                          T.C. Memo. 2004-33



                        UNITED STATES TAX COURT



                  TONY J. CAVENDER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3822-02.              Filed February 10, 2004.



     Mark H. Westlake, for petitioner.

     James L. May, Jr., for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION

     SWIFT, Judge:     Respondent determined a deficiency in

petitioner’s 1998 Federal income tax and additions to tax as

follows:


                                  Additions to Tax
   Deficiency      Sec. 6651(a)(1)  Sec. 6651(a)(2)   Sec. 6654(a)

    $63,183           $12,531          $7,518             $2,490
                                - 2 -

     All section references are to the Internal Revenue Code in

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

Tax Court Rules of Practice and Procedure.

     After concessions, the primary issue for decision is whether

petitioner received additional wage income in the amount of

$102,126.

                           FINDINGS OF FACT

     Some facts are stipulated and are so found.

     At the time the petition was filed, petitioner resided in

Fairview, Tennessee.    Petitioner’s filing status for 1998 was

“married filing separate”.

     In May 1998, petitioner incorporated under Tennessee law

Champion Home Centers, Inc. (Champion), to sell modular homes.

Throughout 1998, petitioner was an employee of and was the sole

shareholder in Champion.    Although the record in this case does

not disclose petitioner’s particular title as an employee of

Champion, petitioner was in control of Champion.

     In the fall of 1998, petitioner hired a part-time bookkeeper

to work for Champion.   The bookkeeper worked 10 hours a week for

approximately 5 months.

     On December 30, 1998, a check in the amount of $95,233 was

drawn on Champion’s checking account at Franklin National Bank.

The check was made payable to petitioner and stated on its face

that it related to “Payroll 12-31-98”.    The check was made out by
                               - 3 -

the bookkeeper and was signed by petitioner on behalf of

Champion.

     The above check was received by and was endorsed by

petitioner as payee.   Petitioner, however, did not actually

receive the $95,233 in cash.   Rather, on March 29, 1999, the

endorsed but unnegotiated check was given by petitioner to

Franklin National Bank for deposit of the $95,233 face amount of

the check into Champion’s checking account.     The bank treated the

transaction as if petitioner had cashed the check on March 29,

1999, and then immediately deposited the $95,233 back into

Champion’s checking account.

     The above-referenced $95,233 check was numbered 1546.

Checks clearing Champion’s checking account in January 1999 were

numbered from 1524 to 1606 with the exception of check No. 1546.

     Checks clearing Champion’s checking account in March 1999

generally were numbered from 1663 to 1755.

     On the dates indicated, Champion’s bank statements reflected

the following positive balances:


                    Date                  Amount
                  10/30/98             $129,547.45
                  11/02/98              126,317.66
                  11/30/98              142,684.18
                  12/01/98              144,284.18
                  12/31/98               81,883.01
                  01/04/99              103,654.01
                  01/29/99               95,837.24
                  02/01/99               93,784.47
                  02/26/99               56,442.35
                  03/01/99               15,875.91
                  03/31/99               78,530.63
                                - 4 -

     In early 1999, there was issued to petitioner on behalf of

Champion a Form W-2, Wage and Tax Statement (W-2), reflecting

that during 1998 Champion had paid wages to petitioner in the

total amount of $129,541.

     Petitioner’s 1998 individual Federal income tax return was

not timely filed.

     Champion’s 1998 corporate Federal income tax return was

timely filed with respondent.   On that corporate tax return, the

full $129,541 reflected as wages paid to petitioner on the above

W-2, including the $95,233 amount of check No. 1546, was

reflected as a wage expense deduction of Champion.

     On November 5, 2001, pursuant to an audit and respondent’s

preparation of a substitute 1998 tax return for petitioner,

respondent mailed to petitioner a notice of deficiency for 1998

in which respondent determined, among other things, that the

$95,233 face amount of check No. 1546 constituted taxable wage

income to petitioner in 1998.   Respondent also determined that

the additional $34,308 reflected on the W-2 issued to petitioner

constituted taxable wage income to petitioner in 1998.

     In September 2002, petitioner hired a certified public

accountant to review petitioner’s and Champion’s books and

records and to prepare tax returns on behalf of petitioner and

Champion.
                               - 5 -

     In December 2002, shortly before trial herein, there was

issued to petitioner on behalf of Champion a Form W-2c, Corrected

Wage and Tax Statement for 1998.   At the same time, there was

filed with respondent on behalf of Champion a Form W-3c,

Transmittal of Corrected Wage and Tax Statements for 1998.    Both

statements reflected that, during 1998, Champion had paid wages

to petitioner in the total amount of only $27,415.

     On December 27, 2002, petitioner filed with respondent his

original 1998 individual Federal income tax return, which the

accountant had prepared.   On that return, petitioner reported

total wages received in 1998 from Champion of only $27,415.

     Also on December 27, 2002, there was filed with respondent

on behalf of Champion an amended 1998 corporate Federal income

tax return for 1998, reflecting a $102,126 decrease in the

deduction claimed for wages paid to petitioner.1


                              OPINION

Taxable Wage Income

     Section 61(a) defines gross income as “all income from

whatever source derived,” including compensation for services.

The Supreme Court has held that gross income includes “undeniable

accessions to wealth, clearly realized, and over which the


     1
       $129,541 (wage deduction claimed on Champion’s original
1998 corporate Federal income tax return) less $27,415 (wage
deduction claimed on Champion’s amended 1998 corporate Federal
income tax return) equals $102,126.
                               - 6 -

taxpayers have complete dominion.”     Commissioner v. Glenshaw

Glass Co., 348 U.S. 426, 431 (1955).

     In Crary v. Commissioner, T.C. Memo. 1970-40, a taxpayer

paid to his employer the same amount of a paycheck the taxpayer

had received from his employer on the same day.    We held that,

regardless of the subsequent payment to his employer, the amount

of the paycheck was to be included in the taxpayer’s income.

     In Merritt v. Commissioner, T.C. Memo. 2003-187, a taxpayer

argued that he was entitled to reduce independent contractor fees

received from a law firm by an amount he, in the same year, paid

back to the firm.   We held that the total amount of the fees

received by the taxpayer constituted taxable income regardless of

the amount later paid back to the firm.

     Petitioner argues that the reason the $95,233 check from

Champion was made out to and was given to him was to support an

inflated wage expense deduction on Champion’s 1998 corporate tax

return.   Petitioner alleges that the $95,233 check was not signed

by him on behalf of Champion until March 29, 1999, and that it

was backdated by Champion’s part-time bookkeeper to December 30,

1998.

     Respondent contends that the full $95,233 reflected by check

No. 1546 should be treated as wage income to petitioner in 1998.

     Champion’s bank statements indicate that the $95,233 check

was written in late December 1998.     Checks with similar numbers,
                                - 7 -

including those immediately preceding and succeeding check No.

1546, cleared Champion’s bank account in January 1999.

     From October 1998 through January 1999, Champion’s bank

statements, with some variation, reflect significant positive

balances.   Petitioner controlled Champion, and he had control

over the funds in Champion’s bank account.

     Respondent’s determination herein “has the support of a

presumption of correctness, and the petitioner has the burden of

proving it to be wrong.”    Welch v. Helvering, 290 U.S. 111, 115

(1933).   Petitioner has not met this burden.2

     Petitioner has offered no evidence that there was any

requirement or understanding that the $95,233 check would be

returned to Champion.    At trial, none of Champion’s books and

records were produced.    Petitioner failed to call Champion’s

bookkeeper as a witness.    Wichita Terminal Elevator Co. v.

Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th

Cir. 1947).

     We conclude that, in addition to the $27,415 in wage income

not contested by petitioner, the $95,233 reflected by check No.

1546 is to be treated as wage income taxable to petitioner in

1998.



     2
       Petitioner has not satisfied the requirements of sec.
7491(a)(1) and (2) or the requirements of sec. 6201(d), under
which, in some circumstances, a shift to respondent in the burden
of proof or production may be available.
                                 - 8 -

     For lack of contrary evidence, we also conclude that the

$6,893, the amount contested by petitioner above the face amount

of check No. 1546, constitutes taxable wage income to petitioner

in 1998.   In summary, for 1998, petitioner is to be taxed on

total income relating to his employment with Champion in the

amount of $129,541.3


Dependency Exemptions

     In order to be entitled to the two dependency exemptions at

issue in this case, each claimed dependent must qualify under the

statutory definition of “dependent”.     Secs. 151(c)(1), 152.    The

definition of “dependent” includes a son or daughter of the

taxpayer, over half of whose support was paid by the taxpayer,

and who, at the end of the year, was either under the age of 19

or under the age of 24 and also a student as defined by section

151(c)(4).    Secs. 151(c)(1)(B), 152(a)(1).

     Petitioner offered no evidence as to his entitlement to the

claimed exemptions.     We deny petitioner’s claimed dependency

exemptions.


Additions to Tax

     Section 6651(a)(1) imposes an addition to tax for a

taxpayer’s failure to timely file his individual Federal income



     3
       $27,415 uncontested, plus $95,233 check, plus $6,893
equals $129,541.
                                 - 9 -

tax return unless such failure is due to reasonable cause and not

due to willful neglect.    Section 6654(a) imposes an addition to

tax for an individual taxpayer’s failure to pay estimated tax.

     Petitioner acknowledges that his 1998 individual Federal

income tax return was not timely filed.     The tax deficiency that

we have sustained herein, on the facts of this case, prima facie

establishes petitioner’s liability for the section 6654(a)

addition to tax for failure to pay estimated tax.     The evidence

herein does not establish petitioner’s entitlement to any

exception to these additions to tax.     See Mendes v. Commissioner,

121 T.C. 308, 324-325 (2003).

     Petitioner is liable for the additions to tax under sections

6651(a)(1) and 6654(a).4

     We have considered all arguments made herein, and, to the

extent not addressed, we conclude that they are without merit or

are irrelevant.

     To reflect the foregoing,


                                         Decision will be entered

                                   under Rule 155.




     4
       Respondent has conceded the sec. 6651(a)(2) addition to
tax that was asserted against petitioner.
