did.

     (2) Is Mr. Dimon entitled to deduct for 1996 the Schedule C

expenses that he is claiming?    We hold that he is not.

     (3) Is each petitioner liable for 1996 for the addition to

tax under section 6651(a)(1)?    We hold that each petitioner is so

liable.

     (4) Is each petitioner liable for 1996 for the addition to

tax under section 6654?   We hold that each petitioner is so

liable.



     1
      All section references are to the Internal Revenue Code
(Code) in effect for the year at issue. All Rule references are
to the Tax Court Rules of Practice and Procedure.
     2
      Computational or correlative issues also remain, resolution
of which flows automatically from our resolution of the determi-
nations in the notice of deficiency (notice) issued to petitioner
Virginia L. Dimon (Ms. Dimon) and in the notice issued to peti-
tioner Charles F. Dimon (Mr. Dimon), which we address herein.
                               - 3 -

                         FINDINGS OF FACT

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

Other facts have been deemed admitted pursuant to Rule 90(c).

     At the time they filed the respective petitions in these

cases, Ms. Dimon and Mr. Dimon, who were married throughout the

entire taxable year 1996, resided in Irvine, California.

     Neither Ms. Dimon nor Mr. Dimon filed a tax return (return)

for taxable year 1996.   On January 10, 2002, petitioners provided

to respondent an original, signed Form 1040, U.S. Individual

Income Tax Return, for 1996 (unfiled Form 1040).   Petitioners

included Schedule C, Profit or Loss From Business (Schedule C),

in that unfiled Form 1040.   In Schedule C of the unfiled Form

1040 for 1996, petitioners indicated that during 1996 Mr. Dimon

was the proprietor of an executive recruiting business.    Schedule

C of the unfiled Form 1040 for 1996 showed gross receipts of

$127,970 and claimed expenses of $57,064.

     Neither Ms. Dimon nor Mr. Dimon made any estimated or other

tax payments for 1996 except for $94 which was withheld from Ms.

Dimon’s wages.

     During 1996, Mr. Dimon received $127,970 in nonemployee

compensation.
                               - 4 -

                              OPINION

     Each petitioner3 bears the burden of showing error in the

determinations that remain at issue in the respective notices

issued to them.4   See Rule 142(a); Welch v. Helvering, 290 U.S.



     3
      Although Ms. Dimon did not appear at trial, Mr. Dimon
informed the Court that Ms. Dimon had authorized him to speak for
both of them at trial, and the Court allowed him to do so.
     4
      Respondent acknowledges that the examination of petition-
ers’ taxable year 1996 began after July 22, 1998. With respect
to court proceedings arising in connection with examinations
commencing after July 22, 1998, under sec. 7491(a) the burden of
proof shifts to respondent in specified circumstances. Internal
Revenue Service Restructuring and Reform Act of 1998 (RRA 1998),
Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. As detailed in
respondent’s trial memorandum and in respondent’s oral and
written motions to dismiss for lack of prosecution made on Jan.
28, 2002, and filed on Jan. 30, 2002, respectively, petitioners,
inter alia, did not cooperate with reasonable requests made by
respondent for witnesses, information, documents, meetings, and
interviews, did not comply with the substantiation requirements
of the Code relating to the claimed Schedule C deductions at
issue, and did not introduce credible evidence at trial with
respect to the factual issues remaining in these cases that are
relevant to ascertaining their respective tax liabilities for
1996. See sec. 7491(a)(1) and (2). Consequently, according to
respondent, the burden of proof in these cases does not shift to
respondent under sec. 7491(a). Although Mr. Dimon ultimately did
appear at the recall of these cases on Jan. 30, 2002, and
although we did not grant respondent’s motions to dismiss these
cases for lack of prosecution, on the record before us, we agree
with respondent that petitioners bear the burden of proof in
these cases. See sec. 7491(a).

     With respect to court proceedings arising in connection with
examinations commencing after July 22, 1998, under sec. 7491(c)
respondent bears the burden of production with respect to any
individual’s liability for any penalty or addition to tax. RRA
1998, sec. 3001(c). As discussed below, respondent concedes that
respondent has the burden of production with respect to the
additions to tax that respondent imposed on Ms. Dimon and Mr.
Dimon, respectively.
                               - 5 -

111, 115 (1933).   With respect to the deductions claimed in

Schedule C of the unfiled Form 1040 for 1996, deductions are

strictly a matter of legislative grace, and petitioners bear the

burden of proving that they are entitled to any deductions

claimed.   INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

     We turn first to the contention of Mr. Dimon that the

$127,970 that he received during 1996 represented proceeds from

the sale of a business, and not nonemployee compensation.    On the

record before us, we reject that contention.   Mr. Dimon is deemed

to have admitted pursuant to Rule 90(c) that the $127,970 that he

received during 1996 was nonemployee compensation.   In addition,

Schedule C of the unfiled Form 1040 for 1996 that petitioners

provided to respondent on January 10, 2002, showed that Mr. Dimon

received during 1996 $127,970 in gross receipts from his Schedule

C business.   We are unwilling to accept Mr. Dimon’s general,

conclusory, and uncorroborated testimony at trial that those

admissions are wrong.   On the record before us, we find that Mr.

Dimon has failed to satisfy his burden of showing that the

$127,970 that he received during 1996 represented proceeds from

the sale of a business, and not nonemployee compensation.5


     5
      In the respective notices issued to Ms. Dimon and Mr.
Dimon, respondent increased Mr. Dimon’s nonemployee compensation
in the amount of $127,970 and increased Ms. Dimon’s income for
that year by one half of that amount, which respondent determined
to be community income. Similarly, in those respective notices,
respondent included in Ms. Dimon’s income for 1996 the full
                                                   (continued...)
                              - 6 -

     We turn next to Mr. Dimon’s claim that he is entitled to the

deductions claimed in Schedule C of the unfiled Form 1040 for

1996 that petitioners provided to respondent on January 10, 2002.

To support that claim, Mr. Dimon relies on his general, conclu-

sory, and uncorroborated testimony that he incurred the Schedule

C expenses at issue and is entitled to deduct them.   We are not

required to, and we shall not, rely on that testimony.   On the

record before us, we find that Mr. Dimon has failed to satisfy

his burden of establishing that he is entitled to any of the

deductions at issue.

     We turn finally to the additions to tax under sections

6651(a)(1) and 6654 that respondent determined in the respective

notices issued to Ms. Dimon and Mr. Dimon.   Respondent concedes

that respondent has the burden of production under section

7491(c) with respect to those additions to tax and contends that

respondent has satisfied that burden.   On the record before us,




     5
      (...continued)
amount of her unreported 1996 wages and increased Mr. Dimon’s
income for that year by one half of that amount, which respondent
determined to be community income. Petitioners do not dispute
that the $127,970 that Mr. Dimon received and the total wages
that Ms. Dimon received during 1996 constitute community income.
In the respective Rule 155 computations in these cases, the
parties shall calculate the respective amounts of income of Ms.
Dimon and Mr. Dimon for 1996 so that only one half of any commu-
nity income is included in each such petitioner’s income for that
year. See United States v. Mitchell, 403 U.S. 190 (1971); Shea
v. Commissioner, 112 T.C. 183, 189-190 (1999).
                                 - 7 -

we agree with respondent.6   On that record, we find that respon-

dent has satisfied respondent’s burden of production under

section 7491(c) with respect to the additions to tax at issue in

these cases.   Petitioners have the burden of establishing that

they are not liable for those additions to tax.    See Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).    Mr. Dimon testified

that he did not file a return for 1996 because some unidentified

person advised him that the $127,970 that he received during 1996

represented proceeds from the sale of a business, and not earned

income.   We shall not rely on Mr. Dimon’s general, conclusory,

and uncorroborated testimony as to the reasons why he did not

file a return for 1996 or pay estimated tax for that year.    On

the record before us, we find that petitioners have failed to

show that they are not liable for the additions to tax under

sections 6651(a)(1) and 6654 that respondent determined in the

respective notices issued to them.

     We have considered all of the contentions and arguments of

petitioners that are not discussed herein, and we find them to be

without merit and/or irrelevant.

     To reflect the foregoing,


                                 Decisions will be entered under

                          Rule 155.


     6
      The record establishes that neither Ms. Dimon nor Mr. Dimon
filed a return for taxable year 1996 and that neither of them
made any estimated or other tax payments for that year except for
$94 which was withheld from Ms. Dimon’s wages.
