                      T.C. Memo. 2001-182



                    UNITED STATES TAX COURT



  ESTATE OF FRANK JOHNSON, DECEASED, LARRY T. JOHNSON, PERSONAL
   REPRESENTATIVE AND ESTATE OF KATHARINE JOHNSON, DECEASED,
 LARRY T. JOHNSON, PERSONAL REPRESENTATIVE, ET AL.,1 Petitioners
         v. COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket Nos. 14518-97, 14519-97,           Filed July 20, 2001.
                14520-97, 14521-97,
                14522-97.



    Kenneth B. Wheeler, for petitioners.

    James F. Kearney, for respondent.




    1
        Cases of the following petitioners are consolidated
herewith: Estate of Frank Johnson, Deceased, Et Al., docket No.
14519-97; Larry T. Johnson, Transferee, Docket No. 14520-97;
Sylvia Johnson, Transferee, docket No. 14521-97; and Ronnie
Johnson, Transferee, docket No. 14522-97.
                                - 2 -


                              CONTENTS

FINDINGS OF FACT ............................................      8

I.    Facts Relating to Issues Involving Deficiencies .........    8
      A. Background ..........................................     8
      B. Tax Returns .........................................    10
          1. Frank and Katherine’s Returns ...................    10
          2. Larry’s Returns .................................    13
          3. Ronnie’s Returns ................................    15
          4. Sylvia’s Returns ................................    16
      C. IRS Audits and Notices of Deficiency ................    18
          1. Frank and Katherine’s Audit and Notices of
                Deficiency ....................................   18
          2. Larry’s Audit and Notice of Deficiency ..........    20
          3. Ronnie’s Audit and Notice of Deficiency .........    22
          4. Sylvia’s Audit and Notice of Deficiency .........    22
      D. Source and Application of Funds Analyses ............    23
      E. Cash Hoard ..........................................    28
      F. Other Facts .........................................    33
      G. Capital Gain for 1989 ...............................    37

II.    Facts Relating to Issues Involving Transferee
         Liability ............................................   38
      A. Larry ...............................................    38
      B. Ronnie ..............................................    39
      C. Sylvia ..............................................    41
      D. Specific Transfers ..................................    42
          1. U.S. Savings Bonds ..............................    42
          2. Account At Glendale Federal Savings and Loan ....    42
          3. Longwood Property ...............................    43
          4. Port St. Lucie Property .........................    43
          5. Automobiles .....................................    43

OPINION ..................................................... 44

I.    Issues Relating to Deficiencies .........................   44
      A. Background ..........................................    44
      B. Statute of Limitations and Fraud Issues .............    45
          1. In General ......................................    45
          2. Fraud ...........................................    46
              a. Existence of an Underpayment ................    47
                 (1) Likely Sources of Income ................    50
                 (2) Nontaxable Source .......................    53
                 (3) Summary Relating to Existence of an
                        Underpayment ..........................   61
              b. Intent To Evade Taxes ........................   63
                           - 3 -

           (1)  Pattern of Unreporting Substantial
                  Amount of Income ....................... 64
           (2) Lack of Records .......................... 65
           (3) Filing History ........................... 67
           (4) Dealings in Cash ......................... 68
           (5) Concealing Transactions .................. 69
           (6) Failure To Cooperate with Respondent ..... 70
           (7) Credibility of Witnesses ................. 71
           (8) Level of Education, Age, and State
                  of Health .............................. 72
           (9) Summary Regarding Intent ................. 73
         c. Conclusion Regarding Fraud and Statute of
               Limitations ............................... 73
C.   Amount of Understatement of Income .................. 74
     1. Adjustments to BLS Figures ....................... 75
     2. Adjustment for Specific Gift ..................... 79
     3. Adjustment for Proceeds of Automobile
          Transactions ................................... 80
     4. Adjustment for Larry’s Audit Results ............. 81
     5. Adjustment for Sylvia’s Gambling
          Expenditures ................................... 83
     6. Additional Items Identified as in Dispute ........ 84
          a. Withholding on Gambling Winnings ........... 84
          b. Birthing Costs for Nicole .................. 85
          c. Estimated Tax Payments ..................... 85
          d. Tax Payment ................................ 86
          e. Wedding Ceremony for Sylvia................. 86
          f. Detective Expenses ......................... 87
          g. Janie’s Living Expenses .................... 88
          h. Duplications Regarding Johnson Limousine ... 89
     7. Other Adjustments ................................ 89
          a. Rental Income .............................. 90
          b. Duplication of Rental Expenses and
                 Mortgage Payments ....................... 90
          c. Depreciation ............................... 91
          d. Cash and Jewelry ........................... 91
     8. Summary Relating to Amount of Understatement
           of Income ..................................... 93
D.   Capital Gain for 1989 ............................... 94
E.   Taxable Social Security Benefits .................... 95
F.   Self-Employment Taxes ............................... 97
G.   Self-Employment Deduction ........................... 99
H.   Married Couples Deduction ........................... 99
I.   Additions to Tax and Penalties ..................... 100
     1. Sections 6653(b) and 6663 ...................... 100
     2. Section 6661 ................................... 102
                                  - 4 -

II.    Issues Relating to Transferee Liability ................104
      A. Background ..........................................104
      B. Florida’s Statutory Provisions ......................106
          1. Pre-1988 Transfers ..............................106
          2. Post-1987 Transfers .............................108
      C. Discussion ..........................................111

Appendix   A   ..................................................118
Appendix   B   ..................................................124
Appendix   C   ..................................................126
Appendix   D   ..................................................128
Appendix   E   ..................................................130
Appendix   F   ..................................................133
Appendix   G   ..................................................136
Appendix   H   ..................................................139
Appendix   I   ..................................................142
Appendix   J   ..................................................145
Appendix   K   ..................................................152
Appendix   L   ..................................................157
Appendix   M   ..................................................164
Appendix   N   ..................................................169
                                                   - 5 -


                       MEMORANDUM FINDINGS OF FACT AND OPINION

        HALPERN, Judge:           These five cases have been consolidated for

trial, briefing, and opinion.                       Respondent, by two notices of

deficiency dated April 4, 1997, determined deficiencies,

additions, and penalties with respect to Federal income taxes

owed by petitioners the Estate of Frank Johnson, Larry T.

Johnson, Personal Representative, and the Estate of Katherine

Johnson, Larry T. Johnson, Personal Representative (hereinafter

referred to as petitioners).                       Such deficiencies, additions, and

penalties are on account of returns of income tax made by Frank

and Katherine Johnson (sometimes decedents), and are as follows:

                                                       Additions to Tax and Penalties
                                   Sec.             Sec.      Sec.      Sec.
Docket                             6653             6653      6653      6653     Sec.   Sec.
   No.      Year       Deficiency (b)(1)           (b)(2) (b)(1)(A) (b)(1)(B) 6663      6661
                                                     1
14518-97    1983        $37,058  $18,529                        -         -        -    $9,265
                                                     2
14519-97    1984         39,763     19,882                       -       -        -      9,941
                                                     3
            1985         51,732     25,866                       -       -        -     12,933
                                                                         4
            1986         43,537        -             -        $32,653             -     10,884
                                                                         5
            1987         67,496        -             -         50,622             -     16,874
            1988         74,169     55,627           -           -       -        -     18,542
            1989         73,600        -             -           -       -    $55,200      -
            1990         96,275        -             -           -       -     72,206      -
 1
   50   percent   of   the   interest   due   on   $37,058.
 2
   50   percent   of   the   interest   due   on   $39,763.
 3
   50   percent   of   the   interest   due   on   $51,732.
 4
   50   percent   of   the   interest   due   on   $43,537.
 5
   50   percent   of   the   interest   due   on   $67,496.

        By notices of liability dated April 4, 1997, respondent

asserted transferee liability against the following petitioners

relating to the above deficiencies, additions to tax, and
                              - 6 -

penalties to the extent of the net value of assets they

purportedly received from decedents,2 as follows:

      Docket                              Net Value of
        No.          Transferee         Assets Asserted
     14520-97     Larry T. Johnson         $861,668
     14521-97     Sylvia Johnson            229,685
     14522-97     Ronnie Johnson            766,003

     The issues for decision are as follows:

     (1) Whether the statute of limitations bars assessment of

the deficiencies for each of the years in issue,

     (2) whether decedents understated their income for each of

the years in issue,

     (3) whether decedents’ capital gain income should be

increased for 1989,3

     (4) whether decedents’ taxable Social Security income should

be increased for each of the years 1985 through 1990,

     (5) whether decedents’ self-employment taxes under section

1401 should be increased for each of the years in issue,


     2
        A transferee’s liability generally is limited to the
value of the assets received from the transferor. See Hagaman v.
Commissioner, 100 T.C. 180 n.1 (1993).
     3
        Respondent also identifies as an issue the question of
whether decedents’ capital gain income for 1986 should be
increased. We assume that respondent meant 1985 inasmuch as
respondent made a $6 adjustment to capital gain income for that
year, but no adjustment to capital gain income for 1986. In
their briefs, petitioners do not address the issue of capital
gain income for either 1985 or 1986. Accordingly, we deem that
issue conceded by them. See Rule 151(e)(4) and (5); Petzoldt v.
Commissioner, 92 T.C. 661, 683 (1989); Money v. Commissioner, 89
T.C. 46, 48 (1987).
                               - 7 -

     (6) whether decedents may increase their self-employment tax

deduction for 1990,

     (7) whether decedents are entitled to a married couples

deduction for each of the years 1983, 1984, 1985, and 1986,

     (8) whether decedents are liable for the additions to tax or

penalties for fraud under sections 6653(b) or 6663, as

applicable, for each of the years in issue,

     (9) whether decedents are liable for additions to tax under

section 6661 for substantial understatement of income for each of

the years 1983 through 1988,

     (10) whether petitioner Larry Johnson is liable as a

transferee of Frank and Katherine Johnson for $861,668,

     (11) whether petitioner Sylvia Johnson is liable as a

transferee of Frank and Katherine Johnson for $229,685,

     (12) whether petitioner Ronnie Johnson is liable as a

transferee of Frank and Katherine Johnson for $766,003.

     Unless otherwise noted, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.   For convenience, monetary amounts have been rounded

to the nearest dollar.   References to cash include cash

equivalents such as cashier’s checks and money orders.
                                  - 8 -

                            FINDINGS OF FACT

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

The stipulation of facts, amendment to stipulation of facts,

first supplemental stipulation of facts, and second supplemental

stipulation of facts filed by the parties, together with the

exhibits attached thereto, are incorporated herein by this

reference.      Some of respondent’s proposed findings of fact have

been conceded by petitioners, and, accordingly, they are so

found.      Some of petitioners’ proposed findings of fact have been

conceded by respondent and, accordingly, they are so found.

      Petitioner Larry Johnson (Larry) is here in his own right,

in docket No. 14520-97, and, also, as personal representative of

the estates of both Frank T. and Katherine Johnson.      He resided

in Longwood, Florida, when he filed the petitions in his case and

in petitioners’ cases.      Petitioner Ronnie Johnson (Ronnie)

resided in Longwood, Florida, when he filed the petition in his

case.      Petitioner Sylvia Johnson (Sylvia) resided in Longwood,

Florida, when she filed the petition in her case.

I.   Facts Relating to Issues Involving Deficiencies

      A.     Background

      Frank Johnson (Frank) was born on December 12, 1918.

Katherine Stanton Johnson (Katherine) was born on December 25,

1923.      They were raised in the gypsy culture, custom, and

tradition.      Frank and Katherine married in the gypsy custom
                               - 9 -

around 1938.   They moved to Florida during the late 1960s.

During the years in issue, Frank and Katherine lived in a house

located in Longwood, Florida (Longwood property).    Frank died at

the age of 74 on September 27, 1993.   Katherine died at the age

of 72 on June 9, 1996.

     Frank and Katherine had one son, Larry, and two daughters,

Patricia and Janie.   At the time of trial, Larry had seven

children, among whom are Ronnie and Sylvia.   In addition to their

own children, Frank and Katherine raised Ronnie and Sylvia

(grandchildren) in the gypsy culture, custom, and tradition.

Hereinafter, reference to the Johnson family means Frank,

Katherine, Larry, Ronnie, and Sylvia, collectively.

     During the years in issue, Larry was married to Nancy

Johnson (Nancy).   They lived in a separate residence from

Katherine and Frank during those years.   Ronnie lived with Frank

and Katherine until approximately February 1985.    During 1985

through 1990, Ronnie was married to Linda Johnson (Linda), and

they lived in a separate residence from Frank and Katherine.

Sylvia came to live with Frank and Katherine at least by 1983.

Her boyfriend, Jack Miller, moved into the Longwood property in

late 1986.   Sylvia and Jack Miller married in 1987, and their

child, Nicole, was born in 1988.   Sylvia, Jack Miller, and Nicole

lived in the Longwood property until August 1990 when they moved

into a separate residence.
                                 - 10 -

     While living with Frank and Katherine, Sylvia performed many

services for them, including grocery shopping, paying bills, and

accompanying them to their doctors’ offices.      When her help was

needed, she assisted Katherine in getting out of bed, bathing,

and dressing.

     In June or July 1990 Katherine hired Carolyn White (Carolyn)

to perform housekeeping and caregiver duties for Katherine and

Frank.    Carolyn’s husband, Jack White, burglarized the Longwood

property in November 1990 and stole a safe which he claimed

contained $200,000 in cash together with jewelry, bank books,

stocks, bonds, and coins.      Frank and Katherine reported to the

police the theft of $30,000 in cash and over $100,000 in jewelry.

The police subsequently recovered the jewelry and all but $16,000

of the cash.     Jack White was convicted of the theft.   Carolyn

pleaded guilty to being an accessory after the fact and was put

on probation for 5 years.

     B.    Tax Returns

            1.   Frank and Katherine’s Returns

     Frank was retired during the years in issue.      Before,

during, and after the years in issue, Katherine operated a

palmistry business out of the Longwood property under the name

“Madame Katherine”.      For some of the years, Sylvia helped

Katherine in that palmistry business.
                                - 11 -

     Frank and Katherine filed timely joint Federal individual

income tax returns for 1983 through 1985.     They filed late

returns for 1986, 1987, and 1988 on December 5, 1989, after

Internal Revenue Service (IRS) Revenue Officer Robert Budde

(Revenue Officer Budde) served a summons requesting information

needed to prepare delinquent tax returns for 1986 through 1988.

Frank and Katherine filed timely joint Federal individual income

tax returns for 1989 and 1990.    On their returns for the years in

issue, Frank and Katherine claimed exemptions for themselves and

no exemptions for dependents.

     On Schedules C, Profit or Loss From Business, filed with the

returns for 1983 through 1985 and for 1990,4 Frank and Katherine

reported the following gross receipts, expenses, and net income

from the palmistry business:

                 Gross            Business            Net
     Year       Receipts         Deductions          Income
     1983       $16,550           $10,069            $6,481
     1984        15,800             9,609             6,191
     1985        19,550            11,009             8,541
     1990         8,000               250             7,750

Frank and Katherine did not file any Schedules C with the returns

for 1986 through 1989.   Business deductions claimed on the



     4
        The Schedules C filed with the 1983 through 1985 returns
listed Frank and Katherine as the proprietors of the business,
but the Form SE, Computation of Social Security Self-Employment
Tax, identified Katherine as the self-employed person. The
Schedule C filed with the 1990 return listed Frank as the
proprietor of the business. No Form SE was included with the
copy of the 1990 return admitted into evidence at the trial.
                              - 12 -

Schedules C for 1983, 1984, and 1985 included advertising

expenses of $4,029, $4,109, and $5,109, respectively.   The

Schedule C filed with the 1990 return reported no advertising

expenses.   From 1988 through 1990, Katherine’s advertising

expenses included the cost of a television (T.V.) commercial that

Katherine had taped on September 28, 1988, for viewing on Fox TV

Channel 35.5   Miss Lisa Ruby began managing Katherine’s TV ad

account in late 1989, and thereafter she periodically visited

with Katherine at the Longwood property to discuss that account

and collect payment.   Katherine’s TV advertising expenses

averaged approximately $3,000 per year which she always paid with

cash.

     On their returns for the years in issue, Frank and Katherine

reported the following interest income, income from capital

gains, income from gambling, and adjusted gross income:




     5
        Katherine continued to use the television commercial
after 1990.
                               - 13 -

                         Income from     Income        Adjusted
              Interest     Capital        from           Gross
    Year       Income       Gains       Gambling        Income
    1983        $344           -            -           $6,825
    1984         229           -            -            6,420
    1985         379        $7,897          -           16,817
    1986         922           -            -              922
    1987       1,040           -            -            1,040
    1988       1,438           -            -            1,438
    1989       2,847         3,421       $1,002          7,270
    1990       3,316           -          2,452         12,971

They also reported total Social Security benefits received for

1989 and 1990 of $5,591 and $6,257, respectively, none of it

taxable.

     Frank and Katherine’s returns for the years in issue were

prepared by their accountant, Jack Baptiste (Baptiste).    He

prepared the returns on the basis of information they furnished

to him.

     2.    Larry’s Returns

     Larry and Nancy filed joint Federal individual income tax

returns for each of the years in issue.    For 1983 through 1986,

Larry and Nancy claimed exemptions for themselves and for three

dependent children living with them (Sylvia, Tony, and David).

For 1987 through 1990, they claimed exemptions for themselves and

for two dependent children living with them (Tony and David).

     Katherine trained Nancy to read palms.    Larry and Nancy

filed Schedules C with their returns for the years in issue
                             - 14 -

reporting income from a palmistry business.6   The Schedules C for

the years in issue reported the following gross receipts,

expenses, and net income from the palmistry business:

                 Gross          Business            Net
     Year       Receipts       Deductions          Income
     1983       $20,160         $12,428            $7,732
     1984        20,500          11,809             8,690
     1985        28,500          17,732            10,768
     1986        33,800          23,904             9,896
     1987        36,325          26,453             9,872
     1988        39,455          25,319            14,136
     1989        40,310          19,797            20,513
     1990        40,820          17,912            22,909

     On their returns for the years in issue, Larry and Nancy

reported the following interest income, Schedule E Supplemental

Income and Loss income or loss,7 income from capital gains,

income from gambling, miscellaneous income, and adjusted gross

income:




     6
        The Schedule C for 1983 listed Larry and Nancy as the
proprietors of the palmistry business, and the Schedule SE, Self-
Employment Tax, identified Larry and Nancy as the self-employed
persons. The Schedules C for 1984 through 1990 listed Larry as
the proprietor and the Schedules SE for 1984 and 1986 through
1990 identified Larry as the self-employed person. No Schedule
SE was included with the copy of the 1985 return admitted into
evidence at trial. The Schedules C for 1983 through 1985 showed
a business name for the palmistry business of “Madam Nancy”. The
Schedule C for 1986 did not show a business name. The Schedules
C for 1987 through 1990 showed a business name of “Madam Bessie”.
Larry testified at trial that he did not actively participate in
the palmistry business operated by Nancy.
     7
        For 1984 through 1990, the Schedules E reported losses
from rentals. The net loss for 1990 also included a loss from
Johnson’s Limousine Service, Inc., an S corporation.
                                     - 15 -

                                  Income
                                   from      Income               Adjusted
           Interest      Sch. E   Capital     from      Misc.      Gross
Year        Income        Loss     Gains    Gambling   Income      Income
1983         $392           -        -      $25,000       -       $32,124
1984          647         ($81)      -         -          -         8,675
1985          639         (201)      -       10,000       -        19,205
1986          428       (1,709)      -         -          -         8,614
1987          144       (1,242)      -         -          -         8,773
1988           52       (2,234)      -         -          -        11,954
1989        2,059       (3,418)      -         -          -        19,154
                      1
1990        2,770       (7,704)    $2,608      -         $215      19,046
       1
       $2,130 of the Schedule E loss for 1990 was from Johnson’s Limousine
Service, Inc.

             3.   Ronnie’s Returns

       Ronnie and Linda filed joint Federal individual income tax

returns for 1985 through 1990.          Ronnie and Linda claimed

exemptions for themselves and no exemptions for dependents on

those returns.        The 1985 return was the first tax return Ronnie

filed.

       Ronnie and Linda filed Schedules C with their returns

reporting income from a palmistry business.8           The Schedules C

reported the following gross receipts, expenses, and net income

from the palmistry business:




       8
        The Schedule C for 1985 listed Ronnie as the proprietor
of the palmistry business, and the Schedule SE identified Ronnie
as the self-employed person. The Schedules C for 1986 through
1990 listed Ronnie and Linda as the proprietors, and they filed
separate Schedules SE for each of those years on which the
Schedule C income was divided equally between Ronnie and Linda.
No business name was given for the palmistry business on any of
the Schedules C. Ronnie did not testify at trial.
                                    - 16 -

                    Gross               Business          Net
       Year        Receipts            Deductions        Income
       1985        $17,575               $9,158          $8,417
       1986         18,975                9,487           9,488
       1987         22,851               10,168          12,683
       1988         25,785               11,781          14,004
       1989         39,410               24,761          14,649
       1990         36,580               19,915          16,665

       On their returns for 1985 through 1990, Ronnie and Linda

reported the following interest income, Schedule E loss, income

from gambling, and adjusted gross income:

                                              Income     Adjusted
              Interest       Rental            from        Gross
Year           Income         Loss           Gambling     Income
1985             -             -                -         $8,417
1986             -             -                -          9,014
1987            $77            -             $20,000      32,760
1988             -             -                -         14,004
1989            321            -                -         14,970
                          1
1990            310         ($2,131)            -         13,668
       1
        The Schedule E loss was from Johnson’s Limousine Service,
Inc.

              4. Sylvia’s Returns

       Katherine also trained Sylvia to read palms.       At least by

1986, Sylvia worked with Katherine at the Longwood property in

Katherine’s palmistry business.         For 1987 through 1990, Sylvia

reported income from a palmistry business9 under the name “Madame

Sylvia” on Schedules C she filed with her returns.

       The 1987 return was the first Federal individual income tax

return Sylvia filed.     On that return, she filed as “single” and



       9
        Until August 1990 Sylvia operated her palmistry business
out of the Longwood property.
                                - 17 -

claimed an exemption for herself and no exemptions for

dependents.     For 1988, she filed as “head of household” and

claimed an exemption for herself and an exemption for a dependent

child (Nicole Johnson).     Sylvia and Jack Miller filed joint

Federal individual income tax returns for 1989 and 1990.          They

claimed exemptions for themselves and an exemption for a

dependent child (Katherine N. Johnson).

     For 1987 through 1990, Sylvia reported the following

income, expenses, and net profit from her palmistry business

on Schedules C:
                     Gross          Business              Net
         Year       Receipts       Deductions            Income
         1987       $10,450          $5,540             $4,910
         1988        12,350           5,650               6,700
                                                       1
         1989        19,710           8,597              11,113
         1990        24,510          12,804             11,706
     1
      The face of the Form 1040 shows business income from
Schedule C of $11,531. No explanation is given for the
discrepancy.

On the Schedules C, Sylvia claimed rent expenses of $1,200 for

1987 through 1989 and $2,880 for 1990.       Frank and Katherine did

not report any rental income on their Federal individual income

tax returns for 1987 through 1990.       On the Schedules C, Sylvia

claimed advertising expenses of $3,990 for 1987, $4,100 for 1988,

$5,900 for 1989, and $5,950 for 1990.

     On the returns for 1987 through 1990, Sylvia, or Sylvia and

Jack Miller, reported the following interest income, Schedule E

loss, income from gambling, and adjusted gross income:
                                  - 18 -

                                            Income     Adjusted
             Interest        Sch. E          from        Gross
Year          Income          Loss         Gambling     Income
1987            -               -              -        $4,910
1988           $29              -           $1,727       8,456
1989           153              -              -        11,684
                          1
1990           130          ($2,131)         1,685      10,563
       1
        The Schedule E loss was from Johnson’s Limousine Service,
Inc.

       C.   IRS Audits and Notices of Deficiency

             1.   Frank and Katherine’s Audit and Notices of
                  Deficiency

       On August 15, 1991, IRS Revenue Agent Robert Combs (Agent

Combs) notified Frank and Katherine that their returns for the

years in issue were under audit.10     Agent Combs did not meet with

Frank or Katherine regarding income and expense items pertaining

to their returns at any time during the course of the audit of

their tax returns for the years in issue.

       On September 22, 1995, respondent mailed 30-day letters to

Frank and Katherine for 1983 through 1990 in which respondent

proposed adjustments for those years relating, among other

things, to understatements of income.        Subsequently, on April 4,

1997, respondent issued two notices of deficiency to petitioners

for the years in issue in which respondent determined, among




       10
        On Feb. 5, 1991, Agent Combs had notified Larry and
Nancy that their 1988 Federal income tax return was under audit.
Subsequently, Agent Combs expanded the audit to include
additional years and family members.
                              - 19 -

other things, that Frank and Katherine had unreported “other

income” for those years in the following amounts:

                              Other Income
     Year          Frank        Katherine       Total
     1983         $46,301        $46,301       $92,602
     1984          49,261         49,261        98,522
     1985          57,588         57,588       115,176
     1986          54,723         54,723       109,446
     1987          90,517         90,517       181,034
     1988         112,803        112,803       225,606
     1989          97,295         97,295       194,590
     1990         145,537        145,537       291,074
       Total      654,025        654,025     1,308,050

Respondent calculated the amount of unreported other income using

a source and application of funds method of reconstructing

income.

     In the notices of deficiency, respondent determined further

that Frank and Katherine together had taxable Social Security

benefits of $1,287, $957, $1,385, $2,195, $2,796, and $3,129 for

years 1985, 1986, 1987, 1988, 1989, and 1990, respectively.11    In

addition, respondent increased Frank’s and Katherine’s income

from capital gains for 1985 and 1989 by $6 and $20,557,

respectively.   For the years in issue, respondent treated Frank

and Katherine as co-owners of the palmistry business.    Thus,

respondent determined that they each were liable for self-

employment taxes for 1983, 1984, 1985, 1986, 1987, 1988, 1989,

and 1990, of $3,338, $4,271, $4,673, $5,166, $5,387, $5,859,


     11
        For those years, respondent determined that Frank and
Katherine had received total Social Security benefits of $2,574,
$1,914, $2,770, $4,390, $5,591, and $6,257, respectively.
                              - 20 -

$6,250, and $7,849, respectively.   Respondent allowed them a

$7,310 self-employment tax deduction for 1990.   For each of the

years 1983 through 1986, respondent also allowed Frank and

Katherine a $3,000 married couples deduction.

          2.   Larry’s Audit and Notice of Deficiency

     Agent Combs met with Larry, Nancy, and Baptiste in February

1991 regarding the audit of Larry and Nancy’s 1988 return.    He

subsequently expanded the audit to include their returns for

earlier and later years as well as the returns of Frank and

Katherine, Ronnie, and Sylvia.   Larry and Nancy initially

provided information to Agent Combs relating to amounts claimed

on their returns.   Subsequently, they refused Agent Combs’

requests for additional information and for an extension of the

statute of limitations for the 1987 return.   Larry and Baptiste

refused to cooperate further in the audit on the advice of

counsel because they believed that Agent Combs was prejudiced

against Gypsies and had referred, or intended to refer, their

returns to the IRS Criminal Investigation Division.

     During 1994, respondent made a jeopardy assessment against

Larry and Nancy after Agent Combs received information from the

Daytona Beach Shores police department that both Larry and his

daughter Sylvia had obtained driver’s licenses issued in false

names and had opened safe deposit boxes under those names into

which they were transferring moneys from other safe deposit
                               - 21 -

boxes.    Respondent seized property from Larry’s home on June 15,

1994, and from Katherine’s home on June 17, 1994.   Larry and

Nancy filed an administrative protest on July 15, 1994, in which

they requested abatement of the jeopardy assessment.    Respondent

abated the jeopardy assessment on or about November 18, 1994, but

imposed an equitable lien on Larry’s real property.

     On August 12, 1994, respondent mailed a notice of deficiency

to Larry and Nancy for the years 1983 through 1990.    Respondent

determined the deficiencies set forth in that notice of

deficiency on the basis of a source and application of funds

analysis for each of those years.   On November 14, 1994, Larry

and Nancy filed a petition with the Tax Court seeking a

redetermination of those deficiencies (docket No. 20854-94).

Respondent, Larry, and Nancy subsequently settled docket No.

20854-94.   The decision document, entered February 20, 1996,

reflected, among other things, that (1) no deficiencies in tax

were due for the years 1983 through 1988, (2) no additions to tax

were due for the years 1983 through 1988, (3) deficiencies in tax

were due for years 1989 and 1990 in the amounts of $7,140 and

$6,606, respectively,12 (4) additions to tax were due for years


     12
        In the notice of deficiency, respondent determined tax
deficiencies for 1989 and 1990 of $13,317 and $16,461,
respectively. Those deficiencies were calculated on the basis of
the following adjustments to income:


                                                      (continued...)
                                 - 22 -

1989 and 1990 in the amounts of $1,428 and $1,289, respectively,

and (5) the settlement was based on the assertions of both Larry

and Katherine that for the years in issue Frank and Katherine had

paid all of Larry’s expenditures in excess of his income.

             3.   Ronnie’s Audit and Notice of Deficiency

     Agent Combs notified Ronnie and Linda of the audit of their

returns on August 15, 1991.     On August 31, 1995, respondent

mailed 30-day letters to Ronnie for 1983 and 1984 and to Ronnie

and Linda for 1985 though 1990 in which respondent proposed

adjustments for those years.     Respondent determined those

adjustments on the basis of a source and application of funds

analysis for each of those years.     Subsequently, respondent

closed Ronnie’s audit without issuing any notice of deficiency.

             4.   Sylvia’s Audit and Notice of Deficiency

     Agent Combs notified Sylvia of the audit of her returns on

August 15, 1991.     On August 31, 1995, respondent mailed 30-day

letters to Sylvia for 1985 through 1988, and to Sylvia and Jack

for 1989 and 1990, in which respondent proposed adjustments for



     12
          (...continued)
                                            1989        1990
Self-employment income                    $38,018     $43,404
Capital gain income                          -0-        3,725
Loss from an S corporation                   -0-        2,130
Depreciation expense - Schedule C          (3,969)     (3,969)
Depreciation expense - Schedule E          10,517      10,517
Self-employment tax deduction                -0-       (2,786)
  Total adjustments                        44,566      53,021
                                - 23 -

those years.    Respondent determined those adjustments on the

basis of a source and application of funds analysis for each of

those years.    Subsequently, respondent closed Sylvia’s audit

without issuing a notice of deficiency.

     D.   Source and Application of Funds Analyses

     Following trial, the parties met in an effort to resolve

their differences regarding the source and application of funds

analyses for the Johnson family members.    In a joint finding of

fact set forth in their opening briefs, the parties indicate that

Appendix 5 of respondent’s opening brief shows in black the items

of the source and application of funds analyses for which the

parties are in agreement, and that Appendix 5 shows in red the

items for which the parties are not in agreement.    We show the

items reflected on respondent’s Appendix 5 in our Appendices A

through I.     To the extent possible, in those appendices, we have

incorporated explanations for the differences in amounts

reflected on the source and application of funds analyses for

Frank and Katherine as gifts to Larry, Ronnie, and Sylvia, from

the amounts reflected as excess applications of funds over

sources of funds on the separate source and application of funds

analyses for Larry, Ronnie, and Sylvia.    Except for the items

specified below, the parties agree on the amounts shown in source

and application of funds analyses set forth infra in Appendix A.
                              - 24 -

                               1983

Items in Dispute                                    Amount
Gifts to Larry                                     $34,317
Gifts to Ronnie                                     35,946
Personal living expenses for 2 persons              19,377
  Less: Housing costs                  $3,280
        Vehicle acquisition costs       1,502          (4,782)
   Total of items in dispute for 1983                  84,858

                               1984

Items in Dispute                                       Amount
                                                   1
Gifts to Larry                                         37,270
Gifts to Ronnie                                        52,672
Personal living expenses for 2 persons                 20,561
  Less: Housing costs                  $3,485
        Vehicle acquisition costs       1,733       (5,218)
   Total of items in dispute for 1984              105,285
     1
      Respondent concedes that this item is overstated by $4,500.
See infra Appendix C for an explanation of the difference.

                               1985

Items in Dispute                                    Amount
Gifts to Larry                                     $53,357
Gifts to Ronnie                                     30,834
Gifts to Sylvia                                     20,862
Personal living expenses for 2 persons              22,056
  Less: Housing costs                  $3,873
        Vehicle acquisition costs       1,833       (5,706)
   Total of items in dispute for 1985              121,403

                               1986

Items in Dispute                                    Amount
                                                   1
Gifts to Larry                                      $39,723
                                                    2
Gifts to Ronnie                                       27,525
Gifts to Sylvia                                      19,775
Personal living expenses for 2 persons               23,442
  Less: Housing costs                  $3,999
        Vehicle acquisition costs       2,449           (6,448)
   Total of items in dispute for 1986                  104,017
     1
      Larry’s analysis reflects $69,150.   See infra Appendix E
for an explanation of the difference.
                              - 25 -
     2
      Ronnie’s analysis reflects $26,063.   See infra Appendix E
for an explanation of the difference.

                               1987

Items in Dispute                                    Amount
Gifts to Larry                                    $95,819
                                                  1
Gifts to Ronnie                                     48,010
Gifts to Sylvia                                    23,946
Personal living expenses for 2 persons             24,761
  Less: Housing costs                  $4,108
        Vehicle acquisition costs       1,950      (6,058)
   Total of items in dispute for 1987             186,478
     1
      Appendix 5 (Ronnie 1987) reflects $49,760. See infra
Appendix F for an explanation of the difference.

                               1988

Items in Dispute                                     Amount
                                                  1
Gifts to Larry                                     $68,359
                                                   2
Gifts to Ronnie                                      64,360
Gifts to Sylvia                                      52,197
Personal living expenses for 2 persons               26,350
  Less: Housing costs                  $4,420
        Vehicle acquisition costs       2,581          (7,001)
   Total of items in dispute for 1988                 204,265
     1
       Larry’s analysis reflects $94,067. See infra Appendix G
for an explanation of the difference.
     2
       Ronnie’s analysis reflects $63,860. See infra Appendix G
for an explanation of the difference.

                               1989

Items in Dispute                                      Amount
Gifts to Larry                                        $38,018
Gifts to Ronnie                                        73,937
Gifts to Sylvia                                        50,359
Personal living expenses for 2 persons                 28,622
  Less: Housing costs                  $4,903
        Vehicle acquisition costs       2,301          (7,204)
Wedding ceremony for Sylvia                            10,000
  Total of items in dispute for 1989                  193,732
                              - 26 -

                               1990

Items in dispute                                     Amount
                                                    1
Gifts to Larry                                       $43,404
                                                     2
Gifts to Ronnie                                        60,223
                                                     3
Gifts to Sylvia                                        62,546
Personal living expenses for 2 persons                 28,836
  Less: Housing costs              $4,930
        Vehicle acquisition costs    2,026           (6,956)
Investigative fees (Dennis Dayle)                     7,000
Room & board for Janie and her children               6,000
Less: Duplication re limo                           (46,490)
  Total of items in dispute for 1990                154,563
     1
       Larry’s analysis reflects $41,404. See infra Appendix I
for an explanation of the difference.
     2
       Ronnie’s analysis reflects $60,923. See infra Appendix I
for an explanation of the difference.
     3
       Sylvia’s analysis reflects $60,546. See infra Appendix I
for an explanation of the difference.

     Included in the source and application of funds analysis for

Frank and Katherine for each of the years in issue are amounts

identified as gifts to Larry, Ronnie, and Sylvia.       For the most

part, those amounts constitute the excess of applications of

funds over sources of funds reflected on source and application

of funds analyses respondent performed for each of Larry, Ronnie,

and Sylvia.   See infra Appendices B through I.   Respondent

included those amounts as applications of funds for Frank and

Katherine because, in a deposition to preserve testimony for

docket No. 20854-94 given on June 14, 1995, Katherine claimed

that she and Frank provided funds for purchases of assets by

Larry, Ronnie, and Sylvia as well as for their vacations and

normal living expenses in excess of their incomes.      In separate

sworn affidavits, Larry, Ronnie, and Sylvia attested that
                              - 27 -

Katherine and Frank had provided funds for their asset purchases

and living expenses.

     For purposes of the source and application of funds analyses

for each year, to determine personal living expenses for Frank

and Katherine’s household, Larry’s household, Ronnie’s household,

and Sylvia’s household, respondent used Bureau of Labor

Statistics (BLS) figures which detailed average annual

expenditures of consumers based on the size of the consumer unit.

Respondent reduced the BLS figures for shelter costs and vehicle

acquisition costs.   Respondent considered Frank and Katherine’s

household to consist only of themselves for each year in issue.

Respondent considered Larry’s household to consist of four

persons for each year in issue.    Respondent considered Ronnie’s

household to consist of one person for 1983 and 1984 and two

persons for 1985 through 1990.    Respondent considered Sylvia’s

household to consist of one person for 1985 through 1987, two

persons for 1988, and three persons for 1989 and 1990.    See infra

Appendices A through I for the amounts respondent used for

personal living expenses in the source and application of funds

analyses.
                              - 28 -

     During 1987, Larry purchased a 1977 Excaliber for $25,060.13

     Frank and Katherine paid for the birthing costs of Sylvia’s

daughter, Nicole.   Respondent estimated those costs to be $2,500.

     Sometime during the years in issue, Frank and Katherine’s

daughter Janie was married to Miller Johnson (Miller).    Janie

suspected that Miller stole property from her safe deposit box.

During 1990, Janie and Frank hired a private investigator, Denis

Dayle (Dayle), to help recover the stolen property and to hide

Janie and her children from Miller.    Shortly before they hired

Dayle, Miller had hired Dayle to find Janie and her children.

Dayle decided to keep Miller as a client while at the same time

he worked for Janie and Frank.   Frank paid Dayle $7,000 in 1990

for his services.

     E.   Cash Hoard

     Katherine was the eldest child of Edward Peter Stanton

(Edward) and Mary Stephens Stanton (Mary).    In addition to

Katherine, Edward and Mary had nine other children, including a

daughter Tina Stanton Ephraim (Tina), and sons Joe Mills14 (Joe),


     13
         That acquisition is not reflected on Frank and
Katherine’s or Larry’s source and application of funds analyses
for 1987. See infra Apps. A and F. The parties do not explain
why it was omitted as an application of funds for that year. We
have made no adjustment for this item in our findings regarding
unreported income since it was not identified as an item in
dispute.
     14
        Joe actually was Edward’s stepson. It is not clear from
the record whether Katherine, Tina, and their sister Margie
                                                   (continued...)
                               - 29 -

Jack Stanton (Jack), Duyo Peter Stanton (sometimes referred to as

Dewey), and Chuck Stanton (Chuck).      Tina’s husband is Frank’s

half-brother.

     For most of his life Edward worked as a coppersmith and

welder.   Until around 1951, Edward and his family moved from job

site to job site approximately every week to 10 days.15     His

family lived in tents and, later, in trailers.      Around 1951,

Edward, Mary, and the children remaining at home settled in

Maryland, first in the Emmitsburg area and later in the

Hagerstown area.16   While living in Maryland, Edward purchased

some real estate, including a trailer park, some apartment

buildings, and a lot on which he built a home.      Edward also

bought and sold some livestock.

     Edward and Mary did not trust banks.     They kept cash as well

as gold coins and jewelry hidden in their home.      Although Edward

generally lived frugally, on occasion he helped his children out



     14
      (...continued)
actually were Mary’s stepdaughters although certain statements in
the record give that impression.
     15
        Joe testified that for some of those years Edward and
his family traveled with a carnival at which Mary worked as a
fortune teller.
     16
        Although the testimony is somewhat contradictory as to
exactly which of Edward and Mary’s children were living with them
when Mary and Edward settled in Maryland, it is clear that both
Katherine and Tina already were married and living in separate
residences while Chuck and possibly Dewey were living with their
parents at that time.
                               - 30 -

financially, especially Chuck and Katherine.    At times, Edward

asked Katherine or Tina for money to pay some of his or Mary’s

living expenses.

     The records of the Social Security Administration reflect

the following earnings reported for Edward over his lifetime:

                  Period                           Amount
          1937 to 1950 (cumulative)                  $31
          1951 through 1961                          -0-
          1962                                       659
          1963 through 1965                          -0-
          1966                                       465
          1967                                       720
          1968                                     1,217
          1969 through 1974                          -0-
            Total                                  3,092

     Mary worked as a fortune teller both before and after the

family settled in Maryland.    However, the Social Security

Administration has no record of any earnings reported for Mary.

Respondent has no record showing that Mary or Edward filed any

Federal income tax returns.

     Dewey was born on April 1, 1940.    During his lifetime, Dewey

was involved in at least two serious automobile accidents.      The

first accident occurred on or about December 15, 1960.      Dewey,

his wife Helen, and their son Michael, were injured in that

accident, and Dewey’s car was destroyed.    They filed a law suit

against the driver of the tractor trailer which struck their car

and the driver’s employer.    The case was subsequently settled

before trial, and some time thereafter, the following settlement

amounts were paid to or for Dewey, Helen, and Michael:
                               - 31 -

           Beneficiary                    Amount
          Helen Stanton                  $29,082
          Michael Stanton                  7,725
          Bobby Stanton1                  10,389
            Total                         47,196
     1
      It appears that “Bobby” was another name for Dewey.

     Dewey acquired a new Cadillac as a result of the first

accident.    However, it is not clear from the record whether he

paid the cost of the Cadillac out of the settlement proceeds or

received the car in a side agreement to the settlement.     At some

time, Edward obtained control over the settlement proceeds.      It

is not clear from the record whether Edward used some of the

settlement proceeds to acquire property described infra.

     Dewey and Michael died on June 15, 1964, as a result of a

second accident.    There is no evidence in the record that Dewey’s

or Michael’s survivors received any settlement proceeds as a

result of the second accident.

     Property records reveal that Mary and Edward engaged in the

following real property transactions between 1963 and 1971:

   Date                     Description of Transaction
11/29/63      Purchased Lot 178 in Prospect Place for $5,000
12/13/63      Purchased Lot 179 in Prospect Place for $1,000
 3/26/64      Purchased Lot 174 in Prospect Place for $2,000
 3/26/64      Obtained a $1,700 mortgage on Lot 174
 1/5/65       Obtained a $751 mortgage on Lots 175, 176, 177 &
              178
 2/11/66      Purchased Lot 3 on Michael Beckley Plat for $10,000
                              - 32 -

 2/11/66    Obtained $5,400 mortgage on Lot 3 on Michael
            Beckley Plat
 4/11/68    Obtained $4,250 mortgage on Lot 3 on Michael
            Beckley Plat
10/19/70    Obtained $564 mortgage on Lots 175, 176, 178 & 179
            in Prospect Place
 9/24/71    Sold Lots 174, 175, 176, 177, 178 & 179 in Prospect
            Place for $10,000


The record does not reflect when or for how much Edward and Mary

acquired interests in Lots 175 and 176 in Prospect Place, or what

happened to Lot 3 on Michael Beckley Plat.   The mortgage obtained

on October 19, 1970, was released on November 1, 1971.     The

mortgage obtained on April 11, 1968, was released on February 10,

1976.

     Mary died on July 21, 1970.   Following Mary’s death, Edward

sold his home in the Hagerstown area.17   He stayed with Katherine

for a period of time, and then moved to New York where he lived

first with Chuck and then with his brother’s widow, Bolita.

Edward’s children did not know whether Edward and Bolita

subsequently married in the gypsy custom or merely lived

together.



     17
        It is not clear whether that home was located on Lots
174, 175, 176, 177, 178, and 179 in Prospect Place, which Edward
sold on Sept. 24, 1971. Although it is not clear from the
record, Edward may have sold his home through the use of a land
contract. Joe testified that, following Edward’s death, Jack
began receiving the payments on a land contract Edward had
entered into sometime before his death.
                               - 33 -

     Sometime during 1974, Edward was admitted to New York City

Hospital because of problems he had related to diabetes.      One of

his legs was amputated during that hospital stay.      Sometime while

he was hospitalized, Katherine and Jack removed all of Edward’s

property from a safe deposit box he had at Chase Manhattan Bank.

See infra for additional discussion relating to the removal of

Edward’s property from his safe deposit box.      After Edward’s

release from the hospital, he moved to Ohio to live with Jack.

Edward died in Ohio on September 3, 1974.      In the gypsy culture,

Edward’s money would go to a son because it was a gypsy custom

for the first-born son to inherit everything.

     Respondent has no record showing that Edward or Mary ever

filed a gift tax return.   Respondent has no record showing that

an estate tax return was filed for either Edward or Mary.

     F.   Other Facts

     Frank and Katherine dealt exclusively in cash.      Katherine

maintained writing tablets on which she recorded receipts.      She

gave those tablets and their bills to Baptiste for use in

preparing the tax returns.    There is no evidence that Katherine

or Baptiste presented any of those tablets or bill receipts to

respondent during the audit or afterward.

     Frank loved to gamble.   He frequently went to greyhound

races in Seminole County, Florida.      Once or twice a year, at

Katherine’s expense, the Johnson family, including spouses and
                              - 34 -

their children, took trips together to gamble in places such as

the Bahamas, Atlantic City, New Jersey, and Las Vegas, Nevada.

     Over their lifetimes, Frank and Katherine made numerous

gifts to their children and grandchildren.    Frank and Katherine

also gave them money and paid for some of their personal

expenses.   At some time, Frank and Katherine gave their daughter

Janie jewelry valued at $22,800.   Katherine also paid for the

weddings and divorces of her children and grandchildren.    She

paid for vacations for her children and grandchildren and their

families.   She gave them money to gamble.   Katherine and Frank

also purchased U.S. Savings Bonds as birthday gifts for Larry,

Ronnie, and Sylvia.   In addition, she gave them cash for asset

acquisitions, including houses, cars, and boats.

     Respondent was unable to locate any record showing that

Frank or Katherine had ever filed a gift tax return.

     Katherine and Frank received little or no formal education.

They had only minimal reading and writing skills and only basic

math skills.

     During the years in issue, Katherine suffered from various

medical problems, including a heart condition, diabetes, vision

impairment, high blood pressure, high cholesterol levels, water

retention, and obesity.   At various time during the years in

issue, she was admitted to the hospital for treatment.    Her

vision was impaired due to cataracts and retinal hemorrhages;
                              - 35 -

however, during the years in issue she could see well enough to

sort mail, review advertisements or other literature, and make

notations on the tablets she used to record income.   One of her

legs was amputated during 1988, and she used a wheelchair or an

artificial leg which enabled her to walk with a cane.   At least

toward the end of her life, Katherine’s health condition impaired

her ability to work a full 8-hour day.

     During the period 1984 through 1990, Frank suffered from

various medical problems, including a heart condition, high blood

pressure, and obesity.   During 1985, Frank suffered a slight to

moderate heart attack.   His health problems, however, did not

prevent him from undertaking activities during the years in issue

such as mowing his lawn, fishing, gambling, and helping Larry and

Ronnie renovate property.

     Frank and Katherine experienced numerous medical expenses

during the years in issue.   The record does not reveal what

portion, if any, of those expenses were paid by Medicare or

Medicaid.

     Frank and Katherine purchased the Longwood property during

June 1969 for $26,000.   They financed $18,000 of the purchase

price.   Sometime before 1983, Frank and Katherine purchased a lot

for $5,000.   It is not clear from the record whether this lot was

the Port St. Lucie property transferred to Larry and Ronnie on

January 7, 1991.
                              - 36 -

     During 1971, Frank purchased a 1971 Corvette for $4,160.

Frank purchased a 1967 Rolls Royce during 1982 for $18,500.     He

paid cash for the vehicle, primarily in $100 bills.

     As of January 1, 1983, Katherine and Frank had cash on hand

of approximately $30,000.   Throughout the years in issue, they

kept approximately $30,000 cash on hand at the beginning and end

of each year.

     At a meeting with Frank and Katherine on or about

December 5, 1989, Revenue Officer Budde prepared a Form 433-A,

Collection Information Statement For Individuals (collection

statement), on the basis of information provided by them.    The

collection statement, among other things, indicated that Frank

and Katherine’s only assets were (1) two bank accounts of $1,200

and $13,000 at Glendale Federal, (2) a residence valued at

$60,000 and monthly payments of $500, (3) a 1986 Cadillac having

zero value, and (4) a 1986 Chevy having zero value.   The

collection statement further indicated that Frank and Katherine’s

only source of income at that time consisted of $900 per month in

Social Security benefits.

     Larry purchased a 1977 Corvette during 1977 for $3,480.

During 1982, Larry purchased a 1978 Chevrolet Suburban for

$2,699.
                                 - 37 -

     Respondent was unable to locate any record showing that an

estate tax return had been filed on behalf of Frank or Katherine.

     G.   Capital Gain for 1989

     Frank and Katherine reported a long-term capital gain on

their joint Federal income tax return for 1989 from the sale of a

lot (lot).   They calculated that gain as follows:

                Sales price                $40,000
                Basis                       36,579
                Gain from sale               3,421

     Frank conveyed the lot to Russell A. Sachs (Sachs) by

warranty deed dated March 20, 1989.       The settlement statement

relating to the sale of the lot to Sachs shows that $11,033 of

the $40,000 sales price was used to pay off a mortgage loan.         The

settlement statement also shows expenses of the sale of $4,990.

     Frank had acquired his interest in the lot from a

Patricia A. Johnson (Patricia)18 on March 18, 1989, by means of a

quitclaim deed.   The quitclaim deed stated that the transfer was

for no consideration.

     Patricia had acquired her interest in the lot with John M.

Johnson (John) for $25,000 on April 6, 1979, from Charles and

Annie Mobley (Mobleys) pursuant to an Articles of Agreement which

specified that title would not be conveyed until after payment of

the $25,000 purchase price.   By quitclaim deed John transferred


     18
        The record does not reveal whether Patricia A. Johnson
was Frank and Katherine’s daughter Patricia or an unrelated party
with the same name.
                                - 38 -

his interest in the property to Patricia in October 1987 for a

stated consideration of $5,000.     The Mobleys transferred title to

Frank by warranty deed on March 20, 1989.

      On audit, respondent increased the gain from the sale of

that lot to $23,978 and determined that the gain was a short-term

gain.     The notice of deficiency indicates that the adjustment was

made because of a change in verified basis and holding period.

In the source and application of funds analysis for Frank and

Katherine for 1989, respondent treats the $23,978 as a source of

funds.

II.   Facts Relating to Issues Involving Transferee Liability

        A.   Larry

        By notice dated April 4, 1997, respondent determined

transferee liability against Larry relating to the deficiencies,

additions to tax, and penalties that respondent determined Frank

and Katherine owed for the years in issue.     Previously, by letter

dated July 26, 1996, respondent had determined that Frank and

Katherine had transferred the following assets to Larry upon

which transferee liability attached:
                                - 39 -

              Description                                Amount
Annual gifts in the form of excess of
 applications of funds over sources of funds:

  1983                                                  $34,317
  1984                                                   37,270
  1985                                                   53,357
  1986                                                   39,723
  1987                                                   95,819
  1988                                                   68,359
  1989                                                   38,018
  1990                                                   43,404
Cash to purchase Sanford property                        30,000
Glendale Federal savings account transfer                21,550
Longwood property equity                                311,000
One-half interest in St. Lucie County property            4,000
Transfer of vehicles:
 1967 Rolls Royce                                        25,000
 1986 Lamborghini                                        52,000
 1986 Chevy C30                                           7,850
    Total transferred                                   861,667

       The parties agree that for the years 1983 through 1990,

Larry acquired the following assets:

Year               Description of Asset              Cash Paid
1983            1981 Mercedes 380 SL CR               $15,000
1984            1984 GM Suburban                        7,242
1985            1985 Chris Craft boat                  35,000
1985            1974 Ford truck                           315
1985            1982 Ferrari                           10,295
1986            Sanford property                       29,427
1986            Renovation to Sanford property         25,900
1986            1986 Lamborghini                       14,435
1988            1979 Cadillac                           4,662
1989            1964 Ford Thunderbird                      27
1989            1985 Jeep CJ                            4,285
1989            Chevrolet Astro van                    13,000
1990            1988 Cadillac limousine                18,831
1990            1985 Lincoln limousine                 14,890
                                             Total    193,309
       B.   Ronnie

       By notice dated April 4, 1997, respondent determined

transferee liability against Ronnie for the deficiencies,
                             - 40 -

additions to tax, and penalties that respondent determined Frank

and Katherine owed for the years in issue.   Previously, by letter

dated July 20, 1996, respondent determined that Frank and

Katherine had transferred the following assets to Ronnie upon

which transferee liability attached:

              Description                              Amount
Annual gifts in form of excess of
 applications of funds over sources of funds:
  1983                                                $35,946
  1984                                                 52,672
  1985                                                 30,834
  1986                                                 27,525
  1987                                                 48,010
  1988                                                 64,360
  1989                                                 73,937
  1990                                                 60,223
Glendale Federal savings account transfer              21,550
Longwood property equity                              311,000
One-half interest in St. Lucie County property          4,000
    Total assets transferred                          730,057

     The parties agree that for the years 1983 through 1990,

Ronnie acquired the following assets:
                                - 41 -

Year               Description of Asset              Cash Paid
1983            1983 Porsche                          $25,200
1985            1985 Porsche                           10,826
1986            1979 Ford truck                           788
1986            1968 Chevy Camaro                       1,050
1987            1977 AMF boat                           2,625
1987            Ridgewood property                     25,165
1987            Renovation to Ridgewood property       13,800
1988            Renovation to Ridgewood property        1,750
1988            1986 Ford 150                          10,563
1988            1987 Ferrari                           19,000
1989            Renovation to Ridgewood property       13,200
1989            1974 Corvette                          11,500
1989            1980 Jeep                               2,156
1989            1982 Jeep                               3,025
1989            Landscaping                            17,000
1990            1979 Triumph                            1,200
1990            1990 Ford Bronco                        4,000
                                               Total 162,848
       C.   Sylvia

       By notice dated April 4, 1997, respondent determined

transferee liability against Sylvia for the deficiencies,

additions to tax, and penalties that respondent determined Frank

and Katherine owed for the years in issue.    Previously, by letter

dated July 26, 1996, respondent determined that Frank and

Katherine had transferred the following assets to Sylvia upon

which transferee liability attached:

              Description                                Amount
Annual gifts in the form of excess of
 applications of funds over sources of funds:
  1985                                                  $20,862
  1986                                                   19,775
  1987                                                   23,946
  1988                                                   52,197
  1989                                                   50,359
  1990                                                   62,546
    Total assets transferred                            229,685
                                   - 42 -

       The parties agree that for the years 1983 through 1990,

Sylvia acquired the following assets:

Year                Description of Asset                   Cash Paid
1985                   1985 Corvette                        $27,785
1988                   1988 Porsche                          10,000
                                                   Total     37,785

       D.    Specific Transfers

              1.    U.S. Savings Bonds

       During the years in issue, Larry, Ronnie, and Sylvia

acquired U.S. Savings bonds in the following amounts (face

values):

            Year         Larry            Ronnie           Sylvia
            1983        $7,200               -                -
            1984         7,500           $40,925              -
            1985           200               -                -
            1986           -                 -                -
            1987           -                 -             $5,000
            1988           -                 -                200
            1989           -                 -              3,450
            1990           -                 -              2,250
            Total       14,900            40,925           10,900


              2.    Account at Glendale Federal Savings and Loan

       Account No. 096-601219-9 was maintained at Glendale

Federal Savings and Loan in the names of Frank and Larry.                On

December 12, 1989, $26,189 was deposited into that account,

representing the proceeds of a Certificate of Deposit.              An

additional $13,613 was deposited into that account on

December 29, 1989.       Account No. 096-601219-9 had a balance of

$43,101 as of December 14, 1990, when it was transferred into

Account No. 096-601615-9 in the names of Larry and Ronnie.
                                - 43 -

          3.     Longwood Property

     On January 7, 1991, Frank and Katherine transferred the

Longwood property to Larry and Ronnie by quitclaim deed for a

stated nominal consideration.    Pursuant to the quitclaim deed,

Frank and Katherine retained for themselves “the exclusive

possession, use, and enjoyment of the rents, issues, and profits

of the above-granted premises for and during the[ir] natural

lifetime”.     A real estate tax bill dated January 1, 1991, showed

a real estate tax value for the Longwood property of $236,110.        A

real estate tax bill dated November 16, 1992, showed a real

estate tax value for the Longwood property of $209,110.

          4.     Port St. Lucie Property

     On January 7, 1991, Katherine transferred to Larry and

Ronnie by quitclaim deed property located in Port St. Lucie for a

stated nominal consideration.

          5.     Automobiles

     In August 1992, Frank transferred his 1967 Rolls Royce to

Larry for no consideration.    At the time of the transfer, the

Rolls Royce had a value of $25,000.      Also in August 1992, Frank

transferred the 1986 Lamborghini to Larry for no consideration.

At the time of transfer, the Lamborghini had a value of $52,000.
                               - 44 -

                               OPINION

I.   Issues Relating to Deficiencies

      A.   Background

      Petitioners contend that for each of the years in issue the

expiration of period of limitations precludes the assessment of

any deficiency.    Respondent, however, contends that the fraud

exception to the statute of limitations applies for each year in

issue; consequently, respondent maintains, assessment of the

deficiencies is not barred for any year in issue.    Alternatively,

respondent argues that the period of limitations for 1990 has not

expired because the unreported income for that year exceeds 25

percent of the income Frank and Katherine included on their

return for that year; therefore, a 6-year statute of limitations

applies for 1990.    Petitioners, however, maintain that Frank and

Katherine did not understate their income for any year in issue.

      Respondent used an indirect method to reconstruct Frank and

Katherine’s income for the years 1983 through 1990, specifically

the source and application of funds method, to determine that

Frank and Katherine had understated their income for those years.

Petitioners contend that, during those years, Frank and Katherine

used a previously acquired cash hoard to purchase assets and to

pay personal expenses for themselves and other family members.
                               - 45 -

     B.    Statute of Limitations and Fraud Issues

            1.   In General

     A deficiency in tax generally must be assessed within

3 years of the date on which the return was filed.    See sec.

6501(a).    Section 6501(c)(1) provides one of the exceptions to

the general 3-year limitation period.    Under that exception, the

tax may be assessed at any time in the case of a false or

fraudulent return filed with the intent to evade tax.    Respondent

has the burden of proving the applicability of an exception to

the general 3-year limitation period.    See Rule 142; Harlan v.

Commissioner, 116 T.C. 31, 39 (2001).    Respondent must prove the

same elements of fraud under section 6501(c)(1) as are required

for imposing a fraud penalty under section 6653(b).    See, e.g.,

Mobley v. Commissioner, T.C. Memo. 1993-60, affd. without

published opinion 33 F.3d 1382 (11th Cir. 1994).     To prevail

under section 6653(b), respondent must show through clear and

convincing evidence both that (1) an underpayment of tax exists,

and (2) some part of the underpayment is due to fraud.    See sec.

7454(a); Rule 142(b); DiLeo v. Commissioner, 96 T.C. 858, 873

(1991), affd. 959 F.2d 16 (2d Cir. 1992).

     Section 6501(e) provides another exception to the 3-year

general limitation period for assessing a tax.    Under that

exception, the 3-year limitation period is extended to 6 years

where a taxpayer omits properly includable income from his or her
                              - 46 -

return in an amount in excess of 25 percent of the amount of

gross income stated on the return.     See sec. 6501(e)(1)(A).   In

determining whether the 25-percent requirement is met, any amount

omitted from gross income that is adequately disclosed in the

return or in a statement attached to the return is not taken into

account.   See sec. 6501(e)(1)(A)(ii).

     We turn first to the issue of fraud because, except possibly

for 1990, where the 6-year limitation period may apply, absent

fraud, the statute of limitations bars the assessment of the

deficiencies for the years in issue.     See sec. 6501(a), (c), (e);

see also York v. Commissioner, 24 T.C. 742, 743 (1955).     If fraud

exists for 1990, we need not address whether the 6-year

limitation period applies for that year.

           2.   Fraud

     Respondent contends that Frank and Katherine acted

fraudulently in understating their income tax liability for the

years in issue; thus, respondent asserts, the resulting

underpayments of tax for the years in issue were due to fraud.

Petitioners, however, deny that Frank and Katherine under

reported any income for the years in issue.

     Fraud is the intentional wrongdoing on the part of a

taxpayer designed to evade a tax believed to be owing.    See,

e.g., Petzoldt v. Commissioner, 92 T.C. 661, 698 (1989).     Thus,

courts must decide whether, by the taxpayer’s conduct, he or she
                                 - 47 -

intended to conceal, mislead, or otherwise prevent the collection

of taxes owed or believed to be owed.      See, e.g., Danenberg v.

Commissioner, 73 T.C. 370, 393 (1979).      Respondent has the burden

of proving the existence of fraud by clear and convincing

evidence.     See sec. 7454(a); Rule 142(b); Grosshandler v.

Commissioner, 75 T.C. 1, 19 (1980).       Where fraud is determined

for each of several years, respondent’s burden applies separately

for each of the years.     See, e.g., Temple v. Commissioner, T.C.

Memo. 2000-337.     The issue of whether fraud exists is factual and

must be determined upon the basis of the entire record.      See,

e.g., Recklitis v. Commissioner, 91 T.C. 874, 909 (1988).       Fraud

cannot be presumed, nor can a finding of fraud rest on mere

suspicion.    See, e.g., id.    However, since direct evidence of

fraud generally is not available, we may rely on circumstantial

evidence and draw reasonable inferences from the record as a

whole.   See, e.g., id. at 910.     We consider first for each year

in issue the question of whether a deficiency exists.

             a.   Existence of an Underpayment

     The first element in establishing fraud is determining

whether any underpayment of tax exists.      For 1983 through 1988,

section 6653(c)(1) defines an “underpayment” for purposes of

section 6653 as a “deficiency” defined by section 6211.      Section

6211 generally defines a deficiency as the excess of the correct

amount of tax over the amount shown on the return.       For 1989 and
                              - 48 -

1990, section 6664(a) defines “underpayment” as “the amount by

which any tax imposed by this title exceeds the excess of (1) the

sum of (A) the amount shown as the tax by the taxpayer on his

return, plus (B) amounts not so shown previously assessed (or

collected without assessment), over (2) the amount of rebates

made.”   Thus, for purposes of this case, the term “deficiency” as

defined by section 6211 has the same meaning as the term

“underpayment” as defined by section 6664(a).     Respondent used

the source and application of funds method of reconstructing

income in determining that Frank and Katherine had underreported

their income for the years in issue and that unreported income

resulted in deficiencies in tax for each year in issue.

     Taxpayers are required to keep adequate records with which

respondent may determine their correct tax liability.     See sec.

6001; see also Petzoldt v. Commissioner, supra at 687; sec.

1.6001-1(a), (d), Income Tax Regs.     When a taxpayer keeps no

books, or keeps books that are inadequate, section 446(b)

authorizes the Commissioner to compute the taxpayer’s income by

any method that clearly reflects income.     See, e.g., Petzoldt v.

Commissioner, supra; see also Cebollero v. Commissioner, 967 F.2d

986, 989 (4th Cir. 1992), affg. T.C. Memo. 1990-618.     For that

purpose, respondent may use indirect methods to reconstruct

income as long as they are reasonable in light of all surrounding

facts and circumstances.   See Holland v. United States, 348 U.S.
                              - 49 -

121, 131-132 (1954); Erickson v. Commissioner, 937 F.2d 1548,

1552-1553 (10th Cir. 1991), affg. T.C. Memo. 1989-552; Giddio v.

Commissioner, 54 T.C. 1530, 1532-1533 (1970).

     The source and application of funds method (also sometimes

referred to as the expenditures method) is an accepted indirect

method of reconstructing income.   See, e.g., Williams v.

Commissioner, 999 F.2d 760, 763 (4th Cir. 1993), affg. T.C. Memo.

1992-153.   Under that method, any amount by which the taxpayer's

total application of funds during the taxable year exceeds the

total funds available to him from known sources for that year is

attributed to unreported taxable income absent some showing by

the taxpayer of a nontaxable source.   See, e.g., id., Troncelliti

v. Commissioner, T.C. Memo. 1971-72 (“As explanation the taxpayer

may show that the difference between the total application [of]

funds and the total reported sources of funds is attributable to

such nontaxable items as loans, gifts, inheritances, or assets on

hand at the beginning of the taxable period.”).   Thus, as part of

the reconstruction of income using the source and application of

funds method, respondent must exclude funds that the taxpayer had

accumulated before the first taxable year under examination

insofar as those funds are a source of subsequent expenditures.

See Flood v. Commissioner, T.C. Memo. 2001-39.    Frank and

Katherine dealt primarily in cash and provided to respondent no
                                  - 50 -

books and records relating to Katherine’s palmistry business.19

Under the circumstances, respondent’s use of the source and

application of funds method to reconstruct Frank and Katherine’s

income for the years in issue was reasonable.

     Where the allegation of fraud is intertwined with unreported

and indirectly reconstructed income, respondent can satisfy the

burden of proving an underpayment of tax in one of two ways.     See

Parks v. Commissioner, 94 T.C. 654, 661 (1990).     First,

respondent may prove a likely source of the unreported income;

second, where the taxpayer alleges a nontaxable source for the

funds, respondent may prove that the nontaxable source did not

exist.    See id.

           (1)      Likely Sources of Income

     Respondent contends that Katherine’s palmistry business was

a likely source for the unreported income.     Respondent also

contends that unreported gambling winnings were another likely

source.   Additionally, respondent contends that Frank may have

unreported income from work as a real estate broker as he alleged

in certain loan applications.20



     19
        Although there is testimonial evidence that Katherine
made some recordations of income on tablets that she kept for
that purpose, there is no evidence that those tablets were
submitted to respondent, nor were they introduced at trial.
     20
        We made no findings of fact relating to the loan
applications because we find that the statements contained
therein lack trustworthiness.
                              - 51 -

     Petitioners contend that Frank and Katherine did not have

any likely source for the unreported income in the amounts

determined by respondent.   Petitioners assert that Frank was

retired and seriously ill for all of the years in issue, and his

only source of income was Social Security benefits.   Petitioners

further assert that Katherine’s palmistry business could not have

generated the substantial receipts needed to produce the

unreported income calculated by respondent for the years in

issue.   They maintain that she was seriously ill much of that

period, and she was retired between January 1986 and August 1990

during which period her only income was Social Security benefits.

They further maintain that Frank accurately reported his gambling

winnings.   As for the loan applications, petitioners argue that

the applications were prepared by third parties, and that there

is no documentary evidence to support the claim that Frank worked

as a real estate broker for the years in issue.

     We believe that petitioners paint an overly dramatic picture

of Frank’s and Katherine’s health conditions for the years in

issue.   In our opinion, the record does not show that Frank and

Katherine were too ill to conduct the activities that would

generate income from two of the likely sources identified by

respondent (i.e., palmistry and gambling), and we have made

findings that they did conduct those activities during the years

in issue.   The testimony of Dr. Kerry M. Schwartz, M.D. (Dr.
                              - 52 -

Schwartz), Frank and Katherine’s cardiologist during the years in

issue, does not indicate that he advised them not to work during

those years.   Rather, his records indicate that, during those

years, he recommended they undertake exercise and weight

reduction programs.   Indeed, Katherine continued her palmistry

business after the period petitioners allege she was retired even

though, from Dr. Schwartz’s records, it appears she was

experiencing more severe medical problems in the later years than

she had experienced during the earlier years.   The record

reveals, furthermore, that, during the years in issue, Frank and

Katherine went on gambling junkets with other family members, and

he went fishing, performed jobs around his home, and assisted

Larry and Ronnie in remodeling their properties.

     Other than petitioners’ self-serving statements, there is no

support in the record for petitioners’ contention that Katherine

was retired from her palmistry business during 1986 through

August 1990.   Baptiste’s testimony reveals that he merely assumed

that Katherine was retired during that period because she did not

furnish to him records of receipts for the preparation of their

tax returns.   In her deposition, Katherine never testified that

she had ever retired from her business.   Indeed, her testimony

shows that she was conducting readings during 1986, one of the

years petitioners’ contend she was retired.   Furthermore, Lisa

Ruby’s testimony supports a finding that Katherine continued to
                               - 53 -

read palms during 1988 and 1989 as well as 1990.    The TV

commercial Katherine filmed during 1988 also gives the impression

that she continued to read palms over her entire 50-year career

as a palmist.    Our review of the whole record leads us to

conclude that Katherine remained actively involved in her

palmistry business throughout all of the years in issue, and we

have so found.    Katherine’s palmistry business constitutes a

likely source of funds for the unreported income.

     Additionally, the record reveals that both Katherine and

Frank gambled during the years in issue.    Thus, the record

supports an inference that gambling provided another likely

source for the unreported income.

     Accordingly, we conclude that respondent has proved likely

sources for the unreported income for the years in issue.      The

large excess of expenditures over income revealed by respondent’s

source and application of funds analysis for the years in issue

supports respondent’s determination of unreported income absent a

nontaxable source for the expenditures.

          (2)    Nontaxable Source

     Petitioners contend that Frank and Katherine used a cash

hoard Katherine had received from her father during or before

1974 to acquire assets and pay expenditures for themselves and

for Larry, Ronnie, and Sylvia during the years in issue.      They

assert that Katherine’s father gave her about $750,000 in cash
                              - 54 -

plus gold coins and jewelry worth around $50,000 to $60,000 at

the time of transfer.   Additionally, they assert that the value

of gold increased substantially over the years thereby providing

a larger available cash hoard for the years in issue.   Respondent

disputes petitioners’ claim of a cash hoard.   Rather, respondent

asserts that Frank and Katherine could not have had cash on hand

at the beginning of 1983 in the amounts claimed by petitioners.

We agree with respondent.

     In her deposition, Katherine told conflicting stories

relating to the acquisition of a cash hoard she allegedly

received from her father.   According to one of those stories, to

keep Bolita from taking Edward’s money while he was in New York

City Hospital to have his leg amputated, Katherine and her

brother Jack21 went to Edward’s safe deposit box at Chase

Manhattan Bank and removed cash totaling $750,000 (in nothing

less than $100, $500, and $1,000 dollar bills), plus gold coins

and jewelry worth at the time between $50,000 to $60,000.

According to that story, Katherine returned to her home in

Florida with the cash, gold coins, and jewelry carried in a gypsy

pillowcase, and she kept Edward’s property in her home in

Callahan, Florida, and later in Longwood, Florida, or in a safe


     21
        Petitioners did not offer any evidence from Jack
relating to Edward’s cash hoard or explain why Jack was
unavailable. Katherine testified in her deposition both that
Jack had died 6 or 7 years before the deposition, and that he was
living in an unknown location in England.
                              - 55 -

deposit box with a bank in Longwood, Florida.   Purportedly,

Katherine used some of the money to build her home in Longwood,

Florida; she gave Larry some of it to buy cars, jewelry, and his

properties in Callahan, Florida, Sanford, Florida, and Daytona

Beach Shores, Florida; she gave Ronnie and Sylvia some of the

money to buy cars, jewelry, and their homes; she spent some of it

for vacations and to pay living expenses of Larry, Ronnie, and

Sylvia; Jack White stole some of the money; and Chuck’s son also

stole some it.   Additionally, Katherine stated that she sold some

of the jewelry to other gypsy women; she gave some of it away to

her relatives; and Chuck’s son also stole some of the jewelry.

     In another version of the cash hoard story, Edward came to

live with Katherine after Mary’s death, and he stayed with

Katherine for 6 or more years.   Allegedly, Edward gave Frank and

Katherine $750,000 sometime before he came to live with them

because he did not want Joe to take his money.22   Katherine

purportedly used the cash in the same manner as described above.

Katherine further testified that her father gave her all of his

and her mother’s jewelry and, under threat of a curse, told

Katherine not to give any of it to her siblings.   We believe that

much of Katherine’s implausible and conflicting testimony



     22
        We know from the record that the chronology of this
story cannot be accurate. Katherine moved into the Longwood
property in 1969, Mary died on July 21, 1970, and Edward died on
Sept. 3, 1974.
                                - 56 -

regarding Edward’s cash hoard was false or exaggerated.   Our

belief is strengthened by the inconsistent testimony relating to

Edward’s cash hoard offered on deposition by three of Katherine’s

siblings.

     Tina testified that while her father was in the hospital to

have his leg amputated, she and Katherine decided they needed

money to obtain better medical care for him.   She also stated

that they wanted to keep Edward’s money away from Bolita.   Tina

stated that she was not present when Katherine and Jack removed

Edward’s property from his safe deposit box, but she went with

them to the bank and she saw Katherine dump from a pillowcase

cash, gold coins, and jewelry on a bed in her motel room.   She

alleged that the cash was in denominations of nothing less than

$500 and $1,000 dollar bills and the safe deposit box’s contents

covered Katherine’s bed.   Tina stated that no one counted the

money in her presence, and that she returned to her home both

before Katherine returned to Florida and her father was

discharged from the hospital.    Tina had no first-hand knowledge

as to the amount of money in Edward’s safe deposit box or the

final disposition of the box’s contents.23   Tina’s recount of the


     23
        Tina testified that “If Katherine said that he gave her
that money, I am sure that he did because Katherine had it in her
possession.” Tina’s conclusion that Katherine had possession of
the contents of the safe deposit box ignores the fact that Jack
and, as will be recounted, other siblings purportedly were in
Katherine’s motel room when the contents were revealed and that
                                                   (continued...)
                               - 57 -

safe deposit story was inconsistent, tentative, and appeared to

have been scripted.

     In his deposition, Joe testified that he was not present

when Katherine and Jack allegedly emptied their father’s safe

deposit box, but he saw the contents on a bed in Katherine’s

motel room.    He stated that he saw only gold coins, and that, on

his urging, Katherine later returned those coins to Edward’s safe

deposit box.    Joe further testified that Edward had only $1,500

at the time of his hospitalization, and that Jack asked Joe to

help pay Edward’s medical expenses.

     Chuck was not present in New York City at the time Katherine

and Jack emptied Edward’s safe deposit box.   Thus, he had no

first-hand knowledge as to the contents of Edward’s safe deposit

box or as to the ultimate disposition of those contents.

Although Chuck testified generally about his father’s financial

dealings and accumulation of cash, he did not quantify the amount

of money or the value of property that his father had accumulated

over his lifetime, how much money Edward had at the time of his

hospitalization, or how much of that money, if any, Edward gave

to Katherine.   The objective evidence does not support Chuck’s

testimony that Edward was highly successful in his welding

business or that he dealt heavily in property and livestock.


     23
      (...continued)
any one of them could have assumed custody of Edward’s property
subsequent to Tina’s return home.
                              - 58 -

     Other evidence in the record leads us to conclude that

Katherine did not receive $750,000 from Edward.   Edward’s and

Mary’s earnings records, property transaction records, accident

settlement information, and testimony relating to Edward’s and

Mary’s borrowing history, medical history, and life style

indicate that Edward could not have accumulated anywhere near the

$750,000 claimed by petitioners.   Furthermore, Katherine

testified that Gypsies did not believe in carrying insurance, and

that neither Mary nor Edward had insurance.   If that is true,

then Edward probably did not have medical insurance to pay his

medical expenses.   It would follow that some of Edward’s life

savings, if any, would have been used to pay his medical

expenses.   Moreover, according to gypsy custom, Edward’s money

would have gone to a son.   Even if Edward had not wanted Joe to

get his money, there was no showing that he also did not want

Jack to get it.   Indeed, Joe testified that Jack acquired

Edward’s interest in a land contract.   We find it implausible

that Jack, who ultimately took responsibility for Edward’s

physical care after his discharge from the hospital, would permit

Katherine to appropriate all of Edward’s property at a time when

Edward was most in need of it.   Yet petitioners would have us

believe that Edward willingly gave all of his property to

Katherine at a time he was experiencing extreme medical problems
                               - 59 -

and needed funds himself.24   Accordingly, we find petitioners’

allegation that Edward gave Katherine all of his cash, gold

coins, and jewelry implausible and incredible.      We are not

required to accept incredible, implausible, or biased testimony.

See, e.g., Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).

     Even if we accepted Katherine’s story that Edward gave her

all of his cash, gold coins, and jewelry, which we do not, the

record contains no verification that any of it remained on hand

by the end of 1982.   The record indicates that, over their

lifetimes, Frank and Katherine acquired properties and expensive

automobiles and made numerous gifts to their children and

grandchildren.   Larry also acquired expensive automobiles before

the years in issue.   Furthermore, the circumstances of Larry,

Ronnie, and Sylvia financing some of the cost of the properties

and vehicles (for which Frank and Katherine purportedly provided

the remaining funds) they acquired during the years in issue are

inconsistent with petitioners’ allegation that, at the beginning

of 1983, Frank and Katherine were in possession of the

substantial cash hoard they claim.      See, e.g., Appendices B

through I.




     24
        Petitioners contend that Katherine used some of the
money from Edward’s safe deposit box to pay for his
hospitalization. That contention, however, is not supported by
the references to the record they cited.
                               - 60 -

     Accordingly, on the basis of the entire record, we find that

respondent has shown petitioners’ contention of the existence of

a $750,000 or greater25 cash hoard at the beginning of 1983 to be

inconsistent, implausible, and without objective support in the

record.

     Petitioners do not contend, and the record does not suggest,

that Katherine and Frank had accumulated a substantial cash hoard

separate from Edward’s alleged accumulation.    Indeed, Katherine

implied the opposite when she testified that “My husband didn’t

believe in banks.    We spent it as we got it to raise the

children.”    Nonetheless, on the basis of the entire record, we

believe that throughout the years Frank and Katherine maintained

a practice of keeping cash on hand (as evidenced by the amount of

cash in their home safe when Jack White burglarized their home in

1990).    In our best judgment, based on the entire record, we

estimate that amount to be $30,000.     See Mikelberg v.

Commissioner, 23 T.C. 342, 352 (1954), affd. per curiam 234 F.2d



     25
        Petitioners contend that the dramatic increase in the
price of gold substantially increased the value of the gold coins
and jewelry that Katherine received from her father; thus, that
increased the amount of the available cash hoard. Even if we had
accepted Katherine’s cash hoard story, the record does not
establish how much of the coins and jewelry she sold or when they
were sold. In her deposition, Katherine testified that she kept
the jewelry until she was robbed in 1990, and then she gave some
away to relatives and sold some to other Gypsies. She never
testified as to when she sold the items, the number of items
sold, or the price that she received for them. Katherine made no
mention of the disposition of the gold coins.
                                - 61 -

34 (3d Cir. 1956).    We have made a finding of fact to that

effect.   Except for 1990, our finding that Frank and Katherine

had $30,000 cash on hand as of January 1, 1983, does not affect

respondent’s source and application of funds analyses for the

years in issue because we also have found that the amount of cash

on hand at the beginning and end of each year in issue remained

approximately the same.    Thus, since there was no net change in

the amount of cash on hand at the beginning and end of any year

in issue, that cash, in effect, constitutes neither a source nor

an application of funds for any year.    See infra section I

C(7)(d) of the Opinion, however, where we discuss the effect of

our finding regarding the $30,000 cash on hand on the source and

application of funds analysis for 1990.

     On the basis of the foregoing, we conclude that respondent

has established that petitioners did not utilize funds from a

nontaxable source to finance the excess applications of funds

over sources of funds for any year in issue.    Consequently,

respondent has negated petitioners’ claim of a nontaxable source

for the income.

           (3)    Summary Relating to Existence of an Underpayment

     To establish an underpayment of tax for purposes of fraud

penalties and additions to tax for fraud, respondent had to prove

an understatement of income and either establish a likely source

for that income or negate nontaxable sources for the income.    See
                              - 62 -

United States v. Massei, 355 U.S. 595 (1958) (per curiam);

Holland v. United States, 348 U.S. 121, 137-138 (1954); United

States v. Smith, 890 F.2d 711, 714 (5th Cir. 1989).    We have

concluded that respondent has proved likely sources for the

unreported income and negated petitioners’ claimed nontaxable

source for those excess applications of funds.    Respondent’s

negation of a nontaxable source combined with petitioners’

concessions relating to items reflected in respondent’s source

and application of funds analyses for Frank and Katherine, Larry,

Ronnie, and Sylvia establish that Frank and Katherine omitted

income for each year in issue.   Each omission of income resulted

in a deficiency in tax; Frank and Katherine’s omissions of income

over the years in issue, thus, clearly and convincingly establish

underpayments of tax for 1983 through 1990.26    See, e.g., Biaggi

v. Commissioner, T.C. Memo. 2000-48, affd. in unpublished opinion

__ F.3d __ (2d Cir. 2001).

     Accordingly, we hold that respondent has satisfied the first

element of establishing fraud by showing through clear and

convincing evidence that Frank and Katherine had underpayments of

tax for each of the years in issue.    We next address whether




     26
        However, see infra sec. I.C. of this Opinion wherein we
discuss various adjustments we have made to the source and
application of funds analyses for purposes of deciding the amount
of understated income for each year in issue.
                               - 63 -

respondent has fulfilled the second element of fraud which is

intent to evade taxes.

          (b)   Intent to Evade Taxes

     Intent to conceal or mislead may be inferred from a course

or pattern of conduct.    See Spies v. United States, 317 U.S. 492,

499 (1943); Petzoldt v. Commissioner, 92 T.C. at 699 (1989);

Stone v. Commissioner, 56 T.C. 213, 223-224 (1971); Otsuki v.

Commissioner, 53 T.C. 96, 105-106 (1969).    The courts have relied

upon a number of indicia, or badges, of fraud in deciding whether

an underpayment of tax is due to fraud.    See, e.g., Bradford v.

Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C.

Memo. 1984-601; Clayton v. Commissioner, 102 T.C. 632, 647

(1994); Petzoldt v. Commissioner, supra at 700.    Although no

single factor is necessarily sufficient to establish fraud, the

existence of several factors constitutes persuasive

circumstantial evidence of fraud.    See, e.g., Petzoldt v.

Commissioner, supra.

     Consistent failure to report substantial amounts of income

over a number of years is, standing alone, highly persuasive

evidence of fraudulent intent.    See, e.g., Kurnick v.

Commissioner, 232 F.2d 678, 681 (6th Cir. 1956), affg. per curiam

T.C. Memo. 1955-31.    Consistent use of cash, and failure to

maintain adequate books and records also constitute badges of

fraud.   See, e.g., Bradford v. Commissioner, supra at 307-308.
                                - 64 -

Giving false, misleading, and inconsistent testimony is another

badge of fraud.    See, e.g., Kim v. Commissioner, T.C. Memo. 2000-

83.    Failure to cooperate with revenue agents during the audit

phase of a case is an additional indication of guilty knowledge

on a taxpayer’s part.    See Profl. Servs. v. Commissioner, 79 T.C.

888, 932-933 (1982).    Concealing assets also indicates fraudulent

intent.   See Spies v. United States, 317 U.S. at 499.     In

determining fraudulent intent, courts also have considered a

taxpayer’s level of education and his or her prior history of

filing Federal income tax returns.       See, e.g., Stoltzfus v.

United States, 398 F.2d 1002, 1004 (3d Cir. 1968).

      Respondent contends that the following indicia of fraud are

present in the instant cases:    Failing to report substantial

amounts of income, failing to maintain records, dealing

exclusively in cash, failing to voluntarily file tax returns,

concealing transactions through fraudulent conveyances, and

failing to cooperate in the examination.      In addition, respondent

asserts that the lack of credibility of petitioners and their

witnesses is another indicium of fraud.

           (1)    Pattern of Underreporting Substantial Amounts of
                  Income

      Respondent contends that the source and application of funds

analysis for Frank and Katherine shows that they consistently and

substantially understated their income for at least 8 years.

Petitioners contend that Frank and Katherine reported their
                                - 65 -

correct income for each year in issue.     They maintain that

neither Frank nor Katherine was capable of generating the kind of

income determined by respondent for the years in issue.

     We agree with respondent that the substantial

understatements of income we found for the years in issue are a

strong indication of fraudulent intent.     From each of the years

1983 through 1990, Frank and Katherine failed to report a

substantial amount of income.     The record does not support a

finding that neither Frank nor Katherine could generate the

unreported income in issue.   Katherine maintained her palmistry

business throughout the years in issue, and she and Frank

frequently engaged in gambling activities.     The pattern of

underreporting substantial amounts of income over a period of 8

years leads to a strong inference of fraudulent intent.

          (2)   Lack of Records

     Respondent contends that Frank and Katherine failed to

provide respondent with whatever records they maintained and

provided to their tax preparer.     Respondent contends that the

following circumstances negate any attempt by petitioners to

assert that neither Katherine nor Frank could keep records:       Both

Frank and Katherine could write numbers; Frank could add numbers;

Katherine could add a column of numbers and count money; she

could figure the cost of her advertising spots; and she kept a

writing tablet to record receipts.
                              - 66 -

     Petitioners contend that Katherine kept records of daily

receipts and bills and delivered them to Baptiste for preparation

of the tax returns, but they are no longer available due to the

passage of time.   Petitioners maintain that Katherine did the

best she could, but her ability to keep records was limited

because of her lack of education, illiteracy, lack of

sophistication, and poor health.   Petitioners, however, do not

explain why no records were presented to respondent for any year

in issue during the course of the audit which commenced in 1991.

     We agree with respondent that the record does not support a

finding that Frank or Katherine was incapable of keeping records

during the years in issue.   They did present at least some

records to their tax preparer.   Moreover, Sylvia lived with them

for most of that time, and she performed bill-paying services for

them.   Petitioners do not explain why Sylvia also could not have

maintained their records while she lived with them.   The

circumstances of the large understatements of income over the

years in issue show that Frank and Katherine failed to maintain

adequate records of income and expenses.   Their lack of

recordkeeping, coupled with a clear pattern of underreporting

substantial amounts of income over a period of 8 years, leads to

a particularly strong inference of fraudulent intent.
                                  - 67 -

           (3)   Filing History

      Respondent contends that Frank and Katherine’s failure to

file Federal income tax returns for 1986, 1987, and 1988 until

contacted by Revenue Office Budde and their failure to file gift

tax returns for any year in spite of vast amounts of gift giving

to family members each year are indicia of fraud.   Petitioners

maintain that Frank and Katherine were not required to file

returns for 1986 through 1988 because their income for those

years did not meet the threshold income requirement.   Petitioners

do not explain why Frank and Katherine did not file gift tax

returns to report the gifts they gave their children and

grandchildren during the years in issue.

     Frank and Katherine filed timely income tax returns for some

of the years in issue, which shows that they understood their

obligation to file returns and pay tax.    We agree with respondent

that the circumstance of Frank and Katherine’s not filing income

tax returns for 1986 through 1988 even though Katherine continued

to operate her business during those years is another indicium of

fraudulent intent.   Additionally, we agree that Frank and

Katherine’s failure to file gift tax returns relating to the

substantial gifts they made to their children and grandchildren

during those years also indicates an intent to conceal and

mislead.
                               - 68 -

           (4)   Dealings in Cash

     Respondent contends that the fact that Frank and Katherine

dealt exclusively in cash is another indicium of fraud.

Petitioners contend that Frank and Katherine always conducted

their transactions in cash because they were illiterate and

because they learned the practice of using cash from their

parents.   Respondent maintains, however, that only self-serving

evidence indicates that Frank and Katherine dealt in cash because

of illiteracy.   Respondent contends that Frank and Katherine

could have used a checking account system as evidenced by the

facts that they obtained mortgages and loans, had competency in

adding numbers, could keep some records, could sign their names,

and could read and write to some degree.

     There is no evidence that Frank and Katherine could not have

used banks to deposit receipts and pay expenditures.   Nor do

petitioners explain why Sylvia did not maintain a checking

account system for Frank and Katherine while she lived with them.

Frank and Katherine made numerous and substantial cash

expenditures for real property and luxury automobiles.    We agree

with respondent that their extensive use of cash for those types

of expenditures supports a reasonable inference that Frank and

Katherine knowingly and willfully attempted to conceal taxable

income.
                                - 69 -

          (5)     Concealing Transactions

     Respondent contends that Frank’s and Katherine’s dealings in

cash and their failure to file any gift tax returns enabled them

to conceal transfers of property from respondent until long after

those transactions occurred.     Respondent asserts that the

concealment of assets is another indicium of fraud.

     Petitioners assert that there is no evidence that Frank or

Katherine concealed any of the gifts they made to Larry, Ronnie,

and Sylvia.     Petitioners, however, do not allege that Frank or

Katherine filed gift tax returns for the substantial gifts they

admittedly gave to their children and grandchildren during the

years in issue, nor do petitioners explain why Frank or Katherine

failed to file gift tax returns relating to those gifts.

Petitioners further assert that the fact that Frank and Katherine

purchased assets for Larry, Ronnie, and Sylvia that were easy to

trace (such as real estate and automobiles) shows that Frank and

Katherine did not intend to conceal any transfers.     Petitioners

apparently overlook the fact that for the most part Frank and

Katherine gave Larry, Ronnie, and Sylvia cash to purchase those

assets, many of which were titled solely in Larry’s, Ronnie’s,

and Sylvia’s names thereby making it difficult to trace the cash.

     We agree with respondent that Frank and Katherine tried to

conceal their unreported income by giving Larry, Ronnie, and
                              - 70 -

Sylvia cash or by placing assets in their names.   That conduct is

evidence of fraudulent intent.

          (6)   Failure To Cooperate with Respondent

     Respondent asserts that petitioners failed to cooperate with

respondent’s agents during the examination of their returns.

Respondent maintains that petitioners’ justification for their

lack of cooperation (i.e., that in 1990 or 1991 respondent’s

revenue agent referred to all Gypsies as crooks), does not

provide a basis for failing to cooperate.

     Petitioners, however, maintain that respondent is attempting

to attribute the actions of Larry and Baptiste to Frank and

Katherine.   They contend that there is no evidence that Frank and

Katherine failed to cooperate with respondent’s agents during the

course of the examination of their returns, or that Katherine

made false or misleading statements to respondent’s revenue

agents.   Petitioners maintain that the only employee of

respondent who requested records from Frank and Katherine was

Revenue Officer Budde, and that request related to a delinquent

filing investigation of their 1986 through 1988 returns.

Petitioners contend that Frank and Katherine cooperated with

Revenue Officer Budde by filing returns for those years even

though they were not required to file them because of the income

threshold requirements.
                                - 71 -

     We agree with petitioners that there is no evidence that

either Frank or Katherine failed to cooperate with respondent’s

revenue agents regarding the examination of their returns for the

years in issue.    Agent Combs never interviewed Frank or Katherine

in the course of that examination.       It also appears that

respondent’s revenue agents never requested verification for

items reflected on Frank and Katherine’s returns for the years in

issue.   Rather, the adjustments to their returns resulted from

statements Katherine made during a deposition she gave relating

to docket No. 20854-94 to the effect that she and Frank furnished

funds to Larry, Ronnie, and Sylvia to purchase assets and pay

expenditures in excess of their incomes.       Under those

circumstances, we find that the factor of cooperation supports

neither party’s position.

           (7)    Credibility of Witnesses

     Petitioners assert that Katherine made no false or

misleading statements to respondent’s revenue agents.        Moreover,

petitioners contend, respondent did not rebut Katherine’s cash

hoard testimony, which they assert was corroborated by

Katherine’s siblings.    Respondent, on the other hand, contends

that petitioners and their witnesses offered inconsistent, vague,

unsupported, and self-serving testimony commencing with the

examination and continuing through trial.
                                - 72 -

     We found Katherine’s and her siblings’ testimony conflicting

and implausible for the most part.       We agree with respondent that

Katherine’s highly implausible and incredible story of receiving

a substantial cash hoard from her father is another indication of

fraudulent intent.

            (8)   Level of Education, Age, and State of Health

     Petitioners contend that Frank and Katherine had no formal

education and were illiterate.    Additionally, petitioners contend

that during the years in issue Frank and Katherine were elderly,

unsophisticated, and suffering from serious illnesses.

Petitioners assert that Frank and Katherine relied on their

accountant to prepare their returns because of their lack of

education.    Petitioners, in effect, argue that those factors

negate any inferences of fraud on the part of Frank or Katherine.

     Under the circumstances here presented, we do not agree with

petitioners’ position that Frank’s and Katherine’s lack of formal

education, illiteracy, age, lack of sophistication, or health

negate inferences of fraud.    Although Frank and Katherine may

have had no formal education, they do not appear from the record

to have lacked business acumen or sophistication.      Dr. Schwartz

described Katherine as a bright woman and sharp most of the time.

Katherine ran a successful palmistry business for more than

50 years.    The circumstance that Katherine kept some records

relating to her business that she gave to Baptiste for the
                                 - 73 -

preparation of the tax returns shows that she was aware of the

requirements to report income.     Frank purchased a number of

expensive vehicles over the years and paid for Larry’s, Ronnie’s,

and Sylvia’s acquisitions of property and vehicles.     He applied

for loans and mortgages.     The record does not show that Frank’s

and Katherine’s age and health conditions affected their mental

capacity.    Thus, the record does not demonstrate that Frank’s and

Katherine’s lack of formal education, age, or health conditions

prevented them from being aware that they were required to report

all of their income.     Accordingly, we conclude that the factors

raised by petitioners do not negate the inferences of fraud

raised by the other badges of fraud present in the instant cases.

            (9)   Summary Regarding Intent

     On the basis of the foregoing, we conclude that for each

year in issue respondent has proven through clear and convincing

evidence that Frank and Katherine intended to evade taxes they

knew or believed were owed.

            c.    Conclusion Regarding Fraud and Statute of
                  Limitations

     We have considered the other arguments raised by petitioners

in their briefs but find them to be without merit.     On the basis

of the foregoing, we hold that for each year in issue respondent

has proven, by clear and convincing evidence, an underpayment of

tax and that some portion of the underpayment was attributable to

fraud.   Accordingly, the fraud exception to the statute of
                              - 74 -

limitations applies for each year in issue; therefore, the

statute of limitations does not bar respondent from assessing tax

liability against Frank and Katherine for any year in issue.     See

sec. 6501(c).   Since we have found fraud for all of the years in

issue, we need not address whether the 6-year period of

limitations under section 6501(e) applies for 1990.    We next

address the question of the amount of income Frank and Katherine

omitted from their income for each of the years in issue.

     C.   Amount of Understatement of Income

     Respondent contends that the source and application of funds

analyses, as adjusted and set forth infra in Appendix A, properly

show the amount of income Frank and Katherine understated for all

years in issue.   Petitioners contend, on the other hand, that

respondent’s source and application of funds analyses for Frank

and Katherine, Larry, Ronnie, and Sylvia are faulty.

     Agent Combs never interviewed Frank or Katherine about the

source and application of funds analyses he performed for the

years in issue.   To a large extent, in calculating their

applications of funds for the years in issue, Agent Combs relied

upon source and application of funds analyses he performed for

Larry, Ronnie, and Sylvia for the years in issue, information he

gathered regarding specific asset purchases, Bureau of Labor

Statistics (BLS) estimates of annual expenditures, and

Katherine’s deposition statement that during the years in issue
                                  - 75 -

she and Frank gave Larry, Ronnie, and Sylvia funds to purchase

assets and to pay their personal living expenses.       Both Frank and

Katherine were deceased by the time of trial.

     Petitioners have the burden of proving that respondent’s

determinations as to the amount of the understated income are

incorrect.    Rule 142(a).     The parties have agreed as to the

amounts reflected on the source and application of funds analyses

for Frank and Katherine, Larry, Ronnie, and Sylvia set forth

infra in Appendices A through I except as noted therein.

Consequently, we focus primarily on the items that the parties

have identified as in dispute.       There are a few additional items

in the source and application of funds analyses, however, which

we believe from the record also need to be addressed.       Those

items also are discussed below.

             1.   Adjustments to BLS Figures

     Because of the absence of specific information relating to

the Johnson family’s personal living expenses, in the source and

application of funds analyses for Frank and Katherine, Larry,

Ronnie, and Sylvia, respondent used data from Table 4 of the

Bureau of Labor Statistics Consumer Expenditure Survey for each

year in issue to calculate personal living expenditures.

Petitioners contend that respondent’s use of the BLS tables is

flawed because those tables do not accurately reflect Frank and

Katherine’s lifestyle.       Petitioners assert that respondent did
                              - 76 -

not account for the circumstances that the Johnson family members

frequently lived and dined together in a communal lifestyle

typical of their gypsy heritage; Frank and Katherine were not

able to drive but relied on Larry, Ronnie, and Sylvia for their

transportation; they were illiterate; they did not own life

insurance; and they did not participate in a retirement plan.

Additionally, petitioners contend that, in the source and

application of funds analysis for Sylvia, respondent failed to

adjust the BLS amounts to reflect that she lived with Frank and

Katherine for the years 1985 through August 1990.

     Under certain circumstances, courts have found reasonable

respondent’s use of data compiled by the BLS to reconstruct

income or to estimate personal living expenses.   See, e.g.,

Pollard v. Commissioner, 786 F.2d 1063, 1066 (11th Cir. 1986),

affg. T.C. Memo. 1984-536; Giddio v. Commissioner, 54 T.C. at

1532.   The rationale for use of BLS data is that “[w]here * * *

there is evidence of taxable income but no information can be

acquired to ascertain the amount of such income, we do not think

it is arbitrary for the Commissioner to determine that the

taxpayer had income at least equal to the normal cost of

supporting his family.”   Giddio v. Commissioner, supra at 1533.

     Unquestionably, the Johnson family members incurred personal

living expenses during the years in issue.   Frank and Katherine

did not maintain checking accounts or provide to respondent other
                              - 77 -

records relating to their expenditures for the years in issue.

Consequently, in the absence of records, we find reasonable

respondent’s use of BLS data to estimate personal living expenses

for the Johnson family.   Petitioners offered no proof rebutting

respondent’s position that, with certain adjustments, Frank and

Katherine, Larry, Ronnie, and Sylvia must have incurred personal

living expenses during the years in issue at least equal to the

amounts reflected in the BLS tables.   See Pollard v.

Commissioner, supra.   Nonetheless, we agree with petitioners that

additional adjustments to the BLS figures are necessary.

     We do not agree with petitioners that the Johnson family

lived together in a communal lifestyle.   Although they may have

come together often for meals and vacations, Larry maintained his

own residence during all of the years in issue, Ronnie maintained

his own residence from 1985 through 1990, and Sylvia maintained

her own residence from August through December 1990.    Thus, we

agree that personal living expenses should be calculated

separately for Larry, Ronnie, and Sylvia, at least for the

periods they maintained separate households.

     Thus, we find reasonable respondent’s methodology of

calculating separately personal living expenses for Larry for all

of the years in issue and for Ronnie for 1985 through 1990.

However, we believe that personal living expenses should be

deleted from Ronnie’s source and application of funds analyses
                              - 78 -

for 1983 and 1984 inasmuch as he lived with Frank and Katherine

during those years.   The personal living expenses for Frank and

Katherine should be adjusted correspondingly to include Ronnie as

a member of their household for 1983 and 1984.27    As for Sylvia,

she lived with Frank and Katherine until August 1990 at which

time she established her own residence.   Accordingly, personal

living expenses should be deleted from Sylvia’s source and

application of funds analyses for 1985 through July 1990, and the

personal living expenses for Frank and Katherine should be

adjusted to include Sylvia (as well as Jack Miller and Nicole, as

appropriate) as members of their household for those years.28

     As for petitioners’ contention that adjustments to

transportation items included in the BLS average annual

expenditure figures should be made in addition to vehicle

acquisition costs, except for one item (public transportation),

we do not agree because the record reflects that Frank acquired

vehicles before and during the years in issue.     The record does


     27
        Although Ronnie lived with Frank and Katherine for part
of 1985, we make no allocation for that year because the record
shows that he established his own residence in February 1985, and
we believe that any adjustment for 1 month would be nominal.
     28
        Although the record shows that Jack Miller moved into
the Longwood property in late 1986, we do not include him as a
member of Frank and Katherine’s household for 1986 because the
record does not show exactly when he moved into the Longwood
residence. Additionally, although the record shows that Sylvia’s
daughter was born in 1988, we do not include her as a member of
Frank and Katherine’s household for 1988 because the record does
not show exactly when she was born.
                                 - 79 -

not show that Frank did not drive or maintain those vehicles

during the years in issue.     However, we believe that public

transportation figures should be deleted from the BLS figures for

all of the Johnson family members because we do not believe that

they would use public transportation in light of the number and

kinds of vehicles they acquired before and during the years in

issue.

     As for personal insurance and pension figures in the BLS

figures, we agree with petitioners that those items should be

deleted for all Johnson family members on the basis of

Katherine’s testimony that they did not believe in carrying

insurance.    In addition, we think that reading, education, and

tobacco figures should be deleted for Frank and Katherine because

of their ages, illiteracy, and health conditions.     As for Ronnie

and Sylvia, we believe that education figures should be deleted

for them because of their ages and schooling history.

Accordingly, we hold that adjustments to the BLS figures are

needed in accordance with the above.      See infra Appendix J for

revised personal living expenses for Frank and Katherine, Larry,

Ronnie, and Sylvia reflecting those adjustments.

             2.   Adjustment for Specific Gift

     Petitioners contend that, for 1990, respondent failed to

credit either Larry or Ronnie with a $43,101 specific gift that

is charged to Frank and Katherine as an application of funds for
                                  - 80 -

that year.    See infra Appendices (A), (I).     Petitioners maintain

that the gift consisted of a deposit of $43,101 which Frank and

Katherine made into a joint account in Larry’s and Ronnie’s

names.

     Respondent maintains that no adjustment is required in

Larry’s or Ronnie’s source and application of funds analyses to

account for the $43,101 gift because there is no evidence that

any of the money in the account was withdrawn during that year.

Thus, respondent maintains, the $43,101 gift would have no impact

on the source and application of funds analysis for Larry or

Ronnie because the gift would be both a source of funds upon its

transfer to the account and an application of funds at the close

of the year in an equal amount.       We agree with respondent that no

adjustment is required for this item because petitioners did not

show a net change in the bank account balance, and we hold

accordingly.

             3.    Adjustment for Proceeds of Automobile Transactions

     Petitioners assert that respondent failed to credit Frank

and Katherine with the proceeds from at least three automobiles

that Frank sold or traded during the years in issue.       See infra

Appendix A.       Respondent maintains that no adjustment is needed

for the proceeds of the three alleged automobile transactions

because the record does not establish that those transactions

occurred nor do petitioners quantify the trade-in value or sales
                               - 81 -

proceeds they claim Frank received for those vehicles.     We agree

with respondent that petitioners have not established in the

record that the transactions occurred, or, if they did occur, the

amount of trade-in allowance or sales proceeds received.

Statements in briefs are not evidence, and they cannot be used as

such to supplement the record.   See, e.g., Rule 143(b);

Niedringhaus v. Commissioner, 99 T.C. 202, 214 n.7 (1992).     Thus,

we agree with respondent that no adjustment is required for

additional proceeds from automobile transactions, and we hold

accordingly.

           4.   Adjustments for Larry’s Audit Results

      Petitioners contend that respondent failed to adjust Larry’s

source and application of funds analyses for 1989 and 1990 to

account for unreported income he agreed to include in his income

for those years pursuant to the settlement of docket No. 20854-

94.   See infra Appendices (H), (I).    Petitioners assert that an

adjustment to Larry’s source and application of funds analyses

for unreported income for 1989 and 1990 would result in a

corresponding reduction to the $38,018 and $43,404 “gifts to

Larry” respondent included as applications of funds by Frank and

Katherine for those years.   Respondent asserts that an adjustment

to Larry’s source and application of funds analyses for 1989 and

1990 for unreported income cannot be made because the record does

not show to what extent, if any, the settlement related to any
                                - 82 -

issue in the instant cases because unreported income was only one

of several adjustments involved in docket No. 20854-94.

     We agree with petitioners that an adjustment to Larry’s

source and application of funds analysis is needed for 1989 and

1990 to account for the compromise settlement of docket No.

20854-94.   However, we do not agree with petitioners as to the

amounts to be added as sources of funds for those years.    The tax

deficiencies Larry and Nancy ultimately agreed to for those years

($7,140 for 1989 and $6,606 for 1990) are less than the tax

deficiencies set forth in the notice of deficiency ($13,317 and

$16,461, respectively).   Thus, it is apparent that not all of the

total adjustments to income set forth in the notice of deficiency

($44,566 for 1989 and $53,012 for 1990) were included in income

in the compromise settlement.    See supra note 12.   According to

our calculations, Larry and Nancy agreed to 53.6 percent of the

deficiency proposed for 1989 ($7,140 divided by $13,317) and 40.1

percent of the deficiency proposed for 1990 ($6,606 divided by

$16,461).   Thus, using our best judgment, applying those

percentages to the total proposed adjustments to income for those

years, we hold that Larry’s sources of funds for 1989 and 1990

should be increased by $23,887 and $21,261, respectively.    See

Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930).
                                 - 83 -

           5.     Adjustment for Sylvia’s Gambling Expenditures

      Petitioners maintain that gambling expenditures included in

Sylvia’s source and application of funds analyses for 1987

through 1989 should be eliminated because respondent did not

substantiate those items at trial.        See infra Appendices F

through H.      Respondent maintains that Sylvia’s source and

application of funds analyses are correct.       Respondent asserts

that petitioners agreed to these gambling expenditures in

proposed joint findings of fact No. 4.       In addition, respondent

states that the record establishes that Sylvia went on one or two

gambling vacations each year, and that she participated in

gambling activities.

      Joint findings of fact No. 4 states as follows:      “The

parties agree that the figures shown in black are the items of

the source and application of funds analysis for which the

parties are in agreement and in red for which the parties are not

in agreement.”      The gambling expenditures to which petitioners

now take exception were shown in black on respondent’s Appendix

5.   We take the statements in joint findings of fact No. 4 to

represent a concession by petitioners that Sylvia incurred the

gambling expenditures in the amounts stated.       Cf. Hodges v.

Commissioner, 50 T.C. 428, 434, 435 n.2 (1968) (certain

statements in respondent’s brief found to be a concession);

Armour v. Commissioner, 41 B.T.A. 777, 795 (1940) (statement in
                                - 84 -

taxpayer’s brief found tantamount to concession), affd. 125 F.2d

467 (7th Cir. 1942); Water Resource Control v. Commissioner, T.C.

Memo. 1991-104 (statements at trial and on opening brief deemed

concession of interest deductions claimed on returns), affd.

without published opinion sub nom. Whitehouse v. Commissioner,

972 F.2d 1328 (2d Cir. 1992).    Nothing in the record contradicts

that concession.    Accordingly, we hold that no adjustment is

required in Sylvia’s source and application of funds analysis for

gambling expenditures.

            6.   Additional Items Identified as in Dispute

     The parties have identified the following items through

joint finding of fact No. 4 as items to which they do not agree.

            a.   Withholding on Gambling Winnings

     In the source and application of funds analysis for Sylvia

for 1988, see infra Appendix G, respondent included as an

application of funds $345 for estimated withholding on gambling

winnings.    Petitioners do not explain why they disagree with that

item.   In the source and application of funds analysis for 1988,

respondent credited Sylvia with $38,550 in winnings from gambling

activities on December 23, 1988.    Petitioners do not disagree

with that item.    We conclude that an estimated $345 withholding

at source is reasonable considering the amount of Sylvia’s

gambling winnings on December 23, 1988; accordingly, we hold that
                              - 85 -

no adjustment is required for that item in Sylvia’s source and

application of funds analysis for 1988.

          b.   Birthing Costs for Nicole

     In the source and application of funds analysis for Sylvia

for 1988, see infra Appendix G, respondent included as an

application of funds $2,500 for birthing costs for Nicole

Johnson, Sylvia’s daughter.   In an affidavit dated November 15,

1995, Sylvia stated that Frank and Katherine paid her medical

bills relating to Nicole’s birth.   Respondent does not explain

how the $2,500 was derived other than by estimation.   Petitioners

do not explain why they disagree with this item.   The record

indicates that Nicole was born in 1988, but it does not show the

amount of medical expenses attributable to her birth nor when

those expenses were paid.   On the basis of the foregoing, we

conclude that it is not reasonable to include $2,500 birthing

costs as an application of funds in Sylvia’s source and

application of funds analysis for 1988; accordingly, we hold that

Sylvia’s applications of funds for 1988 should be reduced by

$2,500.

          c.   Estimated Tax Payments

     In the source and application of funds analysis for Ronnie

for 1988, see infra Appendix G, respondent included as an

application of funds $1,500 for estimated tax payments made

during 1988.   Ronnie’s tax return for 1988 shows $3,000 estimated
                                - 86 -

tax payments made during 1988.     Respondent does not explain why

$1,500 is used instead of $3,000.     Petitioners do not explain why

they disagree with this item.     Statements in tax returns

constitute admissions unless overcome by cogent evidence that

they are wrong.   See, e.g., Waring v. Commissioner, 412 F.2d 800,

801 (3d Cir. 1969), affg. per curiam T.C. Memo. 1968-126.        On the

basis of the foregoing, we conclude that respondent’s use of

$1,500 for estimated tax payments is reasonable; accordingly, we

hold that no adjustment for that item is required in Ronnie’s

source and application of funds analysis for 1988.

          d.   Tax Payment

     In the source and application of funds analysis for Ronnie

for 1988, see infra Appendix G, respondent included as an

application of funds $5,319 for 1987 tax payments.     Ronnie’s tax

return for 1987 shows zero tax payments made during 1987 and a

tax due of $5,216.   Respondent does not explain why $5,319 is

used instead of $5,216.    Petitioners do not explain why they

disagree with this item.     On the basis of the foregoing, we

conclude that a charge for 1987 tax payments is reasonable; we

hold, however, that the amount for that item should be $5,216.

          e.   Wedding Ceremony for Sylvia

     In the source and application of funds analysis for Frank

and Katherine for 1989, see infra Appendix A, respondent included

as an application of funds $10,000 for a wedding ceremony for
                                - 87 -

Sylvia.   Respondent does not explain how that amount was derived

other than by estimation.    Petitioners do not explain why they

disagree with that item.    The record shows that Sylvia married

Jack Miller during 1987.    Although Katherine testified that she

paid for the weddings of her grandchildren, the record does not

show how much she paid for Sylvia’s wedding ceremony or when it

was paid.    Furthermore, the record does not reflect what bride

price Jack Miller, through gypsy custom, would have paid to Frank

and Katherine for Sylvia.    On the basis of the foregoing, we

conclude that it is not reasonable to include $10,000 wedding

ceremony costs as an application of funds in Frank and

Katherine’s source and application of funds analysis for 1987 or

1989; accordingly, we hold that their applications of funds for

1989 should be reduced by $10,000 to account for this item.

            f.   Detective Expenses

     In the source and application of funds analysis for Frank

and Katherine for 1990, see infra Appendix A, respondent included

as an application of funds $7,000 paid to Dennis Dayle for

detective expenses.    We have found that their daughter Janie and

Frank hired Dayle and that Frank paid Dayle $7,000 in 1990.

Petitioners question Dayle’s credibility, but they did not

introduce any proof showing that his testimony was inaccurate.

Although we may question Dayle’s ethics in working for both Janie

and her ex-husband, we do not find Dayle’s testimony regarding
                                - 88 -

this item to be incredible as it comports with Frank and

Katherine’s lifelong practice of paying expenses for their

children.   Janie did not testify at trial; therefore, there is no

evidence that she paid Dayle’s expenses.    The failure of a party

to introduce evidence that is within his or her control gives

rise to a presumption that the evidence, if provided, would be

unfavorable to the party who has control over the evidence.       See

Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165

(1946), affd. 162 F.2d 513 (10th Cir. 1947).    On the basis of the

foregoing, we conclude that respondent’s charge of $7,000 for

detective expenses is reasonable; accordingly we hold that no

adjustment for that item is required in Frank and Katherine’s

source and application of funds analysis for 1990.

            g.   Janie’s Living Expenses

     In the source and application of funds analysis for Frank

and Katherine for 1990, see infra Appendix A, respondent included

as an application of funds $6,000 paid for room and board for

their daughter Janie and her children.     The record does not

establish whether Frank or Janie paid those expenses.     Dayle

testified that Frank told him he paid Janie’s expenses.     Dayle,

however, did not have any first-hand knowledge regarding who

actually paid the expenses.     Petitioners question Dayle’s

credibility.     Larry testified that Frank and Katherine did not

pay for Janie’s expenses because she had her own money.     On the
                                 - 89 -

basis of the foregoing, we conclude that it is not reasonable to

include $6,000 for Janie’s living expenses as an application of

funds in Frank and Katherine’s source and application of funds

analysis for 1990; accordingly, we hold that their applications

of funds for 1990 should be reduced $6,000 to account for this

item.

             h.   Duplications Regarding Johnson Limousine

        In the source and application of funds analysis for Frank

and Katherine for 1990, see infra Appendix A, respondent reduced

gifts to Larry, Ronnie, and Sylvia by $46,490 to account for

duplications regarding Johnson Limousine.      These adjustments are

not explained further.      Petitioners do not explain why they

disagree with this item.      Since the adjustment favors petitioners

and they do not explain why it should not be made in the amount

allowed by respondent, we hold that no adjustment is required for

that item in Frank and Katherine’s source and application of

funds analysis for 1990.

             7.   Other Adjustments

        After reviewing the record and the source and application of

funds analyses for the Johnson family members for the years in

issue, we believe that the following additional adjustments are

needed to calculate excess applications of funds over sources of

funds for those years.
                               - 90 -

          a.   Rental Income

     Respondent has stipulated that during 1987 Larry received

$14,000 in cash as rental income for use of the Sanford Property,

and that Larry included that amount in income on his 1987 tax

return.   Respondent did not include the rental income as a source

of funds for 1987.   See infra Appendix F.29   Accordingly, we find

that Larry’s source of funds for 1987 should be increased by

$14,000 to account for that rental income.

          b.   Duplication of Rental Expenses or Mortgage
                 Payments

     In the source and application of funds analyses for Ronnie

and Sylvia for the years in issue, respondent included as

applications of funds, among other things, business expenses

claimed on their Schedules C and amounts they paid for rent or

for mortgage payments for their residences.    See infra Appendices

D through I.   The record indicates that Ronnie and Sylvia

operated their businesses out of their personal residences.    We

believe that respondent included the portion of the rental

expenses or mortgage payments attributable to Ronnie’s business

for 1985 through 1990 and to Sylvia’s business for 1990 twice as


     29
        On Appendix 5 of respondent’s opening brief, Larry’s
source and application of funds analysis for 1987 reflects as
sources of funds both “Gross Receipts-Schedule E (Rental)” of
$14,000 and “Adjustments: Return Rental Income” of ($14,000).
The ultimate result of including both sources of funds was that
respondent did not credit Larry with any rental income for 1987.
For convenience, we did not show either source of funds on
Appendix F.
                              - 91 -

applications of funds.   Accordingly, we find that the source and

application of funds analyses for Ronnie and Sylvia should be

adjusted to exclude those duplicated expenses.    See infra

Appendices M and N for the amount of those adjustments.

          c.   Depreciation

     Ronnie claimed depreciation expenses on his Schedules C for

1989 ($10,350) and 1990 ($700).   In Ronnie’s source and

application of funds analysis for 1989, respondent reduced

applications of funds by the amount of depreciation claimed on

his Schedule C, but respondent made no adjustment for

depreciation for 1990.   See infra Appendices H and I.     Respondent

did not explain why depreciation was not excluded from

applications of funds for 1990.   We believe that the adjustment

should be made, and accordingly hold that Ronnie’s application of

funds analysis for 1990 should be reduced by $700 to account for

this item.

          d.   Cash and Jewelry

      Respondent included $30,000 cash and $100,000 jewelry as

applications of funds in the source and application of funds

analysis for Frank and Katherine for 1990.    See infra Appendix A.

Those items constitute the cash and jewelry that Frank and

Katherine reported to the police were in their safe when Jack

White burglarized their home during 1990.    Respondent contends

that, if Frank and Katherine did not have the $30,000 cash and
                              - 92 -

$100,000 in jewelry on December 5, 1989, when Revenue Officer

Budde prepared the collection statement, then Frank and Katherine

must have accumulated $30,000 cash and $100,000 in jewelry

between the date of the collection statement and the date of the

theft.   Petitioners contend, however, that there is no evidence

that the cash and jewelry were accumulated between those dates.

We agree with petitioners.

      On the basis of our review of the entire record, we believe

that the collection statement did not accurately list all of the

assets Frank and Katherine owned as of December 5, 1989.    We have

made a finding of fact that Frank and Katherine had cash on hand

of approximately $30,000 as of January 1, 1983, and that

throughout the years in issue Frank and Katherine kept

approximately $30,000 cash on hand at the beginning and end of

each year.   Thus, there was no net change in the amount of cash

on hand during the years in issue.

     In addition, we believe that Frank and Katherine accumulated

significant amounts of jewelry over their lifetimes.   The record

does not establish that Frank and Katherine purchased any jewelry

during 1990.   It is not clear, furthermore, that all of the

jewelry in their safe actually belonged only to Frank and

Katherine.   Frank and Katherine had a lifelong practice of

gifting property, including jewelry, to their children and

grandchildren.   Some of their children’s and grandchildren’s
                               - 93 -

jewelry could have been in the safe that Jack White stole.

Therefore, we conclude that it is not reasonable to include the

$30,000 cash and $100,000 jewelry as applications of funds for

1990 merely on the circumstance that Frank and Katherine reported

their theft to the police.   Accordingly, we hold that Frank and

Katherine’s applications of funds for 1990 must be reduced by

$130,000 to account for the exclusion of that cash and jewelry.

     8.    Summary Relating to Amount of Understatement of Income

     Taking into consideration the foregoing adjustments to

respondent’s source and application of funds analyses for Frank

and Katherine, Larry, Ronnie, and Sylvia for the years in issue,

our computations show that Frank and Katherine had excess

applications of funds over sources of funds in the following

amounts:

                   Year                   Amount
                   1983                  $80,350
                   1984                   80,253
                   1985                   87,757
                   1986                   90,989
                   1987                  145,303
                   1988                  193,387
                   1989                  119,017
                   1990                   92,609
                     Total               889,665

See infra Appendix K for our revisions to the source and

application of funds analysis for Frank and Katherine for the

years in issue.    See infra Appendices L, M, and N for our

revisions to the source and application of funds analyses for

Larry, Ronnie, and Sylvia, respectively, for those years.
                              - 94 -

     D.   Capital Gain for 1989

     On their return for 1989, petitioners reported the sale of

property from which they realized a long-term gain of $3,421

(sales price of $40,000 less basis of $36,579).   Respondent

contends that Frank and Katherine had a short-term gain of

$23,978 ($40,000 less mortgage payoff of $11,030 and expenses of

sale of $4,989).

     In their reply brief, petitioners claim that Frank and

Katherine’s daughter Patricia transferred the subject property to

them for no consideration at a time when she had an adjusted

basis in the property of at least $30,000.   Petitioners contend

that she gifted the property to Frank; therefore, he had the same

basis and holding period for the property as she did.

Petitioners contend further that Frank’s adjusted basis in the

property, at a minimum, was $34,990 ($30,000 basis plus $4,990

expenses of sale).   They maintain that Frank’s daughter may have

had an additional basis of $1,590 in the property which accounts

for the $36,579 basis claimed on the 1989 tax return.   Respondent

asserts that petitioners have offered no evidence establishing

that Frank and Katherine had a basis of more than $11,030 in the

property they sold in 1989.

     The record indicates that Frank acquired his interest in the

property by quitclaim deed from a Patricia Johnson on March 18,

1989, for no stated consideration, and that he sold that property
                               - 95 -

2 days later by warranty deed for $40,000.     The settlement

statement indicated a remaining balance on the mortgage loan of

$11,033 and sales expenses of $4,990.

     Petitioners bear the burden of proof in this issue.       Rule

142(a).    The record, however, does not establish a filial

relationship between Frank and the Patricia Johnson who

transferred that property to Frank or the circumstances relating

to her transfer of the property to Frank during 1989.     See supra

note 18.    This Court does not consider statements in briefs to be

evidence.    See Niedringhaus v. Commissioner, 99 T.C. 202, 204 n.7

(1992); Evans v. Commissioner, 48 T.C. 704, 709 (1967), affd. per

curiam 413 F.2d 1047 (9th Cir. 1969).     Patricia did not testify

at trial; therefore, there is no proof in the record that Frank’s

daughter gifted property to him.    The presumption is that her

testimony would be unfavorable to petitioners.     See Wichita

Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946),

affd. 162 F.2d 513 (10th Cir. 1947).     Thus, we agree with

respondent that petitioners have not shown a basis in the

property greater than the amount allowed by respondent or a

holding period greater than 2 days.     Accordingly, we sustain

respondent’s determination on this issue.

     E.    Taxable Social Security Benefits

     Respondent contends that Frank and Katherine’s taxable

Social Security income for the years in issue should be increased

as follows:
                               - 96 -

                   Year                   Amount
                   1985                   $1,287
                   1986                      957
                   1987                    1,385
                   1988                    2,195
                   1989                    2,796
                   1990                    3,129

The increase in taxable Social Security income resulted from the

adjustments respondent made to Frank and Katherine’s income for

those years.

     Section 86(a) provides that gross income includes a portion

of Social Security benefits received by individuals whose

(1) modified adjusted gross income increased by one-half of the

Social Security benefits received during the years (readjusted

modified adjusted gross income) exceeds (2) the base amount.      See

sec. 86(a) and (b)(1).    Modified adjusted gross income is

adjusted gross income without regard to Social Security benefits

and other adjustments not pertinent to these cases.    See sec.

86(b)(2).   The base amount for a joint return is $32,000.     See

sec. 86(c).    For the years in issue, the portion of Social

Security benefits included in gross income equals the lesser of

one-half of the Social Security benefit received or one-half of

the excess of the taxpayer’s readjusted modified adjusted gross

income over the base amount.    See sec. 86(a)(1).

     Petitioners contend that respondent’s determination was made

on the erroneous assumption that Frank and Katherine

underreported their income for the years in issue; therefore, no
                               - 97 -

adjustment for taxable Social Security benefits is required.

Respondent agrees that the adjustment is computational.    We have

found that Frank and Katherine understated their income for the

years in issue.   Accordingly, Frank and Katherine’s income for

1985 though 1990 must be increased to include taxable Social

Security benefits which are to be computed in accordance with our

holdings in the instant cases.

     F.   Self-Employment Taxes

     Respondent contends that Frank and Katherine’s self-

employment taxes should be increased as follows:

                    Year                 Amount
                    1983                 $6,676
                    1984                  8,542
                    1985                  9,346
                    1986                 10,332
                    1987                 10,774
                    1988                 11,718
                    1989                 12,500
                    1990                 15,698

Petitioners contend that no adjustment is required for this

issue.

     Section 1401(a) imposes a tax on the self-employment of

every individual.    Net earnings from self-employment means the

gross income derived by an individual from any trade or business

carried on by the individual, less allowable deductions

attributable to the trade or business, plus certain items not

relevant here.    See sec. 1402(a).   The term “trade or business”

for purposes of the self-employment tax generally has the same
                             - 98 -

meaning as used for purposes of section 162.   See sec. 1402(c).

Thus, to be engaged in a trade or business within the meaning of

section 1402(a), an individual must be involved in an activity

with continuity and regularity, and the primary purpose for

engaging in the activity must be for income and profit.   See

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).   Petitioners

have the burden of proving that Frank and Katherine are not

liable for self-employment taxes.   See Rule 142(a).

     In the notices of deficiency, respondent determined that

both Frank and Katherine were involved in Katherine’s palmistry

business and calculated Social Security taxes for each of them.

Petitioners contend, on the other hand, that Frank never worked

or participated in the operation of the palmistry business.     We

agree that the record supports petitioners’ position that Frank

was not actively involved in Katherine’s palmistry business.

Additionally, the record does not support a finding that Frank

was engaged in the trade and business of gambling even though he

may have had income from gambling during the years in issue.

Thus, we conclude that Frank did not have net earnings from self-

employment during the years in issue; therefore, he is not liable

for self-employment taxes for those years.   We have found,

however, that Katherine was involved in her palmistry business

during all of the years in issue; therefore, she is liable for
                                - 99 -

the self-employment tax for each of those years to the extent of

her net earnings from self-employment.

     G.    Self-Employment Deduction

     For 1990, section 164(f) provides a deduction for one-half

of the taxes imposed by section 1401 for such year.     Respondent

contends that petitioners are entitled to increase their self-

employment tax deduction for 1990 in the amount of $7,301.

Petitioners contend that respondent is incorrect.     This item is a

computational adjustment and must be recalculated to reflect our

holding in the instant cases that Frank and Katherine understated

their 1990 income by $92,306, and that only Katherine is liable

for the self-employment tax imposed by section 1401 for that

year.

     H.     Married Couples Deduction

     Respondent contends that Frank and Katherine are entitled to

a $3,000 married couples deduction for the years 1983 through

1986.     Petitioners contends that Frank was retired for all of

those years; therefore, Frank and Katherine are not entitled to a

married couples deduction for any year in issue.     We agree with

petitioners.

     In the case of a joint return for 1983 through 1986, section

221 allows a deduction for two-earner married couples equal to

10 percent of the lesser of $30,000 or the “qualified earned

income” of the spouse with the lower qualified earned income for
                                 - 100 -

the taxable year.     Qualified earned income is defined as an

amount equal to the excess of (a) the earned income of the spouse

for the taxable year, over (b) an amount equal to the sum of

certain deductions allowable under section 62 and properly

allocable to or chargeable against earned income.     See sec.

221(b).

     Respondent determined that both Frank and Katherine were

involved in Katherine’s palmistry business and, thus, allowed a

$3,000 married couples deduction for each of 1983 through 1986.

We have found that Frank was not actively involved in Katherine’s

palmistry business but was retired during the years 1983 through

1986.     He had no earned income for those years.   Consequently, we

hold that Frank and Katherine are not entitled to the married

couples deduction for 1983 through 1986.

     I.     Additions to Tax and Penalties

             1.   Sections 6653(b) and 6663

     Respondent also determined additions to tax for fraud under

section 6653(b)(1) and (2) for 1983, 1984, and 1985; under

section 6653(b)(1)(A) and (B) for 1986 and 1987; and under

section 6653(b)(1) for 1988; and penalties for fraud under

section 6663 for 1989 and 1990.     For 1983, 1984, and 1985,

section 6653(b)(1) imposes an addition to tax equal to 50 percent

of any underpayment in tax if any part of the underpayment was

due to fraud, and section 6653(b)(2) imposes a separate addition
                              - 101 -

to tax equal to 50 percent of the interest payable under section

6601, determined on the portion of the underpayment attributable

to fraud.   For 1986 and 1987, section 6653(b)(1)(A) imposes an

addition to tax equal to 75 percent of the portion of an

underpayment of tax attributable to fraud if any part of the

underpayment was due to fraud, and section 6653(b)(1)(B) imposes

a separate addition to tax equal to 50 percent of the interest

payable under section 6601, determined on the portion of the

underpayment attributable to fraud.     For 1988, section 6653(b)(1)

imposes an addition to tax equal to 75 percent of the portion of

the underpayment that is attributable to fraud if any part of any

underpayment of a tax required to be shown on a return was due to

fraud.   For 1989 and 1990, section 6663(a) imposes a penalty for

fraud equal to 75 percent of the portion of an underpayment that

is attributable to fraud.   If any portion of an underpayment is

attributable to fraud, then the entire underpayment is treated as

due to fraud unless the taxpayer can establish that some portion

of the underpayment is not attributable to fraud.    See sec.

6653(b)(2), as in effect for 1986, 1987, and 1988; sec. 6663(b),

as in effect for 1989 and 1990.   The elements of fraud under

section 6663 are essentially the same as those considered under

section 6653(b).   See, e.g., Rhone-Poulenc Surfactants &

Specialties, L.P. v. Commissioner, 114 T.C. 533, 548 (2000),

appeal dismissed and remanded 249 F.3d 175 (3d Cir. 2001).
                                - 102 -

     We have found that respondent proved with clear and

convincing evidence that Frank and Katherine fraudulently

understated their income for the years in issue.    Thus,

respondent has proved that Frank and Katherine are liable for the

additions to tax for fraud under section 6653(b) and penalties

for fraud under section 6663.    Accordingly, we sustain

respondent’s determination as to the imposition of additions to

tax, or penalties, for fraud for each of the years in issue.

However, as to the interest-sensitive additions to tax imposed

under section 6653(b)(2) for 1983, 1984, and 1985,30 we sustain

respondent’s determination only as to the portion of the

underpayments of tax for each of those years that respondent has

shown to be attributable to fraud in accordance with our findings

addressed in subsection B of this opinion.

          2.   Section 6661

     Respondent determined that petitioners are liable for the

addition to tax under section 6661 for 1983 through 1988 as a

result of the "substantial understatement of income tax" in each

of those years.   If there is a substantial understatement of

income tax, section 6661(a) imposes an addition to tax equal to

25 percent of the underpayment attributable to the



     30
        For 1986 and 1987, petitioners have the burden of
establishing what portion, if any, of the understatement is not
attributable to fraud. Sec. 6653(b)(2). They have failed to
carry that burden.
                                 - 103 -

understatement.    An understatement is substantial if it exceeds

the greater of 10 percent of the tax required to be shown or

$5,000.    Sec. 6661(b)(1)(A).   An "understatement" is defined as

the excess of the tax required to be shown on the return over the

tax actually shown on the return.     Excepting items attributable

to tax shelters, the amount of the understatement is reduced by

items with respect to which the taxpayer had substantial

authority for his or her position or for which relevant facts

affecting the tax treatment were adequately disclosed.       Sec.

6661(b)(2)(B).

     Petitioners provided no evidence to show that they had

substantial authority for the understatements, and their tax

returns did not disclose the relevant facts sufficiently to

enable respondent to identify the potential controversy involved.

See Schirmer v. Commissioner, 89 T.C. 277, 285-286 (1987).

Instead,    petitioners relied on the evidence they presented to

prove that Frank and Katherine did not underreport their income

for any of the years in issue, and hence there were no

deficiencies for those years, to prove that the additions to tax

under section 6661 would not apply.        We have found that the

evidence supports respondent’s position that Frank and Katherine

understated their income for the years in issue.        Accordingly, we

sustain respondent's determination under section 6661 for 1983

through 1988.
                               - 104 -

II.   Issues Relating to Transferee Liability

      A.   Background

      Respondent contends that Larry, Ronnie, and Sylvia are

liable as transferees of Frank and Katherine’s Federal income tax

liabilities for the years in issue because Frank and Katherine

fraudulently conveyed funds and assets to Larry, Ronnie, and

Sylvia.    Petitioners contend that Larry, Ronnie, and Sylvia are

not liable as transferees because Frank and Katherine did not

have the requisite fraudulent intent.

      Section 6901(a) provides that the liability of a transferee

of property “shall * * * be assessed, paid, and collected in the

same manner and subject to the same provisions and limitations as

in the case of the taxes with respect to which the liabilities

were incurred”.    Section 6901 does not impose liability on the

transferee, but merely gives the Commissioner a procedure or

remedy to enforce the transferor’s existing liability.      See

Commissioner v. Stern, 357 U.S. 39, 42 (1958); see also Hagaman

v. Commissioner, 100 T.C. 180, 183 (1993).      Respondent bears the

burden of proving that Larry, Ronnie, and Sylvia are liable as

transferees of Frank and Katherine.      See sec. 6902(a); Rule

142(d).

      To prevail under section 6901(a), respondent must show the

existence and extent of transferee liability as determined under

the law of the State in which the transfer occurred.      See
                                - 105 -

Commissioner v. Stern, supra at 45; Hagaman v. Commissioner,

supra at 183-184.

       The transfers involved in the instant cases occurred in the

State of Florida; therefore, the question of whether transferee

liability applies must be determined under the applicable Florida

law.    Florida revised its statutory provisions relating to

fraudulent conveyances for years after 1987.     Thus, Florida

Statutes sections 726.01-726.201 apply to transfers occurring

before January 1, 1988, while Florida Uniform Fraudulent Transfer

Act (FUFTA), Chapter 726 applies to transfers occurring after

December 31, 1987.     See 1987 Fla. Laws, ch. 87-79, se. 13;

Advest, Inc. v. Rader, 743 F. Supp. 851, 853 (S.D. Fla. 1990).

Nonetheless, the legal and equitable principles of Fla. Stat.

section 726.01 continue to apply to post-1987 transfers.     See

Fla. Stat. sec. 726.111 (1988);31 Advest, Inc. v. Rader, supra at

853-854.




       31
            Fla. Stat. sec. 726.111 (1988) provides as follows:

       726.111.   Supplemental provisions

         Unless displaced by the provisions of ss. 726.101-726.112,
       the principles of law and equity, including the law merchant
       and the law relating to principal and agent, estoppel,
       laches, fraud, misrepresentation, duress, coercion, mistake,
       insolvency, or other validating or invalidating cause,
       supplement those provisions.
                                 - 106 -

     B.    Florida’s Statutory Provisions

            1.    Pre-1988 Transfers

     Under Fla. Stat. section 726.01 (1987),32 any conveyance of

lands, goods, and chattels made with the intent to delay, hinder,

or defraud creditors is void as to creditors, unless the

transferee gave “good consideration” and did not have knowledge

or notice of the fraud at the time of the transfer.    See also In


     32
           Fla. Stat. sec. 726.01 (1987) reads in pertinent part as
follows:

     726.01      Fraudulent Conveyance Void

          Every feoffment, gift, grant, alienation, bargain,
     sale, conveyance, transfer and assignment of lands,
     tenements, hereditaments, and of goods and chattels, or
     any of them, * * * by writing or otherwise, and every
     bond, note, contract, suit, judgment and execution
     which shall at any time hereafter be had, made or
     executed, contrived or devised of fraud, covin,
     collusion or guile, to the end, purpose or intent to
     delay, hinder or defraud creditors or others of their
     just and lawful actions, suits, debts, accounts, * * *
     shall be from henceforth as against the person or
     persons, * * * his, her or their successors, executors,
     administrators and assigns, and every one of them so
     intended to be delayed, hindered or defrauded, deemed,
     held, adjudged and taken to be utterly void, frustrate
     and of none effect, any pretense, color, feigned
     consideration, expressing of use or any other matter or
     thing to the contrary notwithstanding; provided, that
     this section, or anything therein contained, shall not
     extend to any estate or interest in lands, tenements,
     hereditaments, * * * goods or chattels which shall be
     had, made, conveyed or assured if such estate shall be,
     upon good consideration and bona fide, lawfully
     conveyed or assured to any person or persons * * * not
     having at the time of such conveyance or assurance to
     them made any manner of notice or knowledge of such
     covin, fraud or collusion as aforesaid, anything in
     this section to the contrary notwithstanding.
                                - 107 -

re Smith, 120 Bankr. 588, 591-592 (M.D. Fla. 1990); Sebring Co.

v. O'Rourke, 101 Fla. 885, 134 So. 556, 562 (1931).     “Good

consideration is that which would support a simple contract.”       In

re Smith, supra at 592 (citing Parts Depot, Inc. v. Bullock, 545

So. 2d 468, 471 (Fla. Dist. Ct. App. 1989)).     Thus, "To

constitute a fraudulent conveyance, there must be a creditor to

be defrauded, a debtor intending fraud, and a conveyance of

property which is applicable by law to the payment of the debt

due."     Bay View Estates Corp. v. Southerland, 114 Fla. 635, 650,

154 So. 894, 900 (1934), overruled en banc on another issue Lott,

Inc. v. Padgett, 153 Fla. 304, 14 So. 2d 667, 669 (1943); see

also United States v. Fernon, 640 F.2d 609, 613 (5th Cir. 1981).

Under Florida case law, “a creditor is one who has asserted a

legal claim or demand of contractual nature when the alleged

fraudulent conveyance is made.”     Advest, Inc. v. Rader, supra at

854, (citing Whetstone v. Coslick, 117 Fla. 203, 157 So. 666

(1934)).

        To prove a fraudulent conveyance under Fla. Stat. section

726.01, a creditor may (1) establish a prima facie case by

showing the presence of certain “badges of fraud” which gave a

rebuttable inference of fraud, or (2) demonstrate actual

fraudulent intent.     Advest, Inc. v. Rader, supra.   The "badges of

fraud" include, among other things: (1) The transfer of property

without valuable consideration, (2) a family relationship between
                              - 108 -

the transferor and transferee, (3) retention of possession of the

property by the transferor, (4) the transfer of the debtor's

entire estate, (5) reservation of benefits, control, or dominion

by the debtor, (6) insolvency of the transferor at the time or

after the conveyance, (7) the pendency or threat of litigation

against the transferor, and (8) secrecy or concealment of the

transaction.   See, e.g, United States v. Horton, 760 F.2d 1225,

1228 (11th Cir. 1985);   United States v. Fernon, supra; Harper v.

United States, 769 F. Supp. 362, 367 (M.D. Fla. 1991); Advest,

Inc. v. Rader, supra; United States v. Ressler, 433 F. Supp. 459,

464 (S.D. Fla. 1977), affd. per curiam on another issue 576 F.2d

650 (5th Cir. 1978); Money v. Powell, 139 So. 2d 702, 703-704

(Fla. Dist. Ct. App. 1962); Banner Const. Corp. v. Arnold, 128

So. 2d 893, 896 (Fla. Dist. Ct. App. 1961); Cleveland Trust Co.

v. Foster, 93 So. 2d 112, 114 (Fla. 1957).   Furthermore, intent

need not be actual.   See United States v. Ressler, supra, Stelle

v. Dennis, 104 Fla. 384, 140 So. 194, 195 (1932);   A transfer

that has the legal effect of causing delay or hindrance to

creditors constitutes fraud in law regardless of the actual

motives of the debtor.   See Whetstone v. Coslick, supra at 668;

Livesay Indus., Inc. v. Livesay Window Co., 305 F.2d 934, 940

(5th Cir. 1962).
                               - 109 -

           2.   Post-1987 Transfers

     Under Fla. Stat. section 726.105 (1988),33 transfers made

with the actual intent to hinder, delay, or defraud any creditor

are fraudulent.   See Fla. Stat. 726.105(1)(a) (1988); Veigle v.

United States, 873 F. Supp. 623, 626 (M.D. Fla. 1994), affd.

without published opinion sub nom. Ariko v. United States, 92

F.3d 1199 (11th Cir. 1996).   Courts may consider the following

factors, among others, as evidence of fraudulent intent:    (a) The

transfer or obligation was to an insider, (b) the debtor retained

possession or control of the property transferred after the

transfer, (c) the transfer or obligation was disclosed or


     33
          Fla. Stat. sec. 726.105 (1988) provides as follows:

     726.105. Transfers fraudulent as to present and future
     creditors

       (1) A transfer made or obligation incurred by a debtor is
     fraudulent as to a creditor, whether the creditor's claim
     arose before or after the transfer was made or the
     obligation was incurred, if the debtor made the transfer or
     incurred the obligation:

       (a) With actual intent to hinder, delay, or defraud any
     creditor of the debtor; or

       (b) Without receiving a reasonably equivalent value in
     exchange for the transfer or obligation, and the debtor:

       1. Was engaged or was about to engage in a business or
     transaction for which the remaining assets of the debtor
     were unreasonably small in relation to the business or
     transaction; or

       2. Intended to incur, or believed or reasonably should
     have believed that he or she would incur, debts beyond his
     or her ability to pay as they became due.
                              - 110 -

concealed, (d) before the transfer was made or obligation was

incurred, the debtor had been sued or threatened with suit,

(e) the transfer was of substantially all the debtor's assets,

(f) the debtor absconded, (g) the debtor removed or concealed

assets, (h) the value of the consideration received by the debtor

was reasonably equivalent to the value of the asset transferred

or the amount of the obligation incurred, (i) the debtor was

insolvent34 or became insolvent shortly after the transfer was

made or the obligation was incurred, (j) the transfer occurred

shortly before or shortly after a substantial debt was incurred,

and (k) the debtor transferred the essential assets of the

business to a lienor who transferred the assets to an insider of

the debtor.   See Fla. Stat. sec. 726.105(2)(a)-(k)(1988).

Although one badge of fraud “may only create a suspicious

circumstance and may not constitute the requisite fraud to set

aside a conveyance, * * * several of them when considered

together may afford a basis to infer fraud."   See, e.g., Johnson

v. Dowell, 592 So. 2d 1194, 1197 (Fla. Dist. Ct. App. 1992);

Banner Constr. Corp. v. Arnold, 128 So. 2d at 896; United States

v. Fernon, 640 F.2d at 613; see also Advest, Inc. v. Rader, 743

F. Supp. at 854; Harper v. Commissioner, T.C. Memo. 1993-126.

Fraudulent conveyances also include transfers made without fair


     34
        Under Fla. Stat. sec. 726.103(1), a debtor is insolvent
if the total of his or her debts exceed the total of his or her
assets at a fair valuation.
                              - 111 -

consideration when the debtor intended to incur, or believed or

reasonably should have believed that he or she would incur, debts

beyond his or her ability to pay as they became due.   See sec.

726.105(1)(b) (1988).

     Furthermore, Fla. Stat. section 726.106,35 disregards intent

and provides a transfer per se fraudulent where the creditor’s

claim arose before the transfer, the transfer lacked valid

consideration, and the debtor was insolvent at that time or

became insolvent as a result of the transfer.

     C.   Discussion

     Respondent contends that Frank’s and Katherine’s transfers

to Larry, Ronnie, and Sylvia are fraudulent under either Fla.

Stat. section 726.01 or FUFTA.   For the post-1987 transfers,

respondent contends that Larry, Ronnie, and Sylvia are liable as



     35
          Fla. Stat. sec. 726.106 (1988) provides as follows:

     726.106. Transfers fraudulent as to present creditors

       (1) A transfer made or obligation incurred by a debtor is
     fraudulent as to a creditor whose claim arose before the
     transfer was made or the obligation was incurred if the
     debtor made the transfer or incurred the obligation without
     receiving a reasonably equivalent value in exchange for the
     transfer or obligation and the debtor was insolvent at that
     time or the debtor became insolvent as a result of the
     transfer or obligation.

       (2) A transfer made by a debtor is fraudulent as to a
     creditor whose claim arose before the transfer was made if
     the transfer was made to an insider for an antecedent debt,
     the debtor was insolvent at that time, and the insider had
     reasonable cause to believe that the debtor was insolvent.
                              - 112 -

transferees under either Fla. Stat. sec. 726.105(1)(a) or sec.

726.106(1).

     Petitioners, however, contend that the transfers to Larry,

Ronnie, and Sylvia were not fraudulent conveyances because Frank

and Katherine’s primary motives in making the transfers were

personal gratification and estate planning, not to hinder or

delay the collection of a creditor’s claim or otherwise to

defraud any creditor.   Petitioners maintain that the transfers

were in accord with gypsy custom of parents giving their eldest

son everything they own before or after they die.    Thus,

petitioners contend, Frank and Katherine had no fraudulent intent

in making the transfers to Larry, Ronnie, and Sylvia.

Additionally, petitioners assert that the fact that there were no

known threats of lawsuits or creditors claims against Frank and

Katherine supports the contention that they were not attempting

to defraud creditors when they made the transfers.

     There is no dispute that Frank and Katherine transferred

funds or specific property to Larry, Ronnie, and Sylvia without

consideration during and after the years in issue.    Indeed,

Katherine testified that she had provided the funds for all of

Larry’s, Ronnie’s, and Sylvia’s purchases of assets, and they

affirmed Katherine’s statement.

     Respondent contends that respondent became a creditor of

Frank and Katherine for unpaid tax liabilities and additions to
                              - 113 -

tax and penalties for 1983 through 1990 on the last day of each

of those taxable periods during which the tax liability accrued.

Thus, respondent asserts, Frank and Katherine owed the tax

liabilities, additions to tax and penalties to respondent before

Frank and Katherine made the subject transfers to Larry, Ronnie,

and Sylvia.   We agree that respondent was a creditor of Frank and

Katherine at least by April 16, 1984, because Federal taxes are

considered due and owing, and constitute a liability regardless

of when they are assessed, no later than the date the tax return

for the particular period is required to be filed.    See United

States v. Hickox, 356 F.2d 969, 972-973 (5th Cir. 1966); Hagaman

v. Commissioner, 100 T.C. at 185; Papineau v. Commissioner, 28

T.C. 54, 58 (1957); Veigle v. United States, 873 F. Supp. at 625;

Harper v. United States, 769 F. Supp. at 366-367; United States

v. Ressler, 433 F. Supp. at 463.

     Respondent contends that the following badges of fraud apply

to the transfers Frank and Katherine made to Larry, Ronnie, and

Sylvia: (1) Lack of consideration, (2) close family relationship,

(3) concealment of assets as a result of the difficulty in

tracing cash, (4) the transfer of virtually all of their assets,

and (5) insolvency resulting from the pattern of transfers.

     Petitioners deny that Frank and Katherine concealed any

gifts to Larry, Ronnie, and Sylvia.     They also contend that Frank

and Katherine were not insolvent after the transfers were made.
                               - 114 -

Petitioners assert that subsequent to 1990 Frank and Katherine

still owned substantial assets, including a home valued at

$311,000, other real property valued at $8,000, and other assets

valued at $84,900.

     Respondent, however, asserts that by the time Katherine died

all of her and Frank’s assets had been transferred to Larry,

Ronnie, and Sylvia.    Respondent maintains that in each of the

years in issue Frank’s and Katherine’s known assets were less

than their tax liabilities.    Thus, respondent asserts, Frank and

Katherine were insolvent or rendered insolvent by virtue of the

transfers to Larry, Ronnie, and Sylvia.

     We agree with respondent that the series of transfers to

Larry, Ronnie, and Sylvia rendered Frank and Katherine insolvent.

Insolvency may be measured after a series of related transfers

which in total leave the transferor insolvent.    See Botz v.

Helvering, 134 F.2d 538, 543 (8th Cir. 1943), affg. 45 B.T.A. 970

(1941); see also Hagaman v. Commissioner, supra; Gumm v.

Commissioner, 93 T.C. 475, 480 (1989); Leach v. Commissioner, 21

T.C. 70, 75 (1953).    Frank and Katherine’s tax liability began

accruing at the close of 1983, and that liability increased at

the close of each additional year in issue.    See Hagaman v.

Commissioner, supra.    Thus, by the end of 1990 Frank and

Katherine’s tax liabilities exceeded the assets enumerated by

petitioners.   Those assets were further reduced during 1991 when
                              - 115 -

Frank and Katherine transferred their interest, except for a

life-estate, in the Longwood property to Larry and Ronnie for

nominal consideration, and in 1992 when Frank transferred his

interests in a Rolls Royce and a Lamborghini to Larry for no

consideration.   Katherine herself testified that by June 14,

1995, she and Frank had given away all of their assets except for

the life estate and $300 to $500 maintained in a bank account.

     Applying the Florida statutory provisions to the transfers

at issue, we conclude that, under either the pre-1988 or post-

1987 law, Frank’s and Katherine’s transfers to Larry, Ronnie, and

Sylvia constitute fraudulent conveyances.   The lack of

consideration for the transfers, their close family relationship,

Frank and Katherine’s retention of possession of the Longwood

property, the transfer of essentially all of Frank

and Katherine’s estates, and their substantial indebtedness to

respondent establish fraudulent intent.36

     In Florida, existing creditors have the benefit of a

presumption of fraudulent intent where the conveyance is

voluntary and there is a close relationship between the

transferor and the transferee.   See Hagaman v. Commissioner, 100

T.C. at 188.   The presumption is warranted in the instant cases.


     36
        For post-1987 transfers, the lack of consideration,
insolvency, and preexisting tax liabilities also would render the
transfers fraudulent conveyances under Fla. Stat. sec. 726.106
(1988). See also Advest, Inc. v. Rader, 743 F. Supp. 851, 855
(S.D. Fla. 1990).
                               - 116 -

Petitioners, however, failed to meet their burden of rebutting

that presumption of fraudulent intent.

     Additionally, petitioners contend that transferee liability

should not be assessed against Larry, Ronnie, or Sylvia because

respondent made no attempt to assess or collect taxes from Frank

or Katherine until 10 months after Katherine’s death.      Thus,

petitioners assert, respondent failed to make reasonable efforts

to assess and collect tax liabilities against Frank and Katherine

before their deaths.

     It is apparent from the record that attempts to collect

Frank and Katherine’s tax liabilities from their estates would be

futile.   By 1995, Katherine and Frank already had given away all

of their assets except for a life estate in the Longwood property

and $300 to $500 in a bank account.      Thus, it is apparent that

Frank and Katherine’s estates were insolvent by the time

respondent mailed the notices of transferee liability to Larry,

Ronnie, and Sylvia.    See Gumm v. Commissioner, supra at 485.       We

do not agree with petitioners that respondent unduly delayed

assessment of the deficiencies.   Katherine did not reveal the

transfers to Larry, Ronnie, and Sylvia until June 14, 1995, when

she gave her deposition.

     Respondent has shown under applicable State law that Larry,

Ronnie, and Sylvia are liable as transferees of Frank and

Katherine’s tax liabilities for the years in issue.      Accordingly,
                               - 117 -

we hold that Larry, Ronnie, and Sylvia are liable as transferees

under section 6901(a).    Their liability is limited, however, to

the value of the cash and other assets Frank and Katherine

transferred to them.    Except for those items addressed supra, the

parties have agreed to the amounts of those transfers.

Accordingly, in determining transferee liability the cash and

other assets must be adjusted to accord with the agreement of the

parties and our holdings in the instant cases.37     See Hagaman v.

Commissioner, supra at 180 n.1; Gumm v. Commissioner, supra at

480.

       To reflect the foregoing,

                                           Decisions will be entered

                                   under Rule 155.




       37
        We note that for purposes of the notices of transferee
liability in determining the value of assets transferred upon
which transferee liability attached for Larry and Ronnie
respondent used the total fair market value for the Longwood
property for each of them without regard to the fact that they
each had only a one-half interest in that property. An
appropriate adjustment is needed to account for the one-half
interest.
                              - 118 -

                            Appendix A

                 SOURCE AND APPLICATION OF FUNDS
                   FRANK AND KATHERINE JOHNSON

                                1983

Source of Funds:
  Schedule C gross receipts                        $16,550
  Social Security--Frank (estimated)                 2,500
  Interest income                                      344
  Freedom Savings Bank #3058417                      4,874
    Total source of funds                           24,268

Application of Funds:
  Schedule C expenditures                           10,069
  Freedom Savings Bank #3058417                       6,588
  Suburban (1983)                                   15,434
                                                   1
  Gifts to Larry                                     34,317
                                                   1
  Gifts to Ronnie                                    35,946
                                                   1
  Personal living expenses for 2 persons             19,377
                                      1
    Less: Housing costs                 $3,280
                                        1
          Vehicle acquisition costs       1,502     (4,782)
    Total application of funds                     116,949

Excess of applications over sources of funds       $92,681
     1
      Petitioners do not agree with the amounts reflected for
these items.

                                1984

Source of Funds:
  Schedule C gross receipts                        $15,800
  Social Security--Frank (estimated)                 2,500
  Interest income                                      229
  Freedom Savings Bank #3058417                      6,588
    Total source of funds                           25,117
                              - 119 -

Application of Funds:
  Schedule C expenditures                                  9,609
  Freedom Savings Bank #3058417                            2,367
  Freedom Savings Bank CD #4006814                         6,373
                                                   1,   2
  Gifts to Larry                                          37,270
                                                        1
  Gifts to Ronnie                                         52,672
                                                        1
  Personal living expenses for 2 persons                  20,561
                                       1
    Less: Housing costs                  $3,485
                                         1
          Vehicle acquisition costs        1,733         (5,218)
    Total application of funds                          123,634

Excess of applications over sources of funds            $98,517
     1
       Petitioners do not agree with the amounts reflected for
these items.
     2
       Appendix C (Larry) shows $32,770. Respondent concedes that
the $37,270 is overstated by $4,500. See Appendix C (Larry) for
an explanation of the difference.

                                 1985

Source of Funds:
  Schedule C gross receipts                             $19,550
  Social Security--Frank                                  2,574
  Net process from sale of lot                           24,757
  Interest income                                         1,196
  Freedom S&L #3058417                                    2,367
  Freedom S&L CD #4006814                                 6,373
    Total source of funds                                56,817

Application of Funds:
  Schedule C expenditures                                11,009
  Freedom Savings Bank #3058417                          28,191
  Freedom Savings Bank CD #4006814                         7,191
                                                        1
  Gifts to Larry                                          53,357
                                                        1
  Gifts to Ronnie                                         30,834
                                                        1
  Gifts to Sylvia                                         20,862
                                                        1
  Personal living expenses for 2 persons                  22,056
                                      1
    Less: Housing costs                 $3,873
                                         1
          Vehicle acquisition costs        1,833         (5,706)
    Total application of funds                          167,794

Excess of applications over sources of funds       $110,977
     1
      Petitioners do not agree with the amounts reflected for
these items.
                               - 120 -

                                1986

Source of Funds:
  Social Security--Frank (estimated)                   $2,500
  Social Security--Katherine                            1,914
  Interest income                                         922
  Freedom S&L #3058417                                 28,191
  Freedom S&L CD #4006814                               7,191
    Total source of funds                              40,718

Application of Funds:
  Freedom Savings Bank #3058417                           4,534
  Freedom Savings Bank CD #4006814                        8,113
  Corvette (1970)                                         4,200
  Sanford Property gifted to Larry                      25,000
  Diamond ring gifted to Janie Johnson                    8,500
                                                  1,   2
  Gifts to Larry                                         39,723
                                                  1,   3
  Gifts to Ronnie                                        27,525
                                                       1
  Gifts to Sylvia                                        19,775
                                                       1
  Personal living expenses for 2 persons                 23,442
                                     1
    Less: Housing costs                $3,999
                                        1
          Vehicle acquisition costs       2,449     (6,448)
    Total application of funds                     154,364

Excess of applications over sources of funds      $113,646
     1
       Petitioners do not agree with the amounts reflected for
these items.
     2
       Appendix E (Larry) shows $69,150. See therein (Larry) for
an explanation of the difference.
     3
       Appendix E (Ronnie) shows $26,063. See therein (Ronnie)
for an explanation of the difference.

                                1987

Source of Funds:
  Social Security--Frank                               $2,686
  Social Security--Katherine                            2,770
  Interest income                                       1,040
  Freedom S&L #3058417                                  4,534
  Freedom S&L CD #4006814                               8,113
    Total source of funds                              19,143
                               - 121 -

Application of Funds:
  Freedom Savings Bank #3058417                          4,545
  Freedom Savings Bank CD #4006814                       9,154
                                                      1
  Gifts to Larry                                        95,819
                                                   1, 2
  Gifts to Ronnie                                       48,010
                                                     1
  Gifts to Sylvia                                      23,946
                                                     1
  Personal living expenses for 2 persons               24,761
                                       1
    Less: Housing costs                  $4,108
                                         1
          Vehicle acquisition costs        1,950     (6,058)
    Total application of funds                      200,177

Excess of applications over sources of funds       $181,034
     1
       Petitioners do not agree with the amounts reflected for
these items.
     2
       Appendix F (Ronnie) shows $49,760. See therein (Ronnie)
for an explanation of the difference.

                                1988

Source of Funds:
  Social Security--Frank                                $2,793
  Social Security--Katherine                             3,670
  Interest income                                        1,438
  Freedom S&L #3058417                                   4,545
  Freedom S&L CD #4006814                                9,154
  Trade in for Suburban                                  2,500
    Total source of funds                               24,100

Application of Funds:
  Freedom Savings Bank #3058417                            4,546
  Freedom Savings Bank CD #4006814                       10,327
  Cadillac (1986)                                        16,713
  Chevy truck (1986)                                     13,855
                                                   1,   2
  Gifts to Larry                                          68,359
                                                   1,   3
  Gifts to Ronnie                                         64,360
                                                        1
  Gifts to Sylvia                                         52,197
                                                        1
  Personal living expenses for 2 persons                  26,350
                                      1
    Less: Housing costs                 $4,420
                                        1
          Vehicle acquisition costs       2,581      (7,001)
    Total application of funds                      249,706

Excess of applications over sources of funds       $225,606
     1
       Petitioners do not agree with the amounts reflected for
these items.
     2
       Appendix G (Larry) shows $94,067. See therein (Larry) for
an explanation of the difference.
                               - 122 -
     3
      Appendix G (Ronnie) shows $63,860.    See therein (Ronnie)
for an explanation of the difference.

                                1989

Source of Funds:
  Social Security--Frank                             $2,902
  Social Security--Katherine                          3,070
  Green Cove Springs Sale                            23,978
  Gambling income                                     1,002
  Interest income                                     2,847
  Freedom S&L #3058417                                4,546
  Freedom S&L CD #4006814                            10,327
    Total source of funds                            48,672


Application of Funds:
  Freedom Savings Bank #3058417                         1,939
  Glendale Federal #601219-0                          39,919
  Corvette (1976)                                       7,672
                                                     1
  Gifts to Larry                                       38,018
                                                     1
  Gifts to Ronnie                                      73,937
                                                     1
  Gifts to Sylvia                                      50,359
                                                     1
  Wedding ceremony for Sylvia                          10,000
                                                     1
  Personal living expenses for 2 persons               28,622
                                      1
    Less: Housing costs                 $4,903
                                         1
          Vehicle acquisition costs        2,301     (7,204)
    Total application of funds                      243,262

Excess of applications over sources of funds       $194,590
     1
      Petitioners do not agree with the amounts reflected for
these items.

                                1990

Source of Funds:
  Gross receipts--Schedule C                         $8,000
  Social Security--Frank                              3,044
  Social Security--Katherine                          3,212
  Gambling income                                     2,452
  Interest income                                     3,316
  NCNB Savings #3058417                               1,939
  Glendale Federal #601006-0                         39,919
    Total source of funds                            61,882
                             - 123 -

Application of Funds:
  Business deduction--Schedule C                        250
  NCNB CD #4006814                                   5,543
  Cash at home                                     30,000
  Jewelry                                         100,000
  Corvette (1978)                                    6,360
  Legal fees                                       13,500
                                                    1
  Investigative fees (Dennis Dayle)                   7,000
  Room and board for
                                                    1
    Janie Johnson and children                          6,000
  Gift to Larry and Ronnie (Glendale Federal)         43,101
                                                 1, 2
  Gifts to Larry                                       43,404
                                                 1, 3
  Gifts to Ronnie                                      60,223
                                                 1, 4
  Gifts to Sylvia                                      62,546
                                                  1
    Less duplications re Johnson limo               (46,490)
                                                     1
  Personal living expenses for 2 persons               28,836
                                      1
    Less: Housing costs                 $4,930
                                       1
          Vehicle acquisition costs      2,026    (6,956)
    Total application of funds                    353,317

Excess of applications over sources of funds     $291,435
     1
       Petitioners do not agree with the amounts reflected for
these items.
     2
       Appendix I (Larry) shows $41,404. See therein (Larry) for
an explanation of the difference.
     3
       Appendix I (Ronnie) shows $60,923. See therein (Ronnie)
for an explanation of the difference.
     4
       Appendix I (Sylvia) shows $60,546. See therein (Sylvia)
for an explanation of the difference.
                               - 124 -

                             Appendix B

                   SOURCE AND APPLICATION OF FUNDS
                   LARRY, RONNIE, & SYLVIA JOHNSON
                                 1983

                            Larry Johnson

Source of Funds:
  Schedule C gross receipts                          $20,160
  Gambling income                                     25,000
  Interest income                                        392
  First Union Bank accounts (estimated balance)        3,000
    Total source of funds                             48,552

Application of Funds:
  Schedule C expenditures
   (less interest & depreciation)                     12,428
  First Union Bank accounts (estimated balance)         6,000
  U.S Savings Bonds purchases                           7,200
  Callahan Property payments                            2,400
  Allendale Property payments                           1,125
  Mercedes purchase                                   34,800
                                                     1
  Personal living expenses for 4 persons               24,959
                                     1
    Less: Housing costs                $4,191
                                        1
        Vehicle acquisition costs         1,852       (6,043)
    Total application of funds                        82,869

Excess of applications over sources of funds         $34,317
     1
      Petitioners do not agree with the amounts reflected for
these items.

                           Ronnie Johnson
Source of Funds:                                           -0-

Application of Funds:
  Porsche (1983) purchase                            $25,200
                                                     1
  Personal living expenses for 1 person                11,469
    Less: Housing costs and
                                                       1
          Vehicle acquisition costs                     (723)
    Total application of funds                        35,946

Excess of applications over sources of funds         $35,946
     1
      Petitioners do not agree with the amounts reflected for
these items.
                               - 125 -


                            Sylvia Johnson

Information not provided.
                             - 126 -

                           Appendix C

                 SOURCE AND APPLICATION OF FUNDS
                 LARRY, RONNIE, & SYLVIA JOHNSON
                               1984

                          Larry Johnson

Source of Funds:
  Schedule C gross receipts                        $20,500
  Schedule E income (rental)                         1,750
  Interest income                                      647
  First Union Bank accounts (estimated balance)      6,000
  GMAC loan                                         10,015
    Total source of funds                           38,912

Application of Funds:
  Schedule C expenditures                                $630
  Expenditures adjusted per audit                   10,596
  First Union savings account ending balance              397
  First Union CDs ending balance                       6,236
  First Union IRA-Larry                                1,000
  First Union IRA-Nancy                                   582
  U.S Savings bonds purchases                          7,500
  Callahan Property payments                           2,400
                                                      1
  Allendale Property payments                           4,500
  Suburban purchase                                 17,257
  Note payments                                           584
                                                   2
  Personal living expenses for 4 persons             26,815
                                    2
    Less: Housing costs               $4,426
          Vehicle acquisition costs 22,389             (6,815)
    Total application of funds                         71,682
                                                   1
Excess of applications over sources of funds        $32,770
     1
       The source and application of funds analysis used for the
notice of deficiency (original S&A) reflects $9,000 for this item
and reflects an excess of applications over sources of funds of
$37,270. The parties agree that the correct amount for this item
should be $4,500. Respondent now contends that the excess of
applications over sources of funds is $32,770.
     2
       Petitioners do not agree with the amounts reflected for
these items.
                               - 127 -

                            Ronnie Johnson

Source of Funds                                  -0-

Application of Funds:
  U.S. Saving Bonds purchases                   $40,925
                                                 1
  Personal living expenses for 1 person            12,623
    Less: Housing costs and
                                                   1
          Vehicle acquisition costs                (876)
    Total application of funds                   52,672

Excess of applications over sources of funds    $52,672
     1
      Petitioners do not agree with the amounts reflected for
these items.

                            Sylvia Johnson

Information not provided.
                             - 128 -

                            Appendix D

                 SOURCE AND APPLICATION OF FUNDS
                 LARRY, RONNIE, & SYLVIA JOHNSON
                               1985

                          Larry Johnson

Source of Funds:
  Schedule C gross receipts                        $28,500
  Schedule E income (rental)                         2,272
  Gambling income                                   10,000
  Interest income                                      639
  First Union Bank savings accounts                    397
  First Union CDs                                    6,236
  First Union IRA-Larry                              1,000
  First Union IRA-Nancy                                582
  Trade in for Mercedes                             28,150
    Total source of funds                           77,776

Application of Funds:
  Schedule C expenditures                          $16,201
  Schedule E expenditures                              1,094
  First Union savings account                          1,495
  First Union CDs                                      6,856
  First Union IRA-Larry                                3,000
  First Union IRA-Nancy                                  582
  U.S Savings Bonds purchases                            200
  Callahan Property payments                           2,400
  Chris Craft boat (titled to Larry and Frank)       35,000
  Ford truck (1974)                                      300
  Ferrari (1982) purchase                            38,447
  GMAC note payments for Suburban                      3,504
                                                    1
  Personal living expenses for 4 persons              29,972
                                     1
    Less: Housing costs                $4,817
                                        1
          Vehicle acquisition costs       3,101     (7,918)
    Total application of funds                     131,133

Excess of applications over sources of funds       $53,357
     1
      Petitioners do not agree with the amounts reflected for
these items.
                               - 129 -

                           Ronnie Johnson

Source of Funds:
  Schedule C gross receipts                        $17,575
  Trade in for 1983 Porsche                         18,000
    Total source of funds                           35,575

Application of Funds:
  Schedule C deductions                             $9,158
  Rent and security deposit                         12,075
  Porsche (1985) purchase                           28,826
                                                   1
  Personal living expenses for 2 persons             22,056
                                     1
    Less: Housing costs                $3,873
                                        1
          Vehicle acquisition costs       1,833     (5,706)
    Total application of funds                      66,409

Excess of applications over sources of funds       $30,834
     1
      Petitioners do not agree with the amounts reflected for
these items.

                           Sylvia Johnson

Source of Funds:
  Loan from First Union Bank                        $22,300

Application of Funds:
  Corvette (1985) purchase                            27,875
  Note payments                                        2,980
                                                    1
  Personal living expenses for 1 person               13,353
                                                    1
    Less: Vehicle acquisition costs                   (1,046)
    Total application of funds                        43,162

Excess of applications over sources of funds        $20,862
     1
      Petitioners do not agree with the amounts reflected for
these items.
                              - 130 -

                             Appendix E

                  SOURCE AND APPLICATION OF FUNDS
                  LARRY, RONNIE, & SYLVIA JOHNSON
                                1986

                           Larry Johnson

Source of Funds:
  Schedule C gross receipts                         $33,800
  Schedule E income (rental)                          1,161
  Interest income                                       428
  First Union Bank savings accounts                   1,495
  First Union CDs                                     6,856
  First Union IRA-Larry                               3,000
  First Union IRA-Nancy                                 582
  Trade in for Ferrari (1982)                        38,300
  Gifts from Frank                                   25,000
  Credithrift mortgage ($83,684)                     74,995
  Credithrift mortgage ($56,346)                     45,078
  Ford truck (1974)                                     600
    Total source of funds                           231,295

Application of Funds:
  Schedule C expenditures                           $23,904
  Schedule E expenditures                                 290
  First Union savings account                           1,684
  First Union IRA-Larry                                 3,000
  First Union IRA-Nancy                                   582
  Callahan Property payments                              994
  Sun Bank checking account                             2,598
  Sun Bank savings account                                211
  Sanford rental property                           149,500
                                                    1
  Deposit on Sanford property                         10,000
                                                    1
  Closing on Sanford property                         19,427
  Credithrift mortgage ($83,684) payment                6,000
  Credithrift mortgage ($56,346) payment                4,041
  Lamborghini purchase                                52,735
  GMAC note payments for Suburban                       3,504
                                                     2
  Personal living expenses for 4 persons               30,610
                                      2
    Less: Housing costs                 $5,289
                                         2
          Vehicle acquisition costs        3,346     (8,635)
    Total application of funds                      300,445
                                                    3
Excess of applications over sources of funds         $69,150
                               - 131 -
     1
       These items were not included on the original S&A for
Larry. The parties agree that amounts for these items are
correct.
     2
       Petitioners do not agree with the amounts reflected for
these items.
     3
       Appendix A reflects $39,723. The $29,427 difference
represents the sum of those items addressed in footnote 1.

                           Ronnie Johnson

Source of Funds:
  Schedule C gross receipts                            $18,975

Application of Funds:
  Schedule C deductions                                    9,487
  Rent                                                   11,400
                                                             1
  Ford truck (1979) purchase                                   788
                                                         2
  Chevy Camaro (1968) purchase                             1,050
  Chevy Camaro refurbishing costs                          4,800
  Barnett Bank savings                                        519
                                                       3
  Personal living expenses for 2 persons                 23,442
                                      1
    Less: Housing costs                 $3,999
                                         1
          Vehicle acquisition costs        2,449         6,448)
    Total application of funds                          45,038
                                                   4
Excess of applications over sources of funds        $26,063
     1
       The original S&A for Ronnie reflects $788 for this item.
The parties agree that $750 is the correct amount.
     2
       The original S&A for Ronnie reflects $2,550 for this item.
The parties agree that $1,050 is the correct amount.
     3
       Petitioners do not agree with the amounts reflected for
these items.
     4
       The original S&A for Ronnie reflects $27,525. The $1,462
difference represents the result of netting the adjustments
addressed in footnotes 1 and 2.

                           Sylvia Johnson

Source of Funds                                            -0-

Application of Funds:
  Corvette (1985) note payments                         $7,464
                                                       1
  Personal living expenses for 1 person                 13,309
                                                          1
    Less: Vehicle acquisition costs                         (998)
    Total application of funds                          19,775

Excess of applications over sources of funds           $19,775
                             - 132 -
     1
      Petitioners do not agree with the amounts reflected for
these items.
                              - 133 -

                             Appendix F

                  SOURCE AND APPLICATION OF FUNDS
                  LARRY, RONNIE, & SYLVIA JOHNSON
                                1987

                           Larry Johnson

Source of Funds:
  Schedule C gross receipts                         $36,325
  Interest income                                        144
  First Union Bank savings accounts                    1,684
  First Union IRA-Larry                                3,000
  First Union IRA-Nancy                                  582
  First Union IRA interest distribution                  249
  Sun Bank checking account                            2,598
  Sun Bank savings account                               211
  Contract deposit                                     1,500
                                                    1
    Total source of funds                             46,293

Application of Funds:
  Schedule C expenditures                           $26,453
  Schedule E expenditures                               2,456
  Sun Bank checking account                             5,283
  Sun Bank savings account                              5,860
  Credithrift mortgage ($83,684) payment              14,400
  Credithrift mortgage ($56,346) payment                9,699
  Renovations per IRS appraisal                       50,000
  GMAC note payments for Suburban                       3,504
                                                     2
  Personal living expenses for 4 persons               32,753
                                      2
    Less: Housing costs                 $5,288
                                         2
          Vehicle acquisition costs        3,008     (8,296)
    Total application of funds                      142,112

Excess of applications over sources of funds        $95,819
     1
       The sources of funds itemized above does not reflect
$14,000 in income from rents which respondent included and then
took out of the source and application of funds analysis for
Larry. Respondent now concedes that Larry received $14,000 in
rental income during 1987.
     2
       Petitioners do not agree with the amounts reflected for
these items.
                                - 134 -

                           Ronnie Johnson

Source of Funds:
  Schedule C gross receipts                         $22,851
  Gambling income                                    20,000
  Interest income                                        77
  Barnett Bank saving account                           519
   Total source of funds                             43,447

Application of Funds:
  Schedule C deductions                              10,168
  Rent                                                 8,550
  Barnett Bank savings                                 2,091
  Port Orange Property purchase cash deposit           8,000
  Port Orange Property cash and closing costs          8,165
  Port Orange Property seller note                     9,000
  Port Orange Property seller mortgage                 4,030
                                                    1
  Port Orange Property renovations                    13,800
  Fishing boat (1977)                                  7,700
  Twin outboard motors                                 3,000
                                                    2
  Personal living expenses for 2 persons              24,761
                                       2
    Less: Housing costs                  $4,108
                                          2
          Vehicle acquisition costs         1,950       (6,058)
    Total application of funds                          93,207
                                                    3
Excess of applications over sources of funds         $49,760
     1
       The original S&A for Ronnie reflects $12,050 for this item.
The parties agree that the correct amount is $13,800. Appendix 5
(Ronnie 1987) reflects $31,800. That latter amount appears to be
a transposition error.
     2
       Petitioners do not agree with the amounts reflected for
these items.
     3
       Appendix A reflects $48,010 for this item. The $1,750
difference represents the adjustment addressed in footnote 1.
                              - 135 -

                         Sylvia Johnson

Source of Funds:
  Schedule C gross receipts                       $10,450

Application of Funds:
  Schedule C deductions                              5,540
  Sun Bank savings account                           1,154
  U.S. Savings Bonds purchases                       5,000
  Gambling losses                                    1,100
  Personal expenses--COMPS                             356
  Corvette (1985) note payments                      7,564
                                                  1
  Personal living expenses for 1 person             14,693
                                                  1
    Less: Vehicle acquisition costs                 (1,011)
    Total application of funds                      34,396

Excess of applications over sources of funds      $23,946
     1
      Petitioners do not agree with the amounts reflected for
these items.
                               - 136 -

                             Appendix G

                  SOURCE AND APPLICATION OF FUNDS
                  LARRY, RONNIE, & SYLVIA JOHNSON
                                1988

                           Larry Johnson

Source of Funds:
  Schedule C gross receipts                             $39,455
                                                         1
  Schedule E gross receipts                                23,210
  Interest income                                              52
  Sun Bank checking account                                 5,283
  Sun Bank savings account                                  5,860
  Callahan Property sales price                         100,000
  Mortgage note receivable                                  2,550
  Credithrift mortgage ($52,300)                          49,621
  Constant notes (2)                                    200,000
  Constant note due 3/20/88                               25,000
    Total source of funds                               451,031

Application of Funds:
  Schedule C expenditures                               $18,579
  Schedule E expenditures                                    5,396
  Sun Bank checking account                                  1,341
  Sun Bank savings account                                     923
  Credithrift mortgage ($83,684) payment                  17,483
  Credithrift mortgage ($56,346) payment                     4,041
  Credithrift mortgage ($56,346) payoff                   56,122
  Callahan Child Care purchase money mortgage             20,000
  Settlement charges                                      13,589
  Daytona Beach Shores Property purchase                300,670
                                                        2
  Cash at closing                                         27,048
  Constant note due 3/20/88 payment                       25,000
                                                           3
  Credithrift mortgage ($52,500) payment                     7,811
  Seller mortgage note payment                            14,031
  GMAC note payments for Suburban                            2,920
  Cadillac (1979)                                            4,662
                                                         4
  Personal living expenses for 4 persons                   34,355
                                        4
    Less: Housing costs                   $5,632
                                          4
          Vehicle acquisition costs         3,241    (8,873)
    Total application of funds                       545,098
                                                    5
Excess of applications over sources of funds         $94,067
     1
      The original S&A for Larry reflects $21,870. The parties
agree that $23,210 is the correct amount for this item.
                                - 137 -
     2
       This item was not included on the original S&A for Larry.
The parties agree that the amount reflected for this item is
correct.
     3
       Appendix 5 (Larry 1988) reflects $8,611 for this item.
That amount appears to be a typographical error.
     4
       Petitioners do not agree with the amounts reflected for
these items.
     5
       Appendix A reflects $68,359. The $25,708 difference
represents the result of netting the adjustments addressed in
footnotes 1 and 2.

                           Ronnie Johnson

Source of Funds:
  Schedule C gross receipts                        $25,785
  Barnett Bank saving account                        2,091
  Trade in for Porsche                              14,000
  Florida National Bank loan                        40,129
                                                      1
  Sale of Ford truck (1979)                            500
    Total source of funds                           82,505

Application of Funds:
  Schedule C deductions                                 11,781
  Barnett Bank savings                                    3,197
  Port Orange Property seller mortgage                  16,119
  Port Orange Property renovations                        1,750
  Legal fees                                              1,000
  Ford truck (1986)                                     10,563
  Ferrari GTS 328 (1987)                                73,129
  Note payments                                           4,585
                                                         2
  Estimated tax payments (1988)                            1,500
                                                        2
  Tax payments (1987)                                     5,319
                                                      2
  Personal living expenses for 2 persons                26,350
                                     2
    Less: Housing costs                $4,420
                                       2
          Vehicle acquisition costs      2,581
                                        2
          Pension & Social Security       1,927     (8,928)
    Total application of funds                     146,365
                                                  3
Excess of applications over sources of funds       $63,860

     1
       This item was not included on the original S&A for Ronnie.
Respondent concedes that the $500 additional source of funds is
correct.
     2
       Petitioners do not agree with the amounts reflected for
these items.
     3
       Appendix A reflects $64,360. The $500 difference
represents the adjustment addressed in footnote 1.
                             - 138 -

                         Sylvia Johnson

Source of Funds:
  Schedule C gross receipts                       $12,350
  Gambling income                                   1,727
  Interest income                                      29
  Sun Bank savings account                          1,154
  Trade in for Corvette (1985)                     15,000
  First Union Bank loan                            36,287
  Winnings from gambling activities 12-23-88       38,550
    Total source of funds                         105,097

Application of Funds:
  Schedule C deductions                                5,650
  Sun Bank savings account                                946
  U.S. Savings Bonds purchases                            200
  Cash for gambling                                 38,550
  Net gambling losses                                  8,350
  Personal expenses--COMPS (1988)                      1,697
  Note payments for Corvette (1985)                    3,502
  Payoff of note for Corvette                          5,618
  Porsche 928 purchase (1988)                       61,287
  Note payments for Porsche                            4,880
                                                     1
  Birthing costs-Nicole Johnson                        2,500
                                                        1
  Withholding on gambling winnings (estimated)            345
                                                  1
  Personal living expenses for 2 persons            26,350
                                                  1
    Less: Vehicle acquisition costs                 (2,581)
    Total application of funds                    157,294

Excess of applications over sources of funds      $52,197
     1
      Petitioners do not agree with the amounts reflected for
these items.
                              - 139 -

                            Appendix H

                 SOURCE AND APPLICATION OF FUNDS
                 LARRY, RONNIE, & SYLVIA JOHNSON
                               1989

                           Larry Johnson

Source of Funds:
  Schedule C gross receipts                        $40,060
  Schedule E gross receipts                         27,698
  Interest income                                    2,058
  Sun Bank checking account                          1,341
  Sun Bank savings account                             923
  Callahan Property note receivable                  5,100
  Trade in for Suburban                              6,829
  Sun Bank Loan                                      7,500
  Sale of Cadillac (1979)                            4,662
    Total source of funds                           96,171

Application of Funds:
  Schedule C expenditures                          $14,764
  Schedule E expenditures                             5,465
  Sun Bank checking account                           2,018
  Sun Bank savings account                              473
  Sun Bank CD #48290                                  1,500
  Sec First CD # 788961830                            3,500
  Credithrift mortgage ($83,684) payment             18,000
  Constant notes payments                            15,600
  Credithrift mortgage ($52,500) payment              9,600
  Renovation: Alexander Construction                  8,790
  Ford T-Bird (1964)                                  2,000
  Jeep CJ-7 (1985)                                    4,285
                                                   1
  Chevrolet Astro Van (1989)                         19,329
  Note payments for van                               1,800
                                                   2
  Personal living expenses for 4 persons             35,803
                                      2
    Less: Housing costs                 $5,481
                                        2
          Vehicle acquisition costs       3,257     (8,738)
    Total application of funds                     134,189

Excess of applications over sources of funds       $38,018
     1
       The original S&A for Larry reflects $19,829 for this item
and $38,518 for excess of applications over sources of funds.
The parties can not explain the $500 difference.
     2
       Petitioners do not agree with the amounts reflected for
these items.
                               - 140 -

                           Ronnie Johnson

Source of Funds:
  Schedule C gross receipts                       $39,410
  Interest income                                     321
  Barnett Bank saving account                       3,197
  Trade in for Jeep (1980)                          3,000
  Loan from Barnett Bank for boat                   3,200
    Total source of funds                          49,128

Application of Funds:
  Schedule C deductions           24,761
    Less: Depreciation            10,350            14,411
  Barnett Bank checking account                        631
  Barnett Bank savings                               8,097
  Port Orange Property seller mortgage              16,119
  Port Orange Property improvements                 13,200
  Ferrari GTS 328 (1987) payments                   11,004
  Corvette (1974)                                   11,500
  Jeep (1980)                                        2,156
  Jeep (1982)                                        3,025
  Boat                                               4,000
  Note Payments on boat                                504
  Paving equipment                                  17,000
                                                  1
  Personal living expenses                          28,622
                                      1
    Less: Housing costs                 $4,903
                                        1
          Vehicle acquisition costs       2,301    (7,204)
    Total application of funds                    123,065

Excess of applications over sources of funds      $73,937
     1
      Petitioners do not agree with the amounts reflected for
these items.

                           Sylvia Johnson

Source of Funds:
  Schedule C gross receipts                       $19,710
  Gambling income                                  38,550
  Interest income                                     153
  Sun Bank savings account                            945
    Total source of funds                          59,358
                             - 141 -

Application of Funds:
  Schedule C deductions                               8,597
  Sun Bank savings account                              545
  Glendale Federal Bank                               1,047
  U.S. Savings Bonds purchases                        3,450
  Net gambling losses                               16,940
  Porsche 928 (1988) payments                         9,419
  Corvette-Greenwood (1984)                         12,000
  Personal expenses--COMPS (1988)                     3,008
  Personal expenses--jewelry                        25,000
                                                   1
  Personal living expenses for 3 persons             32,643
                                                   1
    Less: Vehicle acquisition costs                  (2,932)
    Total application of funds                    109,717

Excess of applications over sources of funds      $50,359
     1
      Petitioners do not agree with the amounts reflected for
these items.
                             - 142 -

                           Appendix I

                 SOURCE AND APPLICATION OF FUNDS
                 LARRY, RONNIE, & SYLVIA JOHNSON
                               1990

                          Larry Johnson

Source of Funds:
  Schedule C gross receipts                        $40,820
  Schedule E gross receipts                         29,780
  Interest income                                    2,770
  Sun Bank checking account                          2,018
  Sun Bank savings account                             473
  Sun Bank CD #48290                                 1,500
  Sec First Cd #788961830                            3,500
  Callahan Property note receivable                  5,100
    Total source of funds                           85,961

Application of Funds:
                                                   1
  Schedule C expenditures                           $13,176
  Schedule E expenditures                              4,682
  Sun Bank checking account                            1,043
  Sun Bank savings account                               568
  Sun Bank CD #48290                                   1,500
  Sun Bank CD #55551 (estimated)                       4,000
  Glendale Federal                                     3,806
  Credithrift mortgage ($83,684) payment              18,500
  Constant notes payments                             15,600
  Credithrift mortgage ($52,500) payment               9,600
  Note payments for van                                3,600
  Investment--Johnson Limo (1988 Cadillac Limo)        8,831
                                                    2
  Lincoln Limo (1985)                                 14,414
                                                    3
  Personal living expenses for 4 persons              37,477
                                     3
    Less: Housing costs                $6,275
                                        3
          Vehicle acquisition costs       3,157     (9,432)
    Total application of funds                     127,365
                                                   4
Excess of applications over sources of funds           $41,404
     1
       Appendix 5 (Larry 1990) reflects $19,176. That amount
appears to be a typographical error.
     2
       The original S&A for Larry reflects $14,900 for this item.
The parties agree that $14,414 is the correct amount.
     3
       Petitioners do not agree with the amounts reflected for
these items.
     4
       Appendix A reflects $43,404. The $2,000 difference
represents a $2,000 item for a jet ski reflected in the original
                              - 143 -

S & A for Larry but not included in Appendix 5 (Larry 1990). See
Appendix L for our total adjustments to the source and
application of funds analysis for Larry for 1983 through 1990.

                          Ronnie Johnson

Source of Funds:
  Schedule C gross receipts                       $36,580
  Interest income                                     310
  Barnett Bank checking account                       631
  Barnett Bank saving account                       8,097
  Trade in for Ford Truck (1986)                    8,659
  Loan from FMCC for Bronco (1990)                 10,806
                                                     1
  Credit Life Insurance financing for Bronco           570
    Total source of funds                          65,653

Application of Funds:
  Schedule C deductions                                 19,915
  Barnett Bank checking account                            698
  Barnett Bank savings                                   6,192
  Port Orange Property seller mortgage                  16,119
  Ferrari GTS 328 (1987) payments                       11,004
  Note payments on boat                                  1,512
  Triumph (1979)                                         1,200
                                                      2
  Bronco (1990)                                         24,035
  Payments on FMCC note                                    776
  Investment-Johnson Limo                                8,831
  Lincoln Limo (1985)                                   14,414
                                                      3
  Personal living expenses                              28,836
                                     3
    Less: Housing costs                $4,930
                                       3
          Vehicle acquisition costs      2,026     (6,956)
    Total application of funds                    126,576
                                                  4
Excess of application over source of funds         $60,923
     1
       This item was not included on the original S&A for Ronnie.
     2
       The original S&A for Ronnie reflects $23,465 for this item.
The parties agree that $24,035 is the correct amount for this
item.
     3
       Petitioners do not agree with the amounts reflected for
these items.
     4
       Appendix A reflects $60,223. The $700 difference reflects
a $700 reduction of Schedule C business expenses reflected in the
original S&A for Ronnie but not reflected in Appendix 5 (Ronnie
1990). We assume the $700 represents depreciation. We have
found supra that Ronnie’s application of funds analysis for 1990
should be reduced by $700 to account for depreciation. See
                              - 144 -

Appendix M for our total adjustments to the source and
application of funds analysis for Ronnie for 1983 through 1990.

                          Sylvia Johnson

Source of Funds:
  Schedule C gross receipts                         $24,510
  Interest income                                       130
  Sun Bank savings account                              545
  Glendale Federal Bank                               1,047
    Total source of funds                            26,232

Application of Funds:
  Schedule C deductions                                  12,804
  Sun Bank savings account                                    835
  Glendale Federal Bank                                     1,130
  U.S. Savings Bonds purchases                              2,250
  State Road Lease security deposit                         3,000
  Rent                                                      7,579
                                                          1
  Porsche 928 (1988) payments                               7,618
                                                          2
  Investment--Johnson Limo                                  8,831
  Lincoln Limo (1985)                                    14,414
                                                        3
  Personal living expenses                                33,672
                                        3
    Less: Housing costs                  $2,270
                                          3
          Vehicle acquisition costs         3,085       (5,355)
    Total application of funds                          86,778
                                                    4
Excess of applications over sources of funds         $60,546
     1
       The original S&A for Sylvia reflects $8,618 for this item.
The parties agree that $7,618 is correct.
     2
       The original S&A for Sylvia reflects $9,831 for this item.
The parties agree that $8,831 is correct.
     3
       Petitioners do not agree with the amounts reflected for
these items.
     4
       Appendix A reflects $62,546. The $2,000 reflects the
adjustments addressed in footnotes 1 and 2. See Appendix N for
our total adjustments to the source and application of funds
analysis for Sylvia for 1985 through 1990.
                             - 145 -

                            Appendix J

           COURT’S REVISED PERSONAL LIVING EXPENDITURES
       FOR FRANK AND KATHERINE, LARRY, RONNIE, AND SYLVIA
                         1983 THROUGH 1990

                               1983

Frank and Katherine
Average annual expenditures for 4 persons            $24,959
Reductions:
 Shelter                            $4,191
 Vehicles                            1,852
 Public transportation                 203
 Reading                               149
 Education                             432
 Tobacco                               267
 Personal insurance and pensions     2,326
   Total reductions                                    9,420
     Personal living expenditures, as revised         15,539

Larry
Average annual expenditures for 4 persons            $24,959
Reductions:
 Shelter                             $4,191
 Vehicles                             1,852
 Public transportation                  203
 Personal insurance and pensions      2,326
   Total reductions                                    8,572
      Personal living expenditures, as revised        16,387

Ronnie
Personal living expenditures included with Frank and Katherine’s.

                               1984

Frank and Katherine
Average annual expenditures for 4 persons            $26,815
Reductions:
 Shelter                            $4,426
 Vehicles                            2,389
 Public transportation                 237
 Reading                               150
 Education                             374
 Tobacco                               280
 Personal insurance and pensions     2,698
   Total reductions                                   10,554
     Personal living expenditures, as revised         16,261
                             - 146 -

Larry
Average annual expenditures for 4 persons           $26,815
Reductions:
 Shelter                             $4,426
 Vehicles                             2,389
 Public transportation                  237
 Personal insurance and pensions      2,698
   Total reductions                                   9,750
      Personal living expenditures, as revised       17,065

Ronnie
Personal living expenditures included with Frank and Katherine’s.

                               1985

Frank and Katherine
Average annual expenditures for 3 persons           $26,781
Reductions:
 Shelter                            $4,353
 Vehicles                            2,910
 Public transportation                 282
 Reading                               159
 Education                             419
 Tobacco                               267
 Personal insurance and pensions     2,672
   Total reductions                                  11,062
     Personal living expenditures, as revised        15,719

Larry
Average annual expenditures for 4 persons           $29,972
Reductions:
 Shelter                             $4,817
 Vehicles                             3,101
 Public transportation                  276
 Personal insurance and pensions      3,069
   Total reductions                                  11,263
      Personal living expenditures, as revised       18,709

Ronnie
Average annual expenditures for 2 persons           $22,056
Reductions:
 Shelter                            $3,873
 Vehicles                            1,833
 Public transportation                 297
 Education                             177
 Personal insurance and pensions     1,963
   Total reductions                                   8,143
     Personal living expenditures, as revised        13,913
                             - 147 -

Sylvia
Personal living expenditures included with Frank and Katherine’s.

                               1986

Frank and Katherine
Average annual expenditures for 3 persons           $26,540
Reductions:
 Shelter                            $4,387
 Vehicles                            3,107
 Public transportation                 234
 Reading                               145
 Education                             324
 Tobacco                               289
 Personal insurance and pensions     2,655
   Total reductions                                  11,141
     Personal living expenditures, as revised        15,399

Larry
Average annual expenditures for 4 persons           $30,610
Reductions:
 Shelter                             $5,289
 Vehicles                             3,346
 Public transportation                  305
 Personal insurance and pensions      3,138
   Total reductions                                  12,078
      Personal living expenditures, as revised       18,532

Ronnie
Average annual expenditures for 2 persons           $23,442
Reductions:
 Shelter                            $3,999
 Vehicles                            2,449
 Public transportation                 289
 Education                             215
 Personal insurance and pensions     2,275
   Total reductions                                   9,227
     Personal living expenditures, as revised        14,215

Sylvia
Personal living expenditures included with Frank and Katherine’s.
                             - 148 -

                               1987

Frank and Katherine
Average annual expenditures for 4 persons           $32,753
Reductions:
 Shelter                            $5,288
 Vehicle purchases                   3,008
 Public transportation                 255
 Reading                               173
 Education                             494
 Tobacco                               296
 Personal insurance and pensions     3,194
   Total reductions                                  12,708
     Personal living expenditures, as revised        20,045

Larry
Average annual expenditures for 4 persons           $32,753
Reductions:
 Shelter                             $5,288
 Vehicle purchases                    3,008
 Public transportation                  255
 Personal insurance and pensions      3,194
   Total reductions                                  11,745
      Personal living expenditures, as revised       21,008

Ronnie
Average annual expenditures for 2 persons           $24,761
Reductions:
 Shelter                            $4,108
 Vehicle purchases                   1,950
 Public transportation                 302
 Education                             208
 Personal insurance and pensions     2,248
   Total reductions                                   8,816
     Personal living expenditures, as revised        15,945

Sylvia
Personal living expenditures included with Frank and Katherine’s.
                             - 149 -

                               1988

Frank and Katherine
Average annual expenditures for 4 persons           $34,455
Reductions:
 Shelter                            $5,632
 Vehicle purchases                   3,241
 Public transportation                 272
 Reading                               182
 Education                             542
 Tobacco                               309
 Personal insurance and pensions     3,252
   Total reductions                                  13,430
     Personal living expenditures, as revised        21,025

Larry
Average annual expenditures for 4 persons           $34,455
Reductions:
 Shelter                             $5,632
 Vehicle purchases                    3,241
 Public transportation                  272
 Personal insurance and pensions      3,252
   Total reductions                                  12,397
      Personal living expenditures, as revised       22,058

Ronnie
Average annual expenditures for 2 persons           $26,350
Reductions:
 Shelter                            $4,420
 Vehicles                            2,581
 Public transportation                 333
 Education                             202
 Personal insurance and pensions     2,298
   Total reductions                                   9,834
     Personal living expenditures, as revised        16,516

Sylvia
Personal living expenditures included with Frank and Katherine’s.
                             - 150 -

                               1989

Frank and Katherine
Average annual expenditures for 5 persons           $35,871
Reductions:
 Shelter                            $5,921
 Vehicle purchases                   3,097
 Public transportation                 278
 Reading                               160
 Education                             664
 Tobacco                               345
 Personal insurance and pensions     3,163
   Total reductions                                  13,628
     Personal living expenditures, as revised        22,243

Larry
Average annual expenditures for 4 persons           $35,803
Reductions:
 Shelter                             $5,841
 Vehicle purchases                    3,357
 Public transportation                  289
 Personal insurance and pensions      3,388
   Total reductions                                  12,875
      Personal living expenditures, as revised       22,928

Ronnie
Average annual expenditures for 2 persons           $28,622
Reductions:
 Shelter                            $4,903
 Vehicle purchases                   2,301
 Public transportation                 330
 Education                             236
 Personal insurance and pensions     2,508
   Total reductions                                  10,278
     Personal living expenditures, as revised        18,344

Sylvia
Personal living expenditures included with Frank and Katherine’s.
                             - 151 -

                               1990
Frank and Katherine
Average annual expenditures for 5 persons for
 7 months and 2 persons for 5 months:            $35,871
Reductions:
 Shelter                            $5,611
 Vehicle purchases                    2,497
 Public transportation                  322
 Reading                                168
 Education                              495
 Tobacco                                344
 Personal insurance and pensions      2,556
   Total reductions                               11,993
     Personal living expenditures, as revised     23,878

Larry
Average annual expenditures for 4 persons        $37,477
Reductions:
 Shelter                             $6,275
 Vehicle purchases                    3,157
 Public transportation                  308
 Personal insurance and pensions      3,744
   Total reductions                               13,484
      Personal living expenditures, as revised    23,993

Ronnie
Average annual expenditures for 2 persons        $28,836
Reductions:
 Shelter                            $4,930
 Vehicle purchases                   2,026
 Public transportation                 335
 Education                             263
 Personal insurance and pensions     2,575
   Total reductions                               10,129
     Personal living expenditures, as revised     18,707

Sylvia
Average annual expenditures for 3 persons
 for 5 months                                    $14,030
Reductions:
 Shelter                            $2,270
 Vehicle purchases                   3,085
 Public transportation                 125
 Education                             190
 Personal insurance and pensions     1,410
   Total reductions                                7,080
     Personal living expenditures, as revised      6,950
                             - 152 -

                           Appendix K

         COURT’S REVISED SOURCE AND APPLICATION OF FUNDS
                 FOR FRANK AND KATHERINE JOHNSON

                              1983

Source of Funds:
Schedule C gross receipts                       $16,550
Social Security--Frank (estimated)                2,500
Interest income                                     344
Freedom Savings Bank #3058417                     4,874
  Total source of funds                          24,268

Application of Funds:
Schedule C expenditures                          10,069
Freedom Savings Bank #3058417                     6,588
Suburban (1983)                                  15,434
Gifts to Larry                                   31,788
Gifts to Ronnie                                  25,200
Personal living expenses for 4 persons           15,539
  Total application of funds                    104,618

Excess of applications over sources of funds    $80,350

                              1984

Source of Funds:
Schedule C gross receipts                       $15,800
Social Security--Frank (estimated)                2,500
Interest income                                     229
Freedom Savings Bank #3058417                     6,588
  Total source of funds                          25,117

Application of Funds:
Schedule C expenditures                           9,609
Freedom Savings Bank #3058417                     2,367
Freedom Savings Bank CD #4006814                  6,373
Gifts to Larry                                   29,835
Gifts to Ronnie                                  40,925
Personal living expenses for 4 persons           16,261
  Total application of funds                    105,370

Excess of applications over sources of funds    $80,253
                               - 153 -

                                1985

Source of Funds:
Schedule C gross receipts                      $19,550
Social Security--Frank                           2,574
Net process from sale of lot                    24,757
Interest income                                  1,196
Freedom S&L #3058417                             2,367
Freedom S&L CD #4006814                          6,373
  Total source of funds                         56,817

Application of Funds:
Schedule C expenditures                         11,009
Freedom Savings Bank #3058417                   28,191
Freedom Savings Bank CD #4006814                 7,191
Gifts to Larry                                  50,012
Gifts to Ronnie                                 23,897
Gifts to Sylvia                                  8,555
Personal living expenses for 3 persons          15,719
  Total application of funds                   144,574

Excess of applications over sources of funds   $87,757

                                1986

Source of Funds:
Social Security--Frank (estimated)              $2,500
Social Security--Katherine                       1,914
Interest income                                    922
Freedom S&L #3058417                            28,191
Freedom S&L CD #4006814                          7,191
  Total source of funds                         40,718

Application of Funds:
Freedom Savings Bank #3058417                     4,534
Freedom Savings Bank CD #4006814                  8,113
Corvette (1970)                                   4,200
Sanford Property gifted to Larry                25,000
Diamond ring gifted to Janie Johnson              8,500
                                               1
Gifts to Larry                                   39,723
Gifts to Ronnie                                 18,774
Gifts to Sylvia                                   7,464
Personal living expenses for 3 persons           15,399
  Total application of funds                   131,707

Excess of applications over sources of funds   $90,989
                             - 154 -
     1
      Our revisions to Larry’s source and application of funds
analysis for this year indicates an excess application of funds
of $65,707. See Appendix L. Respondent’s Appendix 5 (Frank)
uses $39,723 for gifts to Larry for this year even though
respondent shows an excess application of funds for Larry on his
source and application of funds analysis for 1986 of $69,150.
See Appendices A and E. We use $39,723 for our revisions to
Frank and Katherine’s source and application of funds analysis
for 1986 because, on the basis of Joint Finding of Fact No. 4, we
deem the lower amount to be a concession by respondent that such
amount is the proper amount to use.

                              1987

Source of Funds:
Social Security--Frank                           $2,686
Social Security--Katherine                        2,770
Interest income                                   1,040
Freedom S&L #3058417                              4,534
Freedom S&L CD #4006814                           8,113
  Total source of funds                          19,143

Application of Funds:
Freedom Savings Bank #3058417                     4,545
Freedom Savings Bank CD #4006814                  9,154
Gifts to Larry                                   78,370
Gifts to Ronnie                                  42,068
Gifts to Sylvia                                  10,264
Personal living expenses for 4 persons           20,045
  Total application of funds                    164,446

Excess of applications over sources of funds   $145,303

                              1988

Source of Funds:
Social Security--Frank                           $2,793
Social Security--Katherine                        3,670
Interest income                                   1,438
Freedom S&L #3058417                              4,545
Freedom S&L CD #4006814                           9,154
Trade in for Suburban                             2,500
  Total source of funds                          24,100
                             - 155 -

Application of Funds:
Freedom Savings Bank #3058417                      4,546
Freedom Savings Bank CD #4006814                 10,327
Cadillac (1986)                                  16,713
Chevy truck (1986)                               13,855
                                                1
Gifts to Larry                                    68,359
Gifts to Ronnie                                  56,734
Gifts to Sylvia                                  25,928
Personal living expenses for 4 persons            21,025
  Total application of funds                    217,487

Excess of applications over sources of funds   $193,387
     1
      Our revisions to Larry’s source and application of funds
analysis for this year indicates an excess application of funds
of $90,643. See Appendix L. Respondent’s Appendix 5 (Frank)
uses $68,359 for gifts to Larry for this year even though
respondent shows an excess application of funds for Larry on his
source and application of funds analysis for 1988 of $94,067.
See Appendices A and G. We use $68,359 for our revisions to
Frank and Katherine’s source and application of funds analysis
for 1988 because, on the basis of Joint Findings of Fact No. 4,
we deem the lower amount to be a concession by respondent that
such amount is the proper amount to use.

                              1989

Source of Funds:
Social Security--Frank                           $2,902
Social Security--Katherine                        3,070
Green Cove Springs Sale                          23,978
Gambling income                                   1,002
Interest income                                   2,847
Freedom S&L #3058417                              4,546
Freedom S&L CD #4006814                          10,327
  Total source of funds                          48,672

Application of Funds:
Freedom Savings Bank #3058417                     1,939
Glendale Federal #601219-0                       39,919
Corvette (1976)                                   7,672
Gifts to Larry                                   10,094
Gifts to Ronnie                                  65,174
Gifts to Sylvia                                  20,648
Personal living expenses for 5 persons           22,243
  Total application of funds                    167,689

Excess of applications over sources of funds   $119,017
                             - 156 -

                              1990

Source of Funds:
Gross receipts--Schedule C                      $8,000
Social Security--Frank                           3,044
Social Security--Katherine                       3,212
Gambling income                                  2,452
Interest income                                  3,316
NCNB Savings #3058417                            1,939
Glendale Federal #601006-0                      39,919
  Total source of funds                         61,882

Application of Funds:
Business deduction--Schedule C                     250
NCNB CD #4006814                                 5,543
Corvette (1978)                                  6,360
Legal fees                                      13,500
Investigative fees (Dennis Dayle)                7,000
Gift to Larry and Ronnie (Glendale Federal)     43,404
Gifts to Larry                                  16,091
Gifts to Ronnie                                 51,361
Gifts to Sylvia                                 36,299
  Less duplications re Johnson limo            (46,490)
Personal living expenses for 5 persons
  for 7 month and 2 persons for 5 months        21,173
  Total application of funds                   154,491

Excess of applications over sources of funds   $92,609
                             - 157 -

                           Appendix L

         COURT’S REVISED SOURCE AND APPLICATION OF FUNDS
                        FOR LARRY JOHNSON

                              1983

Source of Funds:
Schedule C gross receipts                       $20,160
Gambling income                                  25,000
Interest income                                     392
First Union Bank accounts (estimated balance)     3,000
  Total source of funds                          48,552
Application of Funds:
Schedule C expenditures
 (less interest & depreciation)                  12,428
First Union Bank accounts (estimated balance)     6,000
U.S. Savings Bonds purchases                      7,200
Callahan Property payments                        2,400
Allendale Property payments                       1,125
Mercedes purchase                                34,800
Personal living expenses for 4 persons           16,387
  Total application of funds                     80,340

Excess of applications over sources of funds    $31,788

                              1984

Source of Funds:
Schedule C gross receipts                       $20,500
Schedule E income (rental)                        1,750
Interest income                                     647
First Union Bank accounts (estimated balance)     6,000
GMAC loan                                        10,015
  Total source of funds                          38,912
                             - 158 -

Application of Funds:
Schedule C expenditures                           $630
Expenditures adjusted per audit                 10,596
First Union savings account ending balance         397
First Union CDs ending balance                   6,236
First Union IRA-Larry                            1,000
First Union IRA-Nancy                              582
U.S Savings bonds purchases                      7,500
Callahan Property payments                       2,400
Allendale Property payments                      4,500
Suburban purchase                               17,257
Note payments                                      584
Personal living expenses for 4 persons          17,065
  Total application of funds                    68,747

Excess of applications over sources of funds   $29,835

                              1985

Source of Funds:
Schedule C gross receipts                      $28,500
Schedule E income (rental)                       2,272
Gambling income                                 10,000
Interest income                                    639
First Union Bank savings accounts                  397
First Union CDs                                  6,236
First Union IRA-Larry                            1,000
First Union IRA-Nancy                              582
Trade in for Mercedes                           28,150
  Total source of funds                         77,776
Application of Funds:
Schedule C expenditures                        $16,201
Schedule E expenditures                          1,094
First Union savings account                      1,495
First Union CDs                                  6,856
First Union IRA-Larry                            3,000
First Union IRA-Nancy                              582
U.S Savings Bonds purchases                        200
Callahan Property payments                       2,400
Chris Craft boat (titled to Larry and Frank)    35,000
Ford truck                                         300
Ferrari purchase (titled to Larry and Frank)    38,447
GMAC note payments for Suburban                  3,504
Personal living expenses for 4 persons          18,709
  Total application of funds                   127,788

Excess of applications over sources of funds   $50,012
                             - 159 -

                              1986

Source of Funds:
Schedule C gross receipts                      $33,800
Schedule E income (rental)                       1,161
Interest income                                    428
First Union Bank savings accounts                1,495
First Union CDs                                  6,856
First Union IRA-Larry                            3,000
First Union IRA-Nancy                              582
Trade in for Ferrari (1982)                     38,300
Gifts from Frank                                25,000
Credithrift mortgage ($83,684)                  74,995
Credithrift mortgage ($56,346)                  45,078
Ford truck (1974)                                  600
  Total source of funds                        231,295

Application of Funds:
Schedule C expenditures                        $23,904
Schedule E expenditures                            290
First Union savings account                      1,684
First Union IRA-Larry                            3,000
First Union IRA-Nancy                              582
Callahan Property payments                         994
Sun Bank checking account                        2,598
Sun Bank savings account                           211
Sanford rental property                        149,500
Deposit on Sanford property                     10,000
Closing on Sanford property                     19,427
Credithrift mortgage ($83,684) payment           6,000
Credithrift mortgage ($56,346) payment           4,041
Lamborghini purchase                            52,735
GMAC note payments for Suburban                  3,504
Personal living expenses for 4 persons          18,532
  Total application of funds                   297,002

Excess of applications over sources of funds   $65,707
                             - 160 -

                              1987

Source of Funds:
Schedule C gross receipts                      $36,325
Schedule E gross receipts                      14,000
Interest income                                    144
First Union Bank savings accounts                1,684
First Union IRA-Larry                            3,000
First Union IRA-Nancy                              582
First Union IRA interest distribution              249
Sun Bank checking account                        2,598
Sun Bank savings account                           211
Contract deposit                                 1,500
  Total source of funds                         60,293
Application of Funds:
Schedule C expenditures                        $26,453
Schedule E expenditures                          2,456
Sun Bank checking account                        5,283
Sun Bank savings account                         5,860
Credithrift mortgage ($83,684) payment          14,400
Credithrift mortgage ($56,346) payment           9,699
Renovations per IRS appraisal                   50,000
GMAC note payments for Suburban                  3,504
Personal living expenses for 4 persons          21,008
  Total application of funds                   138,663

Excess of applications over sources of funds   $78,370
                             - 161 -

                              1988

Source of Funds:
Schedule C gross receipts                      $39,455
Schedule E gross receipts                       23,210
Interest income                                     52
Sun Bank checking account                        5,283
Sun Bank savings account                         5,860
Callahan Property sales price                  100,000
Mortgage note receivable                         2,550
Credithrift mortgage ($52,300)                  49,621
Constant notes (2)                             200,000
Constant note due 3/20/88                       25,000
  Total source of funds                        451,031
Application of Funds:
Schedule C expenditures                        $18,579
Schedule E expenditures                          5,396
Sun Bank checking account                        1,341
Sun Bank savings account                           923
Credithrift mortgage ($83,684) payment          17,483
Credithrift mortgage ($56,346) payment           4,041
Credithrift mortgage ($56,346) payoff           56,122
Callahan Child Care purchase money mortgage     20,000
Settlement charges                              13,589
Daytona Beach Shores Property purchase         300,670
Cash at closing                                 27,048
Constant note due 3/20/88 payment               25,000
Credithrift mortgage ($52,500) payment           7,811
Seller mortgage note payment                    14,031
GMAC note payments for Suburban                  2,920
Cadillac (1979)                                  4,662
Personal living expenses for 4 persons          22,058
  Total application of funds                   541,674

Excess of applications over sources of funds   $90,643
                             - 162 -

                              1989

Source of Funds:
Schedule C gross receipts                      $40,060
Schedule E gross receipts                       27,698
Interest income                                  2,058
Sun Bank checking account                        1,341
Sun Bank savings account                           923
Callahan Property note receivable                5,100
Trade in for Suburban                            6,829
Sun Bank Loan                                    7,500
Sale of Cadillac (1979)                          4,662
Compromise agreement (53.6% of $44,566)         23,887
  Total source of funds                        120,058

Application of Funds:
Schedule C expenditures                        $14,764
Schedule E expenditures                          5,465
Sun Bank checking account                        2,018
Sun Bank savings account                           473
Sun Bank CD #48290                               1,500
Sec First CD # 788961830                         3,500
Credithrift mortgage ($83,684) payment          18,000
Constant notes payments                         15,600
Credithrift mortgage ($52,500) payment           9,600
Renovation: Alexander Construction               8,790
Ford T-Bird (1964)                               2,000
Jeep CJ-7 (1985)                                 4,285
Chevrolet Astro Van (1989)                      19,329
Note payments for van                            1,800
Personal living expenses for 4 persons          23,028
  Total application of funds                   130,152

Excess of applications over sources of funds   $10,094
                             - 163 -

                              1990

Source of Funds:
Schedule C gross receipts                       $40,820
Schedule E gross receipts                        29,780
Interest income                                   2,770
Sun Bank checking account                         2,018
Sun Bank savings account                            473
Sun Bank CD #48290                                1,500
Sec First Cd #788961830                           3,500
Callahan Property note receivable                 5,100
Compromise agreement (40.1% of $53,021)          21,261
  Total source of funds                         107,222
Application of Funds:
Schedule C expenditures                         $13,176
Schedule E expenditures                           4,682
Sun Bank checking account                         1,043
Sun Bank savings account                            568
Sun Bank CD #48290                                1,500
Sun Bank CD #55551 (estimated)                    4,000
Glendale Federal                                  3,806
Credithrift mortgage ($83,684) payment           18,500
Constant notes payments                          15,600
Credithrift mortgage ($52,500) payment            9,600
Note payments for van                             3,600
Investment--Johnson Limo (1988 Cadillac Limo)     8,831
Lincoln Limo (1985)                              14,414
Personal living expenses for 4 persons           23,993
  Total application of funds                    123,313

Excess of applications over sources of funds    $16,091
                               - 164 -

                            Appendix M

         COURT’S REVISED SOURCE AND APPLICATION OF FUNDS
                        FOR RONNIE JOHNSON

                                1983

Source of Funds:                                 -0-

Application of Funds:
Porsche (1983) purchase                         $25,200
  Total application of funds                     25,200

Excess of applications over sources of funds    $25,200

                                1984

Source of Funds:                                 -0-

Application of Funds:
U.S. Saving Bonds purchases                       $40,925
  Total application of funds                       40,925

Excess of applications over sources of funds      $40,925

                                1985

Source of Funds:
Schedule C gross receipts                         $17,575
Trade in for 1983 Porsche                          18,000
  Total source of funds                            35,575

Application of Funds:
Schedule C deductions                               9,158
Rent and security deposit(less $4,500 claimed
 on Schedule C                                      7,575
Porsche (1985) purchase                            28,826
Personal living expenses for 2 persons             13,913
    Total application of funds                     59,472

Excess of applications over sources of funds      $23,897
                              - 165 -

                               1986

Source of Funds:
Schedule C gross receipts                      $18,975

Application of Funds:
Schedule C deductions                            9,487
Rent (less $4,500 claimed on Schedule C)         6,900
Ford truck (1979) purchase                         788
Chevy Camaro (1968) purchase                     1,050
Chevy Camaro refurbishing costs                  4,800
Barnett Bank savings                               519
Personal living expenses for 2 persons          14,205
  Total application of funds                    37,749

Excess of applications over sources of funds   $18,774

                               1987

Source of Funds:
Schedule C gross receipts                      $22,851
Gambling income                                 20,000
Interest income                                     77
Barnett Bank saving account                        519
 Total source of funds                          43,447

Application of Funds:
Schedule C deductions                           10,168
Rent (less $3,375 claimed on Schedule C)         5,175
Barnett Bank savings                             2,091
Port Orange Property purchase cash deposit       8,000
Port Orange Property cash and closing costs      8,165
Port Orange Property seller note                 9,000
Port Orange Property seller mortgage             4,030
   (less $1,559 claimed on Schedule C)           2,471
Port Orange Property renovations                13,800
Fishing boat (1977)                              7,700
Twin outboard motors                             3,000
Personal living expenses for 2 persons          15,945
  Total application of funds                    89,545

Excess of applications over sources of funds   $46,098
                              - 166 -

                               1988

Source of Funds:
Schedule C gross receipts                      $25,785
Barnett Bank saving account                      2,091
Trade in for Porsche                            14,000
Florida National Bank loan                      40,129
Sale of Ford truck (1979)                          500
 Total source of funds                          82,505

Application of Funds:
Schedule C deductions                           11,781
Barnett Bank savings                             3,197
Port Orange Property seller mortgage
 (less $6,117 claimed on Schedule C)            10,002
Port Orange Property renovations                 1,750
Legal fees                                       1,000
Ford truck (1986)                               10,563
Ferrari GTS 328 (1987)                          73,129
Note payments                                    4,585
Estimated tax payments (1988)                    1,500
Tax payments (1987)                              5,216
Personal living expenses for 2 persons          16,516
  Total application of funds                   139,239

Excess of applications over sources of funds   $56,734
                             - 167 -

                              1989

Source of Funds:
Schedule C gross receipts                      $39,410
Interest income                                    321
Barnett Bank saving account                      3,197
Trade in for Jeep (1980)                         3,000
Loan from Barnett Bank for boat                  3,200
 Total source of funds                          49,128

Application of Funds:
Schedule C deductions           24,761
 Less: Depreciation             10,350          14,411
Barnett Bank checking account                      631
Barnett Bank savings                             8,097
Port Orange Property seller mortgage
 (less $5,689 claimed on Schedule C)            10,430
Port Orange Property improvements               13,200
Ferrari GTS 328 (1987) payments                 11,004
Corvette (1974)                                 11,500
Jeep (1980)                                      2,156
Jeep (1982)                                      3,025
Boat                                             4,000
Note Payments on boat                              504
Paving equipment                                17,000
Personal living expenses for 2 persons          18,344
  Total application of funds                   114,302

Excess of applications over sources of funds   $65,174
                             - 168 -

                              1990

Source of Funds:
Schedule C gross receipts                        $36,580
Interest income                                      310
Barnett Bank checking account                        631
Barnett Bank saving account                        8,097
Trade in for Ford Truck (1986)                     8,659
Loan from FMCC for Bronco (1990)                  10,806
Credit Life Insurance financing for Bronco           570
 Total source of funds                            65,653

Application of Funds:
Schedule C deductions (less $700 depreciation)    19,215
Barnett Bank checking account                        698
Barnett Bank savings                               6,192
Port Orange Property seller mortgage
  (less $5,689 claimed on Schedule C)             10,430
Ferrari GTS 328 (1987) payments                   11,004
Note payments on                                   1,512
Triumph (1979)                                     1,200
Bronco (1990)                                     24,035
Payments on FMCC note                                776
Investment-Johnson Limo                            8,831
Lincoln Limo (1985)                               14,414
Personal living expenses for 2 persons            18,707
  Total application of funds                     117,014

Excess of applications over sources of funds     $51,361
                                - 169 -

                             Appendix N

       COURT’S REVISED OF SOURCE AND APPLICATION OF FUNDS
                       FOR SYLVIA JOHNSON

                                 1985

Source of Funds:
Loan from First Union Bank                     $22,300
  Total source of funds                         22,300

Application of Funds:
Corvette (1985) purchase                        27,875
Note payments                                    2,980
  Total application of funds                    30,855

Excess of applications over sources of funds    $8,555

                                 1986

Source of Funds:                                 -0-

Application of Funds:
Corvette (1985) note payments                   $7,464
  Total application of funds                     7,464

Excess of applications over sources of funds    $7,464

                                 1987

Source of Funds:
Schedule C gross receipts                      $10,450
  Total source of funds                         10,450

Application of Funds:
Schedule C deductions                            5,540
Sun Bank savings account                         1,154
U.S. Savings Bonds purchases                     5,000
Gambling losses                                  1,100
Personal expenses--COMPS                           356
Corvette (1985) note payments                    7,564
  Total application of funds                    20,714

Excess of applications over sources of funds   $10,264
                             - 170 -

                              1988

Source of Funds:
Schedule C gross receipts                      $12,350
Gambling income                                  1,727
Interest income                                     29
Sun Bank savings account                         1,154
Trade in for corvette (1985)                    15,000
First Union Bank loan                           36,287
Winnings from gambling activities 12-23-88      38,550
  Total source of funds                        105,097

Application of Funds:
Schedule C deductions                            5,650
Sun Bank savings account                           946
U.S. Savings Bonds purchases                       200
Cash for gambling                               38,550
Net gambling losses                              8,350
Personal expenses--COMPS (1988)                  1,697
Note payments for Corvette (1985)                3,502
Payoff of note for Corvette                      5,618
Porsche 928 purchase (1988)                     61,287
Note payments for Porsche                        4,880
Withholding on gambling winnings                   345
  Total application of funds                   131,025

Excess of applications over sources of funds   $25,928
                             - 171 -

                              1989

Source of Funds:
Schedule C gross receipts                      $19,710
Gambling income                                 38,550
Interest income                                    153
Sun Bank savings account                           945
  Total source of funds                         59,358

Application of Funds:
Schedule C deductions                            8,597
Sun Bank savings account                           545
Glendale Federal Bank                            1,047
U.S. Savings Bonds purchases                     3,450
Net gambling losses                             16,940
Porsche 928 (1988) payments                      9,419
Corvette-Greenwood (1984)                       12,000
Personal expenses--COMPS (1988)                  3,008
Personal expenses--jewelry                      25,000
  Total application of funds                    80,006

Excess of applications over sources of funds   $20,648

                              1990

Source of Funds:
Schedule C gross receipts                      $24,510
Interest income                                    130
Sun Bank savings account                           545
Glendale Federal Bank                            1,047
  Total source of funds                         26,232

Application of Funds:
Schedule C deductions                           12,804
Sun Bank savings account                           835
Glendale Federal Bank                            1,130
U.S. Savings Bonds purchases                     2,250
State Road Lease security deposit                3,000
Rent (less $2,880 claimed on Schedule C)         4,699
Porsche 928 (1988) payments                      7,618
Investment--Johnson Limo                         8,831
Lincoln Limo (1985)                             14,414
Personal living expenses for 3 persons
  for 5 months                                   6,950
  Total application of funds                    62,531

Excess of applications over sources of funds   $36,299
