                  T.C. Summary Opinion 2002-122



                     UNITED STATES TAX COURT


                 JON D. DEZAGOTTIS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3497-00S.              Filed September 23, 2002.


     Jon D. Dezagottis, pro se.

     Bradley C. Plovan, for respondent.


     GOLDBERG, 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.   The decision to be

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

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year at issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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     Respondent determined a deficiency in petitioner’s Federal

income tax for the taxable year 1994 in the amount of $2,011 and

an addition to tax of $503 pursuant to section 6651(a)(1).

     Some of the facts in this case have been stipulated and are

so found.   The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time the petition

was filed, petitioner lived in Mechanicsburg, Pennsylvania.

     In the notice of deficiency, respondent determined that

petitioner:   (1) Failed to report $12,255 of income which was

subject to self-employment tax; (2) failed to report a 1993 State

of Virginia income tax refund of $410; (3) failed to report

dividend income of $75; (4) failed to report interest income of

$185; and (5) was subject to an addition to tax of $503 pursuant

to section 6651(a)(1) for failure to file the return by the

prescribed due date.

     In the Stipulation of Facts, petitioner conceded that the

income tax refund, dividend income, and interest income, which

collectively totaled $670, are includable in income for the year

at issue.   In addition, respondent conceded that credit card

advances totaling $1,862 that were initially included in the

unexplained bank deposits of $12,255 are not includable in

income.   Therefore at trial, only $10,393 of unexplained bank

deposits treated as unreported business income is at issue.

     After the above-mentioned concessions, the remaining issues
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for decision are: (1) Whether petitioner had unreported income of

$10,393; (2) whether petitioner is liable for self-employment tax

on unreported income; and (3) whether petitioner is liable for an

addition to tax under section 6651(a)(1) for the taxable year

1994.   Adjustments to the self-employment income tax and the

deduction therefor are computational and will be resolved by the

Court’s holding in this case.

     During 1994, petitioner maintained a checking account with

Crestar Bank.   Petitioner made various deposits into the checking

account throughout the year totaling $25,860.    The various

deposits are categorized as follows:    (1) A 1993 State of

Virginia income tax refund for $410; (2) dividend income of $75;

(3) interest income of $185; (4) overdraft protection deposits of

$1,271; (5) credit card advances totaling $1,862; and (6)

proceeds from stock sale transactions of $11,664.    As previously

stated, respondent is now contending that the difference, or

$10,393, is income from unexplained bank deposits.

     On his tax return, petitioner reported total income of

$3,274, consisting of $3,229 of wages and $45 of taxable interest

income.   In the notice of deficiency, respondent deducted these

reported amounts in computing petitioner’s corrected income.

     For some period during 1994, petitioner worked for Merkle &

Company (Merkle) as a real estate appraiser.    However, petitioner

cannot recollect the exact dates in 1994 that he worked for
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Merkle.   Furthermore, petitioner is not sure whether he was an

employee of Merkle or an independent contractor.

      Petitioner did not file his 1994 Federal income tax return

by the April 17, 1995, due date.1    Additionally, petitioner did

not file for an extension of time to file the 1994 tax return.

Petitioner dated his return April 28, 1997.2    Thus, at a minimum,

the return was filed more than 2 years after the original due

date.

      The determinations of the Commissioner in a notice of

deficiency are presumed correct, and the burden is on the

taxpayer to show that the determinations are incorrect.     Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).3

1.   Unreported Income

      A taxpayer’s gross income generally includes “all income

from whatever source derived”.    Sec. 61(a).   A taxpayer is

required to maintain records sufficient to establish the amount



      1
          Individual income tax returns are generally due on Apr.
15 of each year, but since Apr. 15, 1995, was a Saturday, the due
date was extended until Monday, Apr. 17, 1995.
      2
           The actual date the return was filed is not in the
record.   Respondent testified that the return was filed in May
1997.
      3
          Sec. 7491 does not apply in this case to place the
burden of proof on respondent because petitioner neither alleged
that sec. 7491 was applicable nor established that he fully
complied with the substantiation requirements of sec.
7491(a)(2)(A).
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of his or her income.    Sec. 6001; sec. 1.6001-1(a), (e), Income

Tax Regs.   In the absence of adequate books and records, the

Commissioner may reconstruct a taxpayer’s income by any

reasonable method.   See sec. 446(b); Holland v. United States,

348 U.S. 121 (1954).    The bank deposits method has long been

recognized as a reasonable method to reconstruct income where the

taxpayer’s records are inaccurate or incomplete.    See Estate of

Mason v. Commissioner, 64 T.C. 651, 656 (1975), affd. 566 F.2d 2

(6th Cir. 1977).   “Though not conclusive, bank deposits are prima

facie evidence of income.”    Id.   The Commissioner is not required

to show that all deposits constitute income and need not show a

likely source of that income.    See id. at 657; Gemma v.

Commissioner, 46 T.C. 821, 833 (1966).

     At trial, petitioner testified that the remaining

unidentified deposits totaling $10,393 were derived from

additional credit card cash advances and from earnings from

Merkle.   However, petitioner presented absolutely no evidence to

corroborate his testimony.    No credit card receipts or earning

statements were presented at trial.     Petitioner testified that he

entered into many credit card cash advance transactions during

1994, but he could not estimate the amount.    Further, petitioner

testified that he “couldn’t exactly say, nor * * * even guess

roughly” what his earnings may have been from Merkle for the year

at issue.
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      We find the testimony given by petitioner to be too vague

and based too much upon conjecture to establish that the $10,393

of bank deposits at issue were derived from credit card cash

advances, earnings from Merkle, or a combination of both.

Furthermore, we find no other evidence in the record which

establishes that the $10,393 of funds deposited into petitioner’s

checking bank account were nontaxable.   In the absence of such

evidence, we must find for respondent on this issue.

2.   Self-Employment Tax

      Respondent determined that petitioner is liable for self-

employment tax on the unreported income.   Section 1401 imposes a

tax on the self-employment income of individuals.

      Self-employment income means the net earnings from self-

employment derived by an individual.   Sec. 1402(b).   In general,

net earnings from self-employment means the gross income derived

by an individual from any trade or business that he or she

carries on, reduced by allowable deductions attributable thereto.

Sec. 1402(a).   Petitioner bears the burden of showing that

respondent's determination is erroneous.   Rule 142(a); cf. Jones

v. Commissioner, T.C. Memo. 1994-230, affd. without published

opinion 68 F.3d 460 (4th Cir. 1995); O’Rourke v. Commissioner,

T.C. Memo. 1993-603, affd. without published opinion 60 F.3d 834

(9th Cir. 1995).

       When asked at trial about his employment status, petitioner
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testified that he would venture to guess that he was an

independent contractor.     However, petitioner presented no

evidence at trial establishing his employment status with Merkle

or the amount of compensation he received from the company.

      By presenting absolutely no evidence establishing that the

$10,393 of unreported income is not subject to self-employment

tax, petitioner has not met his burden with respect to this

issue.   Accordingly, we hold that petitioner is liable for self-

employment tax on the $10,393 of unreported income.

3.   Section 6651(a)(1) Addition to Tax

      Respondent determined an addition to tax as a result of

petitioner’s failure to timely file his Federal income tax return

for the year at issue.    Section 6651(a)(1) imposes an addition to

tax for failure to file a timely tax return.     The addition to tax

is equal to 5 percent of the amount of the tax required to be

shown on the return if the failure to file is not for more than 1

month.   Sec. 6651(a)(1).    An additional 5 percent is imposed for

each month or fraction thereof in which the failure to file

continues, to a maximum of 25 percent of the tax.      Id.   The

addition to tax is imposed on the net amount due.     Sec. 6651(b).

      The addition to tax is applicable unless a taxpayer

establishes that the failure to file was due to reasonable cause

and not willful neglect.     Sec. 6651(a).   If a taxpayer exercised

ordinary business care and prudence and was nonetheless unable to
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file the return within the date prescribed by law, then

reasonable cause exists.    Sec. 301.6651-1(c)(1), Proced. & Admin.

Regs.   "Willful neglect" means a "conscious, intentional failure

or reckless indifference."    United States v. Boyle, 469 U.S. 241,

245 (1985).

     Petitioner testified that he did not file his 1994 Federal

income tax return “in a timely fashion” because he had

“difficulty”.    At trial, petitioner offered two reasons for his

difficulty in filing a timely return for the year at issue.

     First, petitioner claimed that he moved from Maryland to

Pennsylvania.    Petitioner did not explain how his move had any

bearing on filing his tax return 2 years late.    The act of moving

from one State to another is certainly not reasonable cause to

file a late return.

     Second, petitioner claimed that he lost his earnings form

provided by Merkle.    Petitioner failed to offer any basis why

losing the form caused a 2-year delay in filing his return.

“Unavailability of records, without more, is not reasonable cause

for failing to file a timely return.”    Regan v. Commissioner,

T.C. Memo. 1987-512.

     Petitioner’s 1994 Federal income tax return was due on April

17, 1995.   Petitioner did not file his return until 2 years later

and offered no rational explanation for his failure to file his

return timely.    Petitioner failed to show that he exercised
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ordinary care and prudence in this case.    Accordingly, petitioner

is liable for the addition to tax under section 6651(a)(1).

Respondent is sustained on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                           Decision will be entered

                                      under Rule 155.
