                        T.C. Memo. 2005-232



                      UNITED STATES TAX COURT



                NARIMAN TEYMOURIAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18106-03.             Filed October 5, 2005.


     William E. Taggart, Jr., for petitioner.

     Davis G. Yee, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined the following

deficiencies and penalties in petitioner’s Federal income tax:
                              - 2 -

     Year      Deficiency             Sec. 6662(a)1 Penalty

     1999      $323,517.00             $64,703.40
     2000       207,511.00              41,502.20


     After concessions,2 the issues for decision are: (1) Whether

petitioner received rental income of $16,200 in 1999 and $16,200

in 20003 (years in issue); (2) whether amounts disbursed to or on

behalf of petitioner by Caspian Consulting Group, Inc. (Caspian)

during the years in issue were properly characterized as loans or

should be recharacterized as constructive dividends; and (3)

whether petitioner is liable for accuracy-related penalties under

section 6662(a) for the years in issue.

                        FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits, to the extent

admitted, are incorporated herein by this reference.     At the time



     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
     2
        Petitioner concedes that he received the following: (1)
Capital gain of $137,880 in 1999; (2) additional income of
$4,415.57 in 1999 from personal expenses charged by petitioner to
Caspian’s credit card and paid by Caspian; and (3) additional
inoome of $10,000 in 2000 from petitioner’s personal use of the
company aircraft.
     3
        In respondent’s notice of deficiency, respondent
determined that petitioner had received rental income of $19,800
for 1999 and $19,800 for 2000. However, respondent subsequently
conceded that this amount was the result of a computational error
and asserted that petitioner received only $16,200 in each year.
                               - 3 -

of filing the petition, petitioner resided in Atherton,

California.

     Petitioner has a doctoral degree in political science and

master’s degrees in political science and nuclear defense

policies.   Petitioner does not have a finance or accounting

background.   Petitioner works in software development.

     In 1997, petitioner and Bradley K. Morrison (Mr. Morrison)

formed a partnership, Prism Consulting Group (Prism), to develop

software for the health care industry.   On August 12, 1998,

petitioner and Mr. Morrison organized Caspian, incorporated under

the laws of the State of California.   By the end of 1998,

petitioner and Mr. Morrison transferred their partnership

interests in Prism to Caspian in exchange for all of Caspian’s

stock.   During 1998 and 1999, Prism’s business operations were

taken over by Caspian.

     During the years in issue, petitioner owned 60 percent of

Caspian’s stock and served as the chief executive officer and

president on the board of directors.   Mr. Morrison owned the

remaining 40 percent and served as chief technologist and

secretary and treasurer on the board of directors.   Petitioner

and Mr. Morrison were the sole members of the board of directors.

     During the years in issue, Caspian hired Cameron & Rolling

to handle its accounting and tax matters.   Craig Rolling (Mr.

Rolling) was part owner of Cameron & Rolling.   He received his
                               - 4 -

B.A. in business administration, a master’s degree in taxation,

and has been a certified public accountant (C.P.A.) for 20 years.

Mr. Rolling personally prepared petitioner’s and Caspian’s tax

returns for the years in issue, and he also provided general

advice to petitioner and Caspian on tax, accounting, and other

financial matters.

     During 1999, petitioner applied for a residential loan.    In

connection with that loan, petitioner and his wife, Gail S.

Ferrando-Teymourian (Ms. Ferrando-Teymourian), signed a Uniform

Residential Loan Application (loan application).   The loan

application was not personally filled out by petitioner, but

instead was prepared by Reza Zargari of Gateway Residential

Funding.   On the loan application, under “VI. Assets and

Liabilities, Schedule of Real Estate Owned,”    petitioner reported

that he had net rental loss of $948 from property located at 94

Grand Street4 in Redwood City, California (Redwood City house),

and net rental income of $1,350 from property located at 1271

Granville in Los Angeles, California (Los Angeles condominium).

At the time the loan application was filled out, petitioner’s

primary residence was the Redwood City house, and petitioner’s

parents lived in the Los Angeles condominium.



     4
        On the loan application, due to a typographical error, 94
Grand Street appears “94 Grant Street.”
                                 - 5 -

     During 1999, Caspian made the following disbursements to

petitioner:

     9/16/1999                $578,034.59
     10/7/1999                  65,000.00
     ____________________________________
     Total Disbursements
     For 1999:                $643,034.59


These disbursements were identified on Caspian’s books as

“Employee Advances”.    At the end of 1999, the advances were

converted to “notes” on Caspian’s books.     Petitioner used these

funds in connection with the purchase of a new home.

     Petitioner and Ms. Ferrando-Teymourian jointly filed a

Federal individual income tax return for 1999, reporting $233,097

of adjusted gross income and $136,519 of taxable income.5    They

did not report the disbursements received from Caspian as income,

nor did they report rental income.

     During 2000, Caspian made the following disbursements to or

on behalf of petitioner:

     1/05/2000         Bill                        $108.40
     1/12/2000         Check                    120,000.00
     1/17/2000         Credit Card Charges        7,258.21
     2/29/2000         Transfer                  80,000.00
     3/17/2000         Credit Card Charges        2,200.00
     3/28/2000         Transfer                  40,000.00
     4/16/2000         Credit Card Charges           98.52
     4/17/2000         Bills                     52,000.00


     5
        Ms. Ferrando-Teymourian has a separate suit pending in
this Court, docket No. 18139-03, and is not a party to the
present case.
                                - 6 -

     4/21/2000      Check                     62,364.38
     5/01/2000      Check #5330                8,000.00
     5/08/2000      Bill                       5,421.00
     5/10/2000      Transfer                  20,000.00
     5/17/2000      Transfer                 100,000.00
     5/18/2000      Check                      3,000.00
     5/18/2000      Bill                       1,000.00
     5/23/2000      Check                        500.00
     6/12/2000      Transfer                 120,000.00
     6/26/2000      Bill                         140.35
     7/17/2000      Credit card charges           75.78
     7/18/2000      Check                      2,862.74
     8/14/2000      Transfer                 100,000.00
     8/16/2000      Credit card charges        1,019.45
     8/28/2000      Bill                      27,767.50
     9/15/2000      Check                     25,000.00
     9/16/2000      Credit card charges          892.20
     9/25/2000      Transfer                  50,000.00
     9/28/2000      Bill                          88.70
     10/23/2000     Transfer                  34,239.55
     11/02/2000     Transfer                  20,000.00
     11/15/2000     Bill                       5,350.00
     12/04/2000     Check                     30,000.00
     12/17/2000     Credit cards charges         368.13
     12/27/2000     Bill                       7,545.08
     __________________________________________________
     Total Disbursements for 2000:          $927,299.99

These disbursements were identified on Caspian’s books as

“1800100 Officer’s Rec - NT”.   At the end of 2000, the advances

were converted to “notes” on Caspian’s books.

     On December 29, 2000, petitioner used voluntary payroll

deductions to reimburse Caspian $448,344.76.    Of this amount,

$48,344.76 represented payment of interest and $400,000

represented repayment of the disbursements.    Caspian reported

interest income on its 2000 tax return, reflecting petitioner’s

payment of interest.
                                 - 7 -

     Petitioner and Ms. Ferrando-Teymourian jointly filed a

Federal individual income tax return for 2000, reporting $797,682

of adjusted gross income and $637,805 of taxable income.     They

did not report the disbursements made by Caspian as income, nor

did they report rental income.

     During the years in issue, Caspian made no formal

declaration or payment of a dividend.    Petitioner and Caspian did

not execute formal loan instruments with respect to the amounts

disbursed to or paid on behalf of petitioner.

     In the fall of 2001, respondent’s examining agent, Roseann

Kacheris (Ms. Kacheris), began investigating Caspian’s corporate

tax returns for 1999 and 2000.    During the course of her

investigation, she also examined petitioner’s individual income

tax returns for the years in issue.

     On July 24, 2003, respondent issued petitioner a notice of

deficiency for 1999 and 2000.    In the notice, respondent made the

following increases to petitioner’s taxable income:

     1999
     Type of Adjustment       Amount of Increase
     Capital gain                  $137,880
     Itemized deductions             24,149
     Exemptions                       5,155
     Rental income                   19,800
     Dividends                      647,290
     ____________________________________________
     Total Adjustments for 1999:   $834,274
                               - 8 -

      2000
      Type of Adjustment       Amount of Increase
      Itemized Deductions            $15,263
      Rental Income                   19,800
      Dividends                      488,955
      ____________________________________________
      Total Adjustments for 2000:   $524,018

Respondent increased petitioner’s tax liability by $323,517 and

$207,511, and imposed section 6662(a) penalties of $64,703.40 and

$41,502.20 for 1999 and 2000, respectively.

      On October 22, 2003, petitioner filed his petition with the

Court, alleging that he did not receive rental income, that

respondent improperly recharacterized the loans as constructive

dividends, and that he was not liable for the section 6662(a)

accuracy-related penalties as set forth in respondent’s notice of

deficiency.

                              OPINION

A.   Petitioner Did Not Have Unreported Rental Income

      Respondent determined that petitioner received but failed to

report rental income in the amounts of $16,200 in 1999 and

$16,200 in 2000.   Petitioner bears the burden of proof to show

that respondent erred in making this determination.     Rule 142(a).

      On the 1999 residential loan application, petitioner

reported “net rental income” of $1,350 from his Los Angeles

condominium.   Ms. Kacheris, respondent’s examining agent,

testified that her sole reason for determining that petitioner

received rental income of $16,200 in 1999 and $16,200 in 2000 was

from statements made by petitioner on the loan application.
                                 - 9 -

However, petitioner credibly testified that, when Mr. Zargari was

preparing the loan application, petitioner believed the loan

application was asking for the “net rental value”, or the amount

petitioner would have received had he rented out the property.

In addition, petitioner credibly testified that his parents were

living in the Los Angeles condominium, he did not charge his

parents rent, and he did not receive any rent.

     Respondent argues that we do not have to accept petitioner’s

self-serving testimony, citing Mendes v. Commissioner, 121 T.C.

308 (2003).   In Mendes, the taxpayer was contesting a 10-percent

additional tax on an early distribution from a qualified

retirement plan imposed under section 72(t).     Id. at 319-320.

The taxpayer argued that a bank had previously withheld the 10-

percent additional tax but offered no documentation to verify his

testimony.    Id.   The Court held that it did not have to rely on

the taxpayer’s self-serving testimony when he failed to present

other evidence that the 10-percent additional tax was previously

withheld.

     Unlike the taxpayer in Mendes, petitioner is asserting that

he never received income.    We recognize the inherent difficulty

in proving a negative, and because we find petitioner’s testimony

to be credible and his explanation of the loan application

persuasive, we accept petitioner’s testimony.
                               - 10 -

      Given petitioner’s credible and persuasive explanation of

the loan application, we find that peitioner has met his burden

of proof.   Based on the above, we hold that petitioner did not

receive rental income during the years in issue and is thus not

liable for any income tax deficiencies relating to rental income.

B.   Respondent Improperly Recharacterized Petitioner’s Loans as

      Constructive Dividends

      Respondent determined that disbursements made by Caspian to

and on behalf of petitioner during the years in issue were

constructive dividends and not loans.   The resolution of this

issue does not depend on which party bears the burden of proof.

On the basis of the evidence in the record, we hold that the

amounts disbursed to petitioner were loans.

      Whether a corporation’s disbursements to an employee-

shareholder are loans or constructive dividends depends on

whether, at the time of the disbursements, the employee-

shareholder intended to repay the amounts received and the

corporation intended to require payment.   J.A. Tobin Constr. Co.

v. Commissioner, 85 T.C. 1005, 1022 (1985); Elec. & Neon, Inc. v.

Commissioner, 56 T.C. 1324, 1338-1339 (1971), affd. without

published opinion 496 F.2d 876 (5th Cir. 1975); Miele v.

Commissioner, 56 T.C. 556, 567 (1971), affd. without published

opinion 474 F.2d 1338 (3d Cir. 1975).   If repayment was intended

at the time of disbursement, the amounts are generally considered
                                - 11 -

loans.   Miele v. Commissioner, supra at 567.   On the other hand,

if no repayment was intended, the amounts are to be considered

constructive dividends.   Id.

     This determination depends on all the facts and

circumstances surrounding the transactions.     Estate of Chism v.

Commissioner, 322 F.2d 956, 960 (9th Cir. 1963), affg. T.C. Memo.

1962-6; J.A. Tobin Constr. Co. v. Commissioner, supra at 1022;

Miele v. Commissioner, supra at 567; Roschuni v. Commissioner, 29

T.C. 1193, 1201-1202 (1958), affd. 271 F.2d 267 (5th Cir. 1959).

When an employee-shareholder is in substantial control of the

corporation, such control invites special scrutiny.     Roschuni v.

Commissioner, supra at 1202.    Mere declarations by an employee-

shareholder that he intended a transaction to constitute a loan

are insufficient if the transaction fails to meet more reliable

indicia of debt.   J.A. Tobin Constr. Co. v. Commissioner, supra

at 1022.

     In making the necessary factual determination, courts have

looked to a number of objective factors, including:

     (1) [W]hether the promise to repay is evidenced by a
     note or other instrument; (2) whether interest was
     charged; (3) whether a fixed schedule for repayments
     was established; (4) whether collateral was given to
     secure payment; (5) whether repayments were made; (6)
     whether the borrower had a reasonable prospect of
     repaying the loan and whether the lender had sufficient
     funds to advance the loan; and (7) whether the parties
     conducted themselves as if the transaction were a loan.
                                - 12 -

Welch v. Commissioner, 204 F.3d 1228, 1230 (9th Cir. 2000), affg.

T.C. Memo. 1998-121; see also J.A. Tobin Construction Co. v.

Commissioner, supra at 1022.     No single factor is controlling,

and the transaction must be examined as a whole.     Welch v.

Commissioner, supra at 1230.     We address each of these factors in

turn.

     1.     Petitioner’s Promise To Pay Was Not Evidenced by a Note

     The absence of a note or other loan documentation is

indicative of a constructive dividend.     Miele v. Commissioner,

supra at 568-569; see also Roschuni v. Commissioner, supra at

1201-1202; Jones v. Commissioner, T.C. Memo. 1997-400, affd.

without published opinion 177 F.3d 982 (11th Cir. 1999); Weigel

v. Commissioner, T.C. Memo. 1996-485.     However, loans without

documentation are not uncommon between a shareholder and a

closely held corporation, and such documentation is not a

prerequisite to finding that a loan exists.     Miele v.

Commissioner, supra at 568-569; Weigel v. Commissioner, supra.

     Petitioner stipulated that he did not execute formal loan

documents with respect to the disbursements made by Caspian

during the years in issue.     While this factor alone is not

determinative, it weighs in favor of finding a constructive

dividend.
                               - 13 -

     2.   Petitioner Paid $48,344.76 in Interest

     The payment of interest indicates the existence of a loan.

Crowley v. Commissioner, 962 F.2d 1077 (1st Cir. 1992), affg.

T.C. Memo. 1990-636; see also Roschuni v. Commissioner, supra at

1201-1202; Jones v. Commissioner, supra.

     At trial, Mr. Rolling testified that an interest rate of 6.2

percent was charged.    On the other hand, petitioner testified

that he was uncertain as to the percentage, but he believed the

An interest rate was prime plus one.    Respondent argues that the

contradictory testimony of Mr. Rolling and petitioner casts doubt

on whether interest was charged.    However, petitioner, Mr.

Rolling, and Mr. Morrison all credibly testified that they knew

interest was being charged.    In addition, petitioner paid

$48,344.76 in interest on December 29, 2000.    While there may

have been some confusion as to the rate of interest, the stated

intent of the parties and the actual payment of interest weighs

in favor of finding a loan.

     3.    There Was No Fixed Schedule for Repayment

     The lack of a fixed schedule for repayment is indicative of

a constructive dividend.    See Crowley v. Commissioner, supra;

Roschuni v. Commissioner, supra at 1201; Jones v. Commissioner,

supra.    Petitioner testified at trial that there was no fixed

schedule for repayment.    This factor weighs in favor of finding a

constructive dividend.
                               - 14 -

     4.   No Collateral Secured Repayment of the Loan

     The lack of collateral pledged to secure repayment is

indicative of a constructive dividend.    See Crowley v.

Commissioner, supra at 1083; Roschuni v. Commissioner, supra at

1201-1202; Jones v. Commissioner, supra.    Petitioner testified

that he was not asked to provide collateral, but he understood

his shares of Caspian would secure repayment.    Under California

State law, a creditor can acquire an enforceable security

interest in collateral by having the debtor sign a security

agreement and deliver the certificated security to the secured

party.    Cal. Com. Code secs. 8301, 9203(b) (West 2005).    The

record is devoid of any evidence that petitioner signed a

security agreement or delivered his Caspian stock to Caspian.

Therefore, we find that there was no collateral, including the

Caspian stock, pledged to secure repayment.    This factor weighs

in favor of finding a constructive dividend.

     5.    Petitioner Made Repayments of $400,000

     Repayments of the amounts disbursed indicate the existence

of a loan.    Crowley v. Commissioner, supra at 1083; see also

Miele v. Commissioner, supra at 568; Roschuni v. Commissioner,

supra at 1201; Weigel v. Commissioner, supra.       However, to be

persuasive, the amounts of repayments in comparison to the

amounts owed must be substantial and not merely nominal.       Miele

v. Commissioner, supra at 568.
                               - 15 -

     During the years in issue, Caspian made disbursements to or

on behalf of petitioner in amounts totaling $1,570,334.58.

Caspian reflected the disbursements on its books as either

advances, officer’s receivables, or notes.    On December 29, 2000,

petitioner repaid a total of $448,344.76, of which $400,000 was

applied to reduce the balance of the notes receivable accounts.

Petitioner’s repayment of slightly more than 25 percent of the

total disbursements was substantial and not merely nominal.     This

factor weighs in favor of finding a loan.

     6.   Petitioner Had a Reasonable Prospect of Repayment

     A reasonable prospect of repayment indicates the existence

of a loan.    See Welch v. Commissioner, 204 F.3d 1228, 1231 (9th

Cir. 2000).   A taxpayer’s insolvency or financial difficulty

casts doubt on the ability to repay and thus on the

characterization of a disbursement as a loan.    See id.

     Petitioner and his wife reported adjusted gross income of

$233,097 and $797,682 for 1999 and 2000 respectively.      On

December 29, 2000, petitioner repaid $400,000, leaving

$1,170,334.58 outstanding.   Given petitioner’s income and history

of repayment, petitioner had a reasonable prospect of repaying

the remainder of the disbursements.     This factor weighs in favor

of finding a loan.

     7.   The Parties Involved Treated the Disbursements as Loans

     The conduct of the parties may indicate the existence of a
                                - 16 -

loan.     Morrison v. Commissioner, T.C. Memo. 2005-53; see Welch v.

Commissioner, supra at 1230; Baird v. Commissioner, 25 T.C. 387,

395 (1955).

        Petitioner credibly testified that, at the time the

disbursements were made, he intended the disbursements to be

loans, he believed that interest would be charged, and he

understood that he would have to repay the amounts disbursed.

During 2000, petitioner paid $48,344.76 in interest and repaid

$400,000 of the disbursements.

        Mr. Morrison, the minority shareholder of Caspian, credibly

testified that he understood the amounts disbursed to petitioner

were loans, and he expected petitioner to repay the loans

together with interest.

        In addition, Caspian reported petitioner’s $48,344.76

payment as interest income on its 2000 income tax return.

Caspian treated the disbursements to petitioner as notes

receivable, indicating Caspian’s expectation that the amounts

would be repaid.

        The behavior of the parties weighs heavily in favor of

finding a loan.

        Summary

        While three of the seven factors weigh in favor of finding a

constructive dividend, we find those factors to be less

persuasive in the present case.     In transactions between
                                  - 17 -

shareholders and closely held corporations, formalities are often

not followed.       A lack of formality does not preclude treatment of

disbursements as loans.       See Miele v. Commissioner, supra at 568-

569.       The absence of a note does not outweigh the behavior of

petitioner or Caspian in treating the disbursements as loans.         In

addition, the fact that petitioner paid back a substantial

portion of the disbursements indicates that the lack of

collateral and the lack of a set repayment schedule did not

diminish his intent to repay.

       Petitioner and Mr. Morrison understood the amounts disbursed

to be loans.       Petitioner acted in a manner consistent with the

existence of a loan, as demonstrated by his payment of interest

and substantial repayment of a portion of the amounts disbursed.

Due to his salary and his history of repayment, petitioner had a

reasonable prospect of repaying the disbursements in full.       Based

on the evidence in the record, we hold that the amounts disbursed

to petitioner during the years in issue were loans.6

C.   Petitioner is Not Liable for Section 6662 Accuracy-Related

Penalties

       Respondent assessed section 6662(a) penalties of $64,703.40

and $41,502.20 against petitioner for 1999 and 2000,


       6
        This finding does not include the following amounts
conceded by petitioner: (1) Capital gain of $137,880 received in
1999, and (2) additional income of $4,415.57 and $10,000 received
in 1999 and 2000, respectively.
                                - 18 -

respectively.   Petitioner contests these penalties, arguing that

there was no underpayment of tax, or in the alternative,

petitioner had reasonable cause for his underpayment of taxes.

     Section 6662(a) imposes an accuracy-related penalty of 20

percent of the underpayment of tax attributable to negligence or

disregard of the rules or regulations,7 or attributable to a

substantial understatement of income tax.8    Sec. 6662(a), (b)(1)

and (2).   However, no penalty will be imposed if the taxpayer had

reasonable cause for the underpayment of tax and the taxpayer

acted in good faith.   Sec. 6664(c); secs. 1.6662-3(a), 1.6664-

4(a), Income Tax Regs.

     The Commissioner bears the burden of production with respect

to penalties.   Sec. 7491(c); Higbee v. Commissioner, 116 T.C.

438, 446-447 (2001).     However, the taxpayer must show that he had

reasonable cause and acted in good faith.    Rule 142(a).

     Petitioner conceded that he received, but did not report,

long-term capital gain of $137,880, additional income of

$4,415.57 in 1999, and additional income of $10,000 in 2000.     We



     7
        Negligence is defined as the “failure to make a
reasonable attempt to comply with the provisions of this title,
and the term ‘disregard’ includes any careless, reckless, or
intentional disregard.” Sec. 6662(c); sec. 1.6662-3(b)(1),
Income Tax Regs.
     8
        There is a substantial understatement of income tax for
any year if the amount of understatement exceeds the greater of
10 percent of the tax required to be shown on the return, or
$5000. Sec. 6662(d).
                               - 19 -

do not need to reach the issues of whether the resulting

underpayments were substantial or were due to negligence because

we find petitioner had reasonable cause and acted in good faith.

     A taxpayer’s reliance on the advice of a professional as to

the tax treatment of certain items does not automatically

constitute reasonable cause.   Neonatology Associates v.

Commissioner, 115 T.C. 43, 98-99 (2000), affd. 299 F.2d 221 (3d

Cir. 2002); see sec. 1.6664-4(c)(1), Income Tax Regs.    For a

taxpayer to reasonably rely on the advice of a professional, the

taxpayer must show: (1) The adviser was a competent professional

who had sufficient expertise to justify reliance; (2) the

taxpayer provided necessary and accurate information to the

adviser; and (3) the taxpayer actually relied in good faith on

the adviser’s judgment.   Neonatology Associates v. Commissioner,

supra at 98-99.

     Mr. Rolling has a B.A. in business administration and a

master’s degree in taxation.   He is a licensed C.P.A. and has

been practicing for more than 20 years.   During the years in

issue, Mr. Rolling prepared tax returns for petitioner and

Caspian, and served as a general consultant to both on tax-

related issues.   Throughout the course of Mr. Rolling’s

testimony, we found him to be a competent professional who had

sufficient expertise to justify petitioner’s reliance.     Based

upon the testimony of petitioner and Mr. Rolling regarding the
                             - 20 -

amounts of income not reported but eventually conceded by

petitioner, the characterization of those amounts was open to

reasonable doubt at the time petitioner filed his returns.      Based

upon Mr. Rolling’s testimony and on other evidence submitted, we

find that Mr. Rolling was provided with necessary and accurate

information by both petitioner and Caspian.   Finally, based upon

petitioner’s credible testimony, we find that petitioner relied

on Mr. Rolling for the preparation of his tax returns during the

years in issue, and that petitioner’s reliance was in good faith.

     For the foregoing reasons, we conclude that petitioner

reasonably and in good faith relied on the advice of a competent

professional, and we hold that petitioner is not liable for the

section 6662(a) penalties.

Conclusion

     We hold that petitioner did not receive rental income during

the years in issue and is thus not liable for any income tax

deficiencies relating to rental income.   We further hold that

disbursements made by Caspian to and on behalf of petitioner were

loans and not constructive dividends.   Finally, we hold that

petitioner is not liable for accuracy-related penalties.

     In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.
                        - 21 -

To reflect the foregoing,



                                  Decision will be entered

                             under Rule 155.
