                          T.C. Memo. 2002-45



                        UNITED STATES TAX COURT



                  HAROLD WAPNICK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 269-94.                  Filed February 13, 2002.



     Harold Wapnick, pro se.

     Monica E. Koch and Theresa G. McQueeney, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COLVIN, Judge:     Respondent determined deficiencies in

petitioner’s Federal income tax and additions to tax and

penalties as follows:
                                     - 2 -

                                          Additions to Tax
Year        Deficiency    Sec. 6653(b)           Sec. 6661    Sec. 6654
                          1
1985        $296,275.88    $155,784.40         $74,056.47
                           1
1986         389,855.00      169,812.76         97,463.75
                           1
1987         387,838.00      290,878.50                        $119.43
       1
        Plus 50 percent of the interest due on the portion of the
underpayment due to fraud under sec. 6653(b)(2) for 1985 and sec.
6653(b)(1)(B) for 1986 and 1987.

       The issues for decision are:1

       1.    Whether petitioner failed to report income of $600,515

for 1985, $787,080 for 1986, and $1,008,325 for 1987.         We hold

that he did.

       2.    Whether petitioner is liable for additions to tax under

section 6661 for substantial understatement of income tax of

$74,056.47 for 1985 and $97,463.75 for 1986.          We hold that he is.

       3.    Whether petitioner is liable for the addition to tax

under section 6654 for failure to pay estimated tax of $119.43

for 1987.      We hold that he is.




       1
        We previously held that petitioner is collaterally
estopped from denying that he is liable for the addition to tax
for fraud under sec. 6653(b) for 1985, 1986, and 1987 because he
was convicted of attempting to evade or defeat tax in violation
of sec. 7201 for those years. Wapnick v. Commissioner, T.C.
Memo. 1997-133; see United States v. Wapnick, 60 F.3d 948 (2d
Cir. 1995). In its opinion, the U.S. Court of Appeals for the
Second Circuit indicated that petitioner and his associates at
one time prepared the tax returns for an estimated 13 percent of
New York City’s taxi drivers. United States v. Wapnick, supra at
950.
                                 - 3 -

     Section references are to the Internal Revenue Code as

amended.    Rule references are to the Tax Court Rules of Practice

and Procedure, unless otherwise specified.

                           FINDINGS OF FACT

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

A.   Petitioner

     Petitioner resided in Brooklyn, New York, when he filed his

petition.   He operated an accounting business known as H. Wapnick

& Sons, in which he charged fees for accounting services,

preparing tax returns, making loans, and cashing checks.

Petitioner’s clients made checks payable to petitioner, H.

Wapnick & Sons, or cash.

     Petitioner’s office was in the basement of his home.     Steven

Wolfson (Wolfson) worked for petitioner there, as did

petitioner’s sons, John Wapnick and Seth Wapnick.     Seth Wapnick

graduated from the Wharton School at the University of

Pennsylvania.     Wolfson graduated from college with a bachelor’s

degree in accounting in 1979.    He worked for petitioner from 1979

through the years in issue.

     Petitioner had about 1,200 corporate clients and a number of

individual clients during the years in issue.    He charged each

client $125 per quarter to prepare tax returns.     Seth Wapnick

kept records of the accounting, tax return preparation, and
                               - 4 -

lending businesses by entering data on a personal computer in

petitioner’s basement.

B.   Petitioner’s 13 Corporations

     Petitioner established the following 13 corporations:     Best

Medicare of Brighton, Big John Cab Corp., Centurion Taxi, Inc.,

Collie Trans. Corp., Downey Cab Corp., D & S Jewelry Corp., Egret

Trans. Corp., Eleemosynary Cab Corp., Juice Taxi Co., Inc., Macar

Service Corp., Oxus Taxi Inc., Poodle Trans. Corp., and Tree Top

Cab Corp. (the 13 corporations).

     Petitioner had accounts at Republic National Bank of New

York (Republic Bank) for the 13 corporations.   The mailing

address for the 13 corporations was petitioner’s home.

Petitioner was a stockholder in, and officer of, all of them.

The 13 corporations did not do business, maintain books and

records, hold annual meetings, issue financial statements, pay

salaries or dividends, have employees, or file Federal or State

corporate tax returns.

     When petitioner established the 13 corporations, he used

employer identification numbers (EINs) of former clients or

numbers that he created.   He did not obtain EINs for the 13

corporations from the Federal government.   At the time of trial,

Wolfson did not know the names of any of the 13 corporations.

     Petitioner deposited amounts that he earned into the bank

accounts for the 13 corporations.   Republic Bank paid interest on
                                 - 5 -

the 13 bank accounts totaling $46,751 in 1985, $86,341 in 1986,

and $90,694 in 1987.   Petitioner did not report the interest that

Republic Bank paid to the 13 corporations on his tax returns for

1985 and 1986.

C.   Check Cashing Activity

     Petitioner received the following amounts of income for

cashing checks for customers:

Customer                       1985           1986          1987

S&Z Fashions Corp.        $55,963.83       $25,454.17     $9,789.00
LVA Corp.                                                 25,132.43
McHugh DiVincent
 Alessi, Inc.                 4,270.00      13,763.48     11,919.45
E. Chirico, Inc.                                          25,786.45
Call Enterprises, Inc.                                     6,391.65
    Totals               $60,233.83        $39,217.65    $79,018.98

     Petitioner did not report the amounts that he received from

check cashing on his tax returns.

D.   Treasury Notes

     Petitioner bought a $400,000 U.S. Treasury note in the name

of Poodle Trans. Corp. and a $600,000 U.S. Treasury note in the

name of Big John Cab Corp. on April 3, 1985.    He sold them on

January 14, 1986, for a gain of $22,826.    The U.S. Government

paid total interest on those notes of $66,222 in 1985 and $20,193

in 1986 to Poodle Trans. Corp. and Big John Cab Corp.    Petitioner

did not report these amounts on his 1985 and 1986 tax returns.
                                 - 6 -

E.   Petitioner’s Income Tax Returns

     Petitioner filed Federal income tax returns for 1985 and

1986 but not for 1987.    He did not report any income from lending

or check cashing on those returns.       He reported the following

amounts of income:

                                     Accounting        Taxable
          Year        Interest        business         income

          1985          $100             $10,940       $5,460
          1986           300              10,188        5,908

F.   Seizure of Petitioner’s Records and Respondent’s
     Determination

     Respondent’s agents obtained a search warrant and seized the

computer and about 260 boxes of records from petitioner’s office

on December 15, 1988.    The U.S. Attorney’s Office for the Eastern

District of New York hired a computer expert, who downloaded from

the computer the records that Seth Wapnick kept.       Respondent’s

agents verified the accuracy of some of the computer records by

comparing those records with information that respondent obtained

from third parties.   Respondent’s agents interviewed petitioner’s

clients and reviewed bank statements, canceled checks, deposit

slips, and Forms 1099.    Respondent prepared summaries of the

computer records, other business records that petitioner had, and

records from third parties.

     By notice of deficiency issued on October 21, 1993,

respondent determined that petitioner had the following amounts

of unreported income:
                                - 7 -

Source of Income              1985            1986          1987

Accounting fees            $225,743        $400,635      $497,289
Check cashing fees           60,234          39,217        79,018
Interest from loans         201,565         217,868       341,324
Interest from Treasury
 notes                       66,222          20,193
Interest from banks          46,751          86,341        90,694
Capital gains                                22,826
     Totals                $600,515        $787,080    $1,008,325

                               OPINION

A.   Burden of Proof

     Petitioner contends that respondent bears the burden of

proof under section 7491, and that respondent’s determination is

arbitrary or invalid, and thus is not presumed to be correct.      We

disagree.

     1.     Whether Section 7491 Applies

     Under section 7491, the burden of proof is placed on the

Secretary if several requirements are met.    Sec. 7491(a)(1)

and (2).    Section 7491 applies to court proceedings arising in

connection with examinations beginning after July 22, 1998.

Internal Revenue Service Restructuring & Reform Act of 1998, Pub.

L. 105-206, sec. 3001(c), 112 Stat. 727.    Petitioner contends

that the examination began after July 22, 1998, and he points out

that he was incarcerated on that date.

     The notice of deficiency, issued in 1993, states that “from

records and information available, it has been determined that

you received additional income in the amount shown from the

sources indicated”.    It also states that the amounts determined
                               - 8 -

are “per audit”.   We conclude that the examination commenced

before July 22, 1998.   Therefore, section 7491 does not apply

here.

     2.   Whether Respondent’s Determination Is Presumed To Be
          Correct

     Petitioner contends that respondent’s determination should

not be presumed to be correct and that, as a result, respondent

bears the burden of proof.   We disagree.   He points out that in

Palmer v. IRS, 116 F.3d 1309, 1312 (9th Cir. 1997), the U.S.

Court of Appeals for the Ninth Circuit said that “In an action to

collect taxes, the government bears the initial burden of proof.”

However, petitioner uses that quotation out of context.    In

Palmer, the Commissioner sought to enforce a tax lien in a suit

in Federal District Court under sections 7401 through 7403.       The

Court in Palmer said that the Government’s initial burden is

satisfied if the Commissioner’s determination is presumed to be

correct, and that the determination is presumed to be correct if

it is supported by a minimal factual foundation.    Id.   Here,

respondent’s determination is more than adequately supported by

computer and other records seized from petitioner’s office and

information from third parties.   Thus, petitioner bears the

burden of proving that the Commissioner’s determination is

incorrect.   Id.

     Petitioner contends that respondent’s agents fabricated the

records that respondent used to reconstruct petitioner’s income.
                                - 9 -

We disagree.    There is no evidence that anyone fabricated the

computer records.

     Petitioner cites Scar v. Commissioner, 814 F.2d 1363 (9th

Cir. 1987), revg. 81 T.C. 855 (1983), and Abrams v. Commissioner,

814 F.2d 1356 (9th Cir. 1987), affg. 84 T.C. 1308 (1985), for the

proposition that the determination in this case is invalid.

We disagree.    The notice of determination was deemed invalid by

the Court of Appeals in Scar because it was clear from the notice

of deficiency itself that the Commissioner had determined a

deficiency based on a partnership in which the taxpayers owned no

interest.   Scar v. Commissioner, supra at 1370.     Here,

respondent’s determination was properly based on petitioner’s

activities and records.    We lacked jurisdiction in Abrams because

the taxpayers filed petitions in the Tax Court based on a letter

that was not a notice of deficiency.     Unlike Abrams, there was a

notice of deficiency in this case.      Thus, neither Scar nor Abrams

applies here.

     Petitioner contends that respondent’s determination is not

presumed to be correct because respondent used information to

reconstruct his income which would have been inadmissible under

the Federal Rules of Evidence if offered as evidence at trial.

We disagree.    First, respondent used admissible evidence to

reconstruct petitioner’s income.    See par. B-2, below.     Second,

the Commissioner may determine a deficiency based “on hearsay or
                                - 10 -

other inadmissible evidence”.     Cebollero v. Commissioner, 967

F.2d 986, 993 (4th Cir. 1992), affg. T.C. Memo. 1990-618; Zuhone

v. Commissioner, 883 F.2d 1317, 1325 (7th Cir. 1989), affg. T.C.

Memo. 1988-142; Jackson v. Commissioner, 73 T.C. 394, 400 (1979).

     3.      Conclusion Regarding Burden of Proof

     We conclude that respondent’s determination is presumed to

be correct, and petitioner has the burden of proving otherwise.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

B.   Petitioner’s Evidentiary Contentions

     1.      Whether the Computer Records Are Admissible

     Petitioner contends that the computer records are hearsay

and thus are inadmissible under rule 802 of the Federal Rules of

Evidence.     We disagree because they are records of regularly

conducted activity under rule 803(6) of the Federal Rules of

Evidence.2


     2
          Fed. R. Evid. 803(6) provides as follows:

          (6) Records of regularly conducted activity. A
     memorandum, report, record, or data compilation, in any
     form, of acts, events, conditions, opinions, or
     diagnoses, made at or near the time by, or from
     information transmitted by, a person with knowledge, if
     kept in the course of a regularly conducted business
     activity, and if it was the regular practice of that
     business activity to make the memorandum, report,
     record, or data compilation, all as shown by the
     testimony of the custodian or other qualified witness,
     * * * unless the source of information or the method or
     circumstances of preparation indicate lack of
     trustworthiness. The term “business” as used in this
     paragraph includes business, institution, association,
                                                   (continued...)
                             - 11 -

     Respondent called former Special Agent Mark Gold (Gold) and

Revenue Agent Andrew Rosenblatt (Rosenblatt) to testify to

establish that the foundation requirements of rule 803(6) of the

Federal Rules of Evidence had been met.    Petitioner contends that

their testimony violated rule 702 of the Federal Rules of

Evidence relating to expert testimony.3    We disagree.   Neither

Gold nor Rosenblatt testified as experts.

     Petitioner contends that Gold and Rosenblatt were not

qualified to provide foundation testimony under rule 803(6) of

the Federal Rules of Evidence because they had no role in

creating or maintaining the records.     We disagree.   For purposes

of rule 803(6) of the Federal Rules of Evidence, a Federal agent

may be qualified to establish that a taxpayer’s records were kept

in the regular course of business.     United States v. Franco, 874

F.2d 1136, 1138-1140 (7th Cir. 1989) (drug enforcement agent);

United States v. Hathaway, 798 F.2d 902, 906 (6th Cir. 1986)

(Federal Bureau of Investigation agent); United States v. Veytia-

Bravo, 603 F.2d 1187, 1191-1192 (5th Cir. 1979) (Bureau of

Alcohol, Tobacco, and Firearms agent).



     2
      (...continued)
     profession, occupation, and calling of every kind,
     whether or not conducted for profit.
     3
        Petitioner contends that Rosenblatt’s testimony at the
criminal trial violated Fed. R. Evid 702 for expert testimony.
We need not here consider petitioner’s contentions about his
criminal trial.
                              - 12 -

     Gold and Rosenblatt testified that they verified the

accuracy of the computer records by:   (1) Comparing petitioner’s

copies of clients’ tax returns with the information in the

computer records; (2) comparing the names of clients in the

computer records to client names petitioner wrote on the bank

deposit slips; (3) obtaining copies of clients’ canceled checks

and comparing them to the computer records; and (4) contacting

the clients and comparing their records to the computer records.

Gold and Rosenblatt verified the accuracy of the computer records

for interest income earned from petitioner’s lending activity by

reviewing loan files, Forms UCC-1, Financing Statement,

Confessions of Judgment, and checks.   They compared the checks

deposited in the Republic Bank accounts with loan information in

the computer records.   They compared loan repayment checks,

receipts, and deposit slips with information in the computer

records.   The computer records for the lending activity include

the name of the client, principal amount of the loan, the

interest rate charged, and the dates payments were due and made.

Seth Wapnick worked for petitioner and maintained the computer

records.   We conclude that Gold and Rosenblatt properly provided

foundation testimony related to the admissibility of the computer

records.   See United States v. Franco, supra; United States v.

Hathaway, supra; United States v. Veytia-Bravo, supra.
                               - 13 -

     Petitioner contends that some of the computer records were

fabricated because a witness at his criminal trial said that the

type of computer that Seth Wapnick used was first sold to the

public on December 9, 1985, which is after most of the first year

in issue.   We disagree.   First, there is no evidence in our

record to support petitioner’s contention.    Second, even if the

December 9, 1985, date is correct, after Seth Wapnick obtained

the computer he could have entered data relating to periods

before he obtained the computer.

     Petitioner contends Rosenblatt and Gold’s testimony about

the computer records was not credible.    We disagree.   Rosenblatt

and Gold testified credibly and in detail.    In contrast,

petitioner’s testimony was vague and unconvincing on this point.

     Petitioner points out that a document entitled “Declaration

of Andrew Rosenblatt”, an exhibit in his criminal case and

attached as part of Exhibit 44-P in this case, had many

handwritten markings on it.    We admitted another copy of the

document without markings as Exhibit 30-R.    Rosenblatt did not

know who made the handwritten markings on the attachment to

Exhibit 44-P, and he could not explain why they were made.

Petitioner contends that Rosenblatt’s testimony on these points

shows that his testimony is not credible.    We disagree.

Rosenblatt’s inability to explain handwritten markings on
                                - 14 -

petitioner’s exhibit does not show that his testimony was not

credible.

     Petitioner contends that records that he kept by hand would

show that the computer records are untrustworthy and not

reliable.    There is no evidence to support petitioner’s

contention.    Petitioner did not offer any handwritten records

into evidence.

     We conclude that the computer records are admissible under

rule 803(6) of the Federal Rules of Evidence.

     2.     Whether Summaries That Respondent Prepared Are
            Admissible

     Respondent’s agents used data from the computer records and

documents related to petitioner’s business to prepare summaries

of income from interest from banks and loans, check cashing fees,

and accounting fees.    Petitioner contends that the summaries are

inadmissible because respondent’s agents prepared them as

evidence for use in the trial of this case.     We disagree.

     Summaries prepared for litigation are admissible if the

underlying documents have been admitted into evidence or

reasonably have been made available to the opposing party for

inspection.    Fed. R. Evid. 1006.   The summaries are admissible

because printed copies of the computer records and other

underlying documents were admitted in evidence and were available

to petitioner for inspection.
                              - 15 -

     Petitioner points out that respondent has previously filed

motions in this case requesting that facts be deemed established.

Petitioner objected to those requests in part because he

contended that the summaries did not comply with rules 803(6) and

1006 of the Federal Rules of Evidence.   We did not grant

respondent’s requests.   Petitioner concludes from our denial of

respondent’s motions that we agreed with his objections under

rules 803(6) and 1006 of the Federal Rules of Evidence.

He is incorrect.   We denied respondent’s requests that facts be

deemed established because the case was not ready for trial.       We

have not previously decided whether respondent’s summaries

complied with rules 803(6) and 1006 of the Federal Rules of

Evidence.

     Petitioner relies on Potamkin Cadillac Corp. v. B.R.I.

Coverage Corp., 38 F.3d 627, 632 (2d Cir. 1994), for the

proposition that respondent’s agents’ summaries are inadmissible

because they were prepared for litigation.    The summary at issue

in Potamkin Cadillac Corp. was not admitted because it was

inaccurate, it required significant interpretation of data, and

it was “not simply a downloading of information previously

computerized in the regular course of business.”    Id. at 633.

Potamkin Cadillac does not support petitioner’s position.     We

conclude that the summaries are admissible.   Fed. R. Evid. 1006.
                              - 16 -

C.   Whether Petitioner Had Unreported Income in the Amounts
     Determined by Respondent

     1.   Bank and U.S. Treasury Note Interest, Capital Gains,
          and Check Cashing Income

     Petitioner does not dispute respondent’s determination of

the amounts of the bank interest, Treasury note interest, capital

gains, and check cashing income.    Instead, he disputes to whom it

is taxable.   Petitioner contends that the unreported interest,

capital gains, and check cashing income are taxable to the

13 corporations.   Petitioner contends that interest and capital

gains earned with respect to the U.S. Treasury notes are taxable

to 2 of those 13 corporations; namely, Poodle Trans. Corp. and

Big John Cab Corp.   We disagree.

     A corporation is recognized for Federal income tax purposes

if it was formed for a legitimate business purpose, or, if after

formation, it conducted legitimate business.    Moline Props., Inc.

v. Commissioner, 319 U.S. 436, 438-439 (1943); United States v.

Wapnick, 60 F.3d 948, 955 n.3 (2d Cir. 1995); Natl. Investors

Corp. v. Hoey, 144 F.2d 466, 468 (2d Cir. 1944).   However, a

corporation is disregarded for Federal income tax purposes if its

owners “move their own funds in and out of a corporate account

without any regard for which funds belong to the corporation and

which belong personally to the corporation’s owners”.    United

States v. Wapnick, supra (holding that this statement of law was
                               - 17 -

properly included in the jury instructions in petitioner’s

criminal case).

     For reasons discussed next, we do not recognize the 13

corporations for Federal income tax purposes.    Petitioner used

false EINs when forming the corporations.    The 13 corporations

did not follow any corporate formalities such as maintaining

books and records, issuing stock, holding annual meetings,

electing officers, or issuing financial statements.    They did not

have employees, they paid no salaries or dividends, and they did

not conduct any legitimate business.    They did not file tax

returns.    Petitioner did not treat the 13 corporations as

separate business entities.    He often lent money from one

corporate account and deposited repayments for that loan in other

corporate accounts.

     Petitioner contends that the 13 corporations provided tax

preparation, money lending, and check cashing services.    We

disagree.   There are no documents in evidence that show there

were any business transactions between a client and any of the

corporations.   No checks payable to any of the 13 corporations

were produced at trial.   Petitioner’s clients made checks for

services payable to petitioner, H. Wapnick & Sons, or cash.

     Petitioner testified and contends that he did not own all of

the stock of the 13 corporations.    He contends that John Wapnick

and Seth Wapnick bought Centurion Taxi, Inc., at the end of 1987;
                                - 18 -

he did not own Macar Service Corp.; and Ruth Wapnick bought Oxus

Taxi, Inc. in 1986.   We disagree.   There is no evidence

corroborating his assertions.    He did not call his wife or sons

as witnesses.   We conclude that the 13 corporations were shams,

and we disregard them for tax purposes.

      Petitioner contends that the interest income paid to Oxus

Taxi, Inc. is not taxable to him because his wife reported all of

it.   We disagree.   After the criminal investigation began,

petitioner’s wife filed an income tax return on which she

reported a gain on the 1988 sale of Oxus Taxi, Inc., stock.

There is no evidence that she reported any interest income paid

to Oxus Taxi, Inc. in the years in issue.    Petitioner has not

carried his burden of proving that he is not taxable for income

generated in the name of Oxus Taxi, Inc., in the years in issue.

      We conclude that petitioner is taxable on income that he

received from cashing checks, and on the interest and capital

gains with respect to the $400,000 and $600,000 U.S. Treasury

notes.

      2.   Income From Loans

      Petitioner contends that he had no income from lending money

because many of the loans he made were not repaid.    A taxpayer

may deduct a bad debt in the year it becomes wholly or partially

worthless.   Sec. 166(a)(1) and (2); sec. 1.166-2(a), Income Tax
                               - 19 -

Regs.   Petitioner contends that he had more than $3 million in

bad debts in 1988 from the lending activity.

     Petitioner contends that he is entitled to carry back a net

operating loss of $1,006,000 from 1988 to 1987 and to carry

forward a net operating loss of $1,594,000 from 1988 to 1989 and

later years.   We disagree.   Petitioner’s vague testimony is the

only evidence supporting his claim.

     Petitioner attached to his answering brief a document which

states that a judgment was entered on October 9, 1992, in the

Supreme Court of the State of New York, County of Kings, in favor

of Ruth Wapnick against the Estate of Joseph Elashvili in the

amount of $153,015.   Petitioner contends that this document shows

that loans to the Estate of Joseph Elashvili were worthless.

This document was not offered or admitted into evidence.    Even if

it had been admitted, there is no evidence that the debt

described in the document became worthless during the years in

issue, that the judgment is uncollectible, or that the judgment

related to a loan made by petitioner which is at issue in this

case.

     Petitioner lent $40,000 to Alberto, Inc., and contends that

Alberto, Inc., repaid only $11,000.     Petitioner contends that his

loan to Alberto, Inc., resulted in a $29,000 loss.    We are not

convinced that petitioner lost $29,000 as a result of his loan to
                              - 20 -

Alberto, Inc., because petitioner’s only evidence supporting his

contention was his vague and uncorroborated testimony.

     Petitioner contends that all of the bad debts from the

lending activity became totally worthless on December 15, 1988,

the date that the search warrant was executed and respondent took

all of his documents.   We disagree.   The mere fact that notes and

records which were evidence of the loans are not immediately

available to petitioner does not show that the loans were

worthless.   See Perry v. United States, 51 AFTR 1234, 56-1 USTC

par. 9526 (S.D. Ga. 1956) (bad debt deduction not allowed in year

when lender’s business records and promissory notes were stolen).

Petitioner offered no evidence that the debts were worthless.   We

are not convinced that execution of the search warrant caused all

of the debts to become worthless.

     Petitioner contends that respondent’s agents told the

parties to whom he lent money to pay respondent instead of him.

There is no credible evidence to support that contention.

     Petitioner contends that he received less income from loans

than respondent determined.   However, petitioner’s vague and

uncorroborated testimony is less convincing than the documentary

and other evidence provided by respondent.   We conclude that

petitioner had unreported income from loans to third parties of

$201,565 in 1985, $217,868 in 1986, and $341,324 in 1987.
                               - 21 -

     3.    Alleged Brokerage Account Losses

     Petitioner contends that respondent failed to account for

margin charges and large losses that he allegedly sustained in

his Brown & Co. brokerage account in 1985, 1986, and 1987.     There

is no evidence to support petitioner’s claim.

     4.    Conclusion Regarding Unreported Income

     We sustain respondent’s determination that petitioner had

unreported income of $600,515 for 1985, $787,080 for 1986, and

$1,008,325 for 1987.

D.   Failure To Pay Estimated Tax Under Section 6654

     Respondent determined that petitioner is liable for the

addition to tax under section 6654 for failure to pay estimated

tax for 1987.   We have jurisdiction to review this determination

because the taxpayer did not file a return for 1987.    Sec.

6665(b)(2); Meyer v. Commissioner, 97 T.C. 555, 562 (1991).

     Petitioner offered no evidence and made no argument on this

issue.    We conclude that petitioner is liable for the addition to

tax for failure to pay estimated tax under section 6654 for 1987.

E.   Whether Petitioner Is Liable for the Addition to Tax for
     Substantial Understatement of Income

     Petitioner contended in the petition that he is not liable

for the addition to tax for substantial understatement of income

tax under section 6661(a) for 1985 and 1986.    Section 6661(a)

imposes an addition to tax of 25 percent of the amount of any

underpayment attributable to a substantial understatement of
                                - 22 -

income tax.    Petitioner bears the burden of proving that he is

not liable for the addition to tax under section 6661.    Rule

142(a).   He offered no evidence or argument that he is not liable

for the addition to tax under section 6661(a).    We conclude that

petitioner is liable for the section 6661(a) addition to tax for

1985 and 1986.

F.   Petitioner’s Procedural Contentions

     1.    Whether Time To Assess Taxes Had Expired

     Petitioner contends that the time to assess the taxes at

issue expired before respondent issued the notice of deficiency.

We disagree.     The Commissioner may assess tax at any time if the

taxpayer files a fraudulent return or fails to file a return.

Sec. 6501(c)(1), (3).    Petitioner filed fraudulent returns for

1985 and 1986, Wapnick v. Commissioner, T.C. Memo. 1997-133, and

did not file a return for 1987.    Thus, respondent’s notice of

deficiency is timely.

     2.    Summary Judgment

     Petitioner contends that he is entitled to summary judgment

based on his contention that the 13 corporations are not shams,

that he had more than $3 million in bad debts in 1988, and that

he was wrongly convicted in his criminal case.    We disagree.

Summary judgment is not appropriate here because material facts

are in dispute.    We have found that petitioner’s 13 corporations
                              - 23 -

are shams and that he did not show that he had bad debts in 1998.

Petitioner’s arguments for summary judgment lack merit.

     3.   Review Jeopardy Assessments

     Petitioner in essence asks us to reconsider orders of this

Court dated June 2 and July 27, 1995, denying his motions to

review respondent’s jeopardy assessments.   Petitioner contends

that the jeopardy assessments are invalid because, to make them,

respondent used data which would have been inadmissible under the

Federal Rules of Evidence if offered as evidence at trial.    We

disagree for reasons stated at paragraphs A-2 and B-2, above.

     4.   Reconsideration of Order Deeming Matters Stipulated
          Under Rule 91(f)

     In his posttrial brief, petitioner requested that we

reconsider our pretrial order deeming certain documents and facts

stipulated.   Respondent had moved to compel stipulation of facts

under Rule 91(f) on February 16, 2001.   Respondent requested that

we should deem stipulated copies of the notice of deficiency,

petitioner’s income tax returns for 1985 and 1986, documents from

the U.S. Treasury and Republic Bank, schedules showing

petitioner’s income from accounting services, loans and check

cashing based on the computer records, on petitioner’s other

records, and on records from third parties, and the judgment from

petitioner’s criminal case.   Respondent also requested that we

deem stipulated that petitioner did not file an income tax return

for 1987, the 13 corporations did not file Federal or State
                               - 24 -

corporate tax returns, and petitioner used false EINs for the 13

corporations.

     We ruled on respondent’s motion following a pretrial

hearing.    At the hearing, respondent showed sources, reasons, and

bases for facts and exhibits that we deemed stipulated, and

showed that petitioner had reasonable access to those sources or

bases for stipulation.    Petitioner did not show any sources,

reasons, or bases for refusing to stipulate to those exhibits and

facts.    We granted respondent’s motion in large part, but we

denied it to the extent that respondent had not produced

underlying documents relating to summaries.      Summaries not deemed

stipulated were later admitted at trial after respondent provided

those underlying documents.    See paragraph B-2, above.

     Petitioner contends that we should reconsider our order

partially granting respondent’s motion to compel stipulation of

facts under Rule 91(f).    We disagree.    Petitioner’s reasons to

oppose stipulation are the same as those that he raised in his

request for summary judgment and review of the jeopardy

assessment, and in his post-trial briefs.      We rejected those

arguments in paragraphs F-2 and F-3, above.      We conclude that

reconsideration is not warranted here.

     5.    Conform Pleadings to Evidence

     Petitioner contends that the pleadings in this case should

be conformed to the evidence under Rule 41(b).
                              - 25 -

However, petitioner does not state how the pleadings should be

changed or state what evidence supports his request.   See Rule

41.   Petitioner’s request to conform pleadings to the evidence

lacks merit.

      6.   Petitioner’s Request for Admissions

      Petitioner contends that respondent did not respond to his

request for admissions.   We do not address this contention

further because there is no evidence that petitioner served

respondent with a request for admissions under Rule 90.

      For the foregoing reasons, we sustain respondent’s

determination.   To reflect the foregoing,

                                         Decision will be

                                    entered for respondent.
