                  T.C. Summary Opinion 2001-170



                     UNITED STATES TAX COURT



      CELESTE BONNER AND LOUIS BONNER, JR., Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 839-01S.                    Filed October 25, 2001.


     Celeste Bonner and Louis Bonner, Jr., pro se.

     Linda A. Neal, for respondent.


     POWELL, Special Trial Judge:     This case was heard pursuant

to the provisions of section 7463.1    The decision to be entered

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

be cited as authority.

     Respondent determined a deficiency of $7,222 and an

accuracy-related penalty under section 6662 of $1,444 in

petitioners’ 1998 Federal income tax.


1
     Subsequent section references are to the Internal Revenue
Code in effect for the year in issue.
                                - 2 -

     The issues are (1) whether petitioner Louis Bonner, Jr.

(petitioner), had unreported income of $25,980, and (2) whether

petitioners are liable for the section 6662 penalty.     Petitioners

resided in Shreveport, Louisiana, at the time they filed their

petition.

     The facts may be summarized as follows.     Petitioners filed a

joint Federal income tax return for 1998 on which they reported

wage income for petitioner Celeste Bonner of $11,986 and interest

income of $59.   Petitioner did not report any income from self-

employment or wages.

     Petitioner is a cabinetmaker.      Jerry Brown is a contractor

who does reconstruction of residential properties.     His wife,

Linda Brown, operates a “craft business” that sells, inter alia,

dowry chests.    Mrs. Brown keeps the records for both endeavors,

which are operated as a single business for tax purposes under

the Browns’ name.   The Browns issued a Form 1099-MISC,

Miscellaneous Income, to petitioner in the amount of $25,980 for

services as a self-employed individual.     Petitioner contends that

he received only $1,200 in income from the Browns in 1998.

     The issue is totally factual–-viz, did petitioner receive

income of $25,980 from the Browns--and turns on whether we

believe petitioner or the Browns.    We believe the Browns.

     Both Mr. and Mrs. Brown testified that they used the

services of petitioner to build cabinets and chests during 1998.
                                - 3 -

Mrs. Brown testified that petitioner was paid by cash and by

check.    Mrs. Brown kept a payment ledger that indicates that the

Browns paid petitioner routinely during 1998 for his work.      The

record contains seven checks that are appropriately shown on the

ledger and were endorsed by petitioner.   The ledger also contains

the initials “LB” by most of the entries made.    Mrs. Brown

testified that they were petitioner’s initials.    The formation of

the letters “LB” on the ledger strongly resembles the formation

of those letters on the canceled checks that were endorsed by

petitioner.   In addition, a written agreement for independent

contracting services, dated January 2, 1998, was executed by

petitioner.

     Petitioner initially denied receiving any money from the

Browns.   When confronted with the canceled checks, he reluctantly

conceded that he had received those checks.    Furthermore, when

petitioner was asked what he lived on during 1998, he was totally

evasive stating that “I’m not just helpless.    I do little

ordinary things.   I’ve made a dollar bill [sic?].”   Those dollars

“here and there” were not reported on petitioners’ tax return.

In short, we accept the Browns’ (and respondent’s) version of the

transactions between petitioner and the Browns.

     Next, we turn to the question of the penalty.    Section

6662(a) provides that, if the section applies, there is imposed a

penalty in an amount equal to 20 percent of the portion of the
                               - 4 -

underpayment.   The penalty applies, inter alia, to “Any

substantial understatement of income tax.”     Sec. 6662(b)(2).

Section 6662(d)(1)(A) provides that there is a substantial

understatement of income tax if the amount of the understatement

exceeds the greater of “(i) 10 percent of the tax required to be

shown on the return for the taxable year, or (ii) $5,000.”     The

understatement here is the full amount of the deficiency or

$7,2222 and exceeds $5,000.   Accordingly, petitioners are liable

for the penalty under section 6662.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                            Decision will be entered

                                       for respondent.




2
     See sec. 6662(d)(2). Petitioners reported that no tax was
due on their return. The amount of tax required to be shown on
the return was $7,222, the amount of the deficiency. There were
no rebates.
