                  T.C. Memo. 2001-169



                UNITED STATES TAX COURT



   LARRY DEAN SYKES AND RUBY SYKES, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 3844-00.                       Filed July 6, 2001.



     Respondent’s (R) agents seized $149,200 cash from
petitioners (Ps) during a search of Ps’ residence by
Federal and State law enforcement officers. R filed a
jeopardy assessment in that amount against petitioner
husband (P-H). P-H filed suit in U.S. District Court
to obtain judicial review of the jeopardy assessment.
The District Court subsequently sustained the
determination that P had taxable income of $48,473 in
1997 and found that P had savings of $100,727.

     R determined that the $149,200 seized from Ps was
unreported taxable income for 1997. Ps contend that it
was not taxable income because P-H had a cash hoard in
that amount on Dec. 31, 1996.

     Ps moved at trial to shift the burden of proving
the amount of the cash hoard to R under sec. 7491(a),
I.R.C. Ps offered evidence relating to the amount of
P’s cash hoard, but a substantial amount of that
evidence was not credible.
                                 - 2 -

          Held: Ps bear the burden of proving the amount of
     the cash hoard.

          Held, further, P-H had a $40,000 cash hoard on
     Dec. 31, 1996.



     Larry Dean Sykes and Ruby Sykes, pro se.

     Robert M. Fowler, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:     Respondent determined a deficiency in

petitioners’ income tax of $45,759 for 1997 and an accuracy-

related penalty under section 6662 of $9,151.80.1

     Respondent determined that $149,200 seized from petitioners’

residence on March 19, 1998, was petitioners’ taxable income in

1997.     Petitioners contend that it was not taxable income because

petitioner Larry Dean Sykes had a cash hoard in that amount on

December 31, 1996.

     The issues for decision are:

     1.    Whether petitioners or respondent bears the burden of

proving the amount of petitioners’ unreported income.    We hold

that petitioners bear the burden of proof.




     1
        Respondent determined that petitioner Ruby Sykes is
eligible for relief from joint liability under sec. 6015(b).
However, she remains a party to the case. See DeLucia v.
Commissioner, 87 T.C. 804, 811 (1986).
                                  - 3 -

       2.   Whether $149,200 seized from petitioners’ home on March

19, 1998, is petitioners’ taxable income from a fencing operation

for 1997.      We hold that petitioner Larry Dean Sykes had a

nontaxable cash hoard of $40,000 on December 31, 1996, and that

$109,200 of the $149,200 is taxable income for 1997.

       3.   Whether petitioners are liable for the accuracy-related

penalty imposed by section 6662(a) for 1997.       We hold that they

are.

       References to petitioner are to Larry Dean Sykes.

References to Mrs. Sykes are to petitioner Ruby Sykes.         Section

references are to the Internal Revenue Code in effect during the

year in issue, and Rule references are to the Tax Court Rules of

Practice and Procedure.

                            FINDINGS OF FACT

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

A.     Petitioners

       Petitioners are married and lived in Ozark County, Missouri,

when they filed the petition in this case.

       Petitioner’s father abandoned his family when petitioner was

young.      Petitioner’s mother was disabled.   His maternal

grandparents raised him and his older brother Danney.

Petitioner’s grandfather died in 1970.

       Petitioners were married in 1977.    Mrs. Sykes had a 1-year-

old son, Gary, when petitioners married.        Petitioner raised Gary
                                - 4 -

as his son.   Petitioners also had a daughter, Larene, who was

born in 1978.

B.   Petitioner’s Income-Generating Activities

     1.   Petitioner’s Employment

     Petitioner attended high school from 1966 to 1970.    During

those years, he earned about $25 a week working at a store and

earned about $10 a week doing odd jobs for his grandmother.

     Petitioner worked at a pallet mill in Raymondville,

Missouri, in 1970 and 1971.   He worked as a tree trimmer in St.

Louis, Missouri, in 1971.   He worked for International Paper in

Kansas City, Kansas, from August 1973 to June 1981, where he

earned the following amounts:

                Year                          Amount
                1973                         $2,894.69
                1974                          9,193.38
                1975                          7,596.16
                1976                         10,529.20
                1977                          9,922.32
                1978                         17,636.94
                1979                         16,888.69
                1980                         15,520.12
                1981                          6,643.49
                  Total                      96,824.99


     Petitioner had various odd jobs from 1981 to 1985.    He cut

firewood and bought and sold goods at auctions from August 1984

to June 1987.
                                - 5 -

     2.    Petitioner’s Purchase and Sale of Residences

           a.   Petitioners’ Purchase and Sale of a House in
                Kansas City

     In January 1978, petitioners bought a house at 1700

Washington Avenue in Kansas City, Kansas, for about $16,000.

Petitioners lived there from 1978 to 1981.   Petitioner bought a

new 1979 Ford pickup truck in November 1978 for $6,400.    On May

14, 1981, petitioners sold their house in Kansas City for about

$17,000.

           b.   Petitioner’s Purchase and Sale of a House for His
                Mother and Grandmother

     In July 1980, petitioner and his maternal uncle, Ronald

Ireland (Ireland), bought a house in Yellville, Arkansas, for

petitioner’s mother and grandmother for $20,000.    The sellers

received an $8,000 downpayment.    Petitioner paid either $2,000 or

$4,000 of the downpayment.

     After a few months, petitioner’s mother and grandmother

decided they did not want to live in that house, and they moved

back to their mobile home in Hartshorn, Missouri.    Petitioner’s

mother and grandmother lived in a nursing home in Harrison,

Arkansas, as Medicaid patients beginning in 1990.    His

grandmother died in 1995.    His mother still lives in the nursing

home.

     In 1981, petitioner traded his 1979 truck for his uncle’s

share of the house in Yellville.   Petitioner and his family moved
                                  - 6 -

from Kansas City to Yellville in 1981 and lived in the house

until 1985.      In 1985,2 petitioner sold the house in Yellville for

$23,000, including furnishings.

            c.     Petitioners’ Purchase of a Trailer and Mobile Home

     In 1986, petitioners bought a 16-foot travel trailer and

traveled to Arizona.      They lived in Arizona in the trailer for 3

or 4 months.      Petitioners moved to Isabella, Missouri, later in

1986, and continued to live in the 16-foot trailer.      Mrs. Sykes

borrowed about $6,000 in 1989 or 1990 to buy a 60-foot mobile

home.     Petitioners lived in that mobile home from 1989 or 1990 to

the time of trial.

     3.      Petitioner’s Auction Business

     From 1987 to the time of trial, petitioner operated an

auction business in and around Isabella, Missouri.      He bought,

sold, and traded consumer goods at auctions in Missouri,

Arkansas, Tennessee, Iowa, and Oklahoma.      Gary has consistently

helped petitioner in his work.

     4.      Petitioners’ AFDC Payments and Mrs. Sykes’ Disability
             and Medicaid Payments

     Mrs. Sykes became disabled in 1981.      Petitioners received

Aid to Families with Dependent Children (AFDC) benefits from June

1987 to June 1995.      Mrs. Sykes received Medicaid benefits from


     2
        The parties stipulated and the buyer’s affidavit states
that petitioners sold the Yellville house on Apr. 30, 1985,
notwithstanding that the warranty deed says Apr. 30, 1986, and
petitioner testified that it was in 1986.
                                 - 7 -

October 1989 to February 1998.    She also received Social Security

disability benefits of about $494/month, i.e., about $5,928/year,

for a period not specified in the record.    In their 1989, 1990,

1991, 1992, and 1993 applications for recertification to receive

AFDC and Medicaid benefits, petitioners stated, under penalties

of perjury, that they had no property in a safe deposit box and

no more than $210 in savings.

C.   The Burglary Ring and Petitioner’s Involvement

     Michael Collom (Collom) joined a burglary ring formed by

Lyndell Shives (Shives) and Billy Wilson (Wilson) early in the

summer of 1997.    The ring targeted farmhouses and construction

sites in southwestern Missouri.    The ring committed about 100

burglaries, and Collom participated in about half of them.

     Collom and his associates sold some of their stolen goods at

auctions.    Petitioner met Collom and Shives in June 1997 at an

auction in Theodosia, Missouri.    Petitioner wanted to buy goods

from them.    From the summer of 1997 to February or early March

1998, Collom sold stolen merchandise to petitioner who resold it

at auctions.

D.   Petitioner’s Safe Deposit Box

     Petitioner rented a safe deposit box at the First National

Bank & Trust in Gassville, Arkansas, in December 1987.    He

entered his safe deposit box 53 times from December 1987 to March

1998.
                                - 8 -

     Petitioner entered the safe deposit box once in 1998, on

March 18.   He removed all of the money from the box at that time.

His last entry before that date was on December 10, 1997.

E.   Execution of the BATF Search Warrant and the Money Seizure

     On March 19, 1998, agents of the Bureau of Alcohol, Tobacco

& Firearms (BATF) executed a Federal search warrant at

petitioners’ residence.    About 17 law enforcement officials

participated in the search, including representatives of the

BATF, the IRS Criminal Investigation Division, the Ozark County

and Christian County, Missouri, Sheriff’s Offices, the Missouri

State Highway Patrol, and the Missouri Conservation Commission.

The agents were looking for stolen weapons they believed

petitioner had received from Collom, Wilson, and Shives and that

he intended to sell.

     Agents took 11 guns during this raid, 8 of which petitioner

had bought from Collom and had been stolen.

     During the search, agents found a brown paper bag containing

$149,200 in U.S. currency.    Petitioner told BATF Special Agent

Dan Fridley (Fridley) that he had borrowed about $130,000 of the

$149,200, and that $20,000 came from the estate of a deceased

relative.

     After the agents found the money, they asked IRS Special

Agents J. Gregory Pierce (Pierce) and Charles Pearre (Pearre) to

interview petitioners.    Petitioner told Pierce and Pearre on
                                - 9 -

March 19, 1998, that the source of the $149,200 was loans from

individuals, negotiation of a certificate of deposit, and recent

sales of merchandise in his business.   Petitioner also told

Pierce that the guns seized in the raid had been stolen.

     At the end of the search on March 19, 1998, petitioner was

arrested by Ozark County authorities.   On March 20, 1998,

petitioner told detectives in the Christian County Sheriff’s

Department that he had lied when he said the source of the cash

seized was loans.    Pierce obtained a warrant on March 25, 1998,

authorizing him to seize the $149,200 found at petitioners’

residence.

F.   The Jeopardy Assessment

     On November 3, 1999, respondent filed a jeopardy assessment

of $62,023 against petitioner and issued a notice of the

assessment.   Petitioner filed suit in the U.S. District Court for

the Western District of Missouri to seek judicial review of the

jeopardy assessment.   On June 1, 2000, Judge Ortrie D. Smith held

an evidentiary hearing, at which the parties produced witnesses

and documentary evidence.   On August 16, 2000, Judge Smith issued

an order sustaining the determination that petitioner had taxable

income of $48,473 from the fencing operation in 1997.   The

District Court found that petitioner had saved $100,727 from the

following sources:   $5,000 saved by 1971, $2,000 saved in 1971,

$54,000 saved by 1981 from his job at International Paper Co.,
                                - 10 -

$6,000 from the sale of his personal possessions when he sold the

Yellville house in 1985, $20,000 received from his grandmother in

1986, and $13,727 saved from his auction business from 1989-97.

G.   Court-Ordered Restitution of Assistance Payments

     After an investigation in 1999 concerning the Medicaid

payments made to Mrs. Sykes, the Missouri Department of Social

Services concluded that Mrs. Sykes had obtained Medicaid benefits

to which she was not entitled because petitioner owned a safe

deposit box containing a large amount of cash during the entire

time Mrs. Sykes received Medicaid benefits (1989 to 1998), and

Mrs. Sykes had indicated on her application for benefits that she

and her husband had no property in a safe deposit box.   The

Missouri Department of Social Services issued an adverse action

notice on October 14, 1999, requiring her to repay Medicaid

benefits of $27,860.

     On January 5, 2000, the Circuit Court of Ozark County,

Missouri, ordered petitioners to repay $60,965 plus attorney’s

fees and costs to the Missouri Department of Social Services,

Division of Family Services.3

     On July 24, 2000, petitioners authorized respondent to pay

$60,965 to the Missouri Department of Social Services, Division



     3
        The record does not show whether the $60,965 petitioners
were ordered to repay to the Missouri Department of Social
Services included the $27,860 of Medicaid payments Mrs. Sykes was
ordered to repay.
                              - 11 -

of Family Services, from the money to be returned to petitioner

pursuant to the order of the District Court.

H.   Petitioner’s Criminal Prosecution

     On March 24, 2000, petitioner was indicted by a Federal

grand jury in Springfield, Missouri, on one count of conspiracy

and two counts of violation of 18 U.S.C. sections 922(j)

(knowingly conspiring with others to receive, possess, conceal,

store, barter, sell and dispose of stolen firearms) and 924(a)(2)

(knowingly receiving, possessing, concealing, storing, bartering,

selling, and disposing of stolen firearms).    See United States v.

Sykes, No. 00-03021-01-CR-S-1 (W.D. Mo. 2000).   On June 7, 2000,

he was convicted on all three counts of the indictment.

Petitioner filed an appeal with the U.S. Court of Appeals for the

Eighth Circuit in February 2001.4

I.   Petitioners’ Income Tax Returns

     Petitioners filed tax returns for 1990, 1991, 1992, 1993,

1994, 1995, 1996, 1997, and 1998, but did not file a return for

1985, 1986, 1987, or 1988.   They reported income on their Federal

income tax returns for 1989 through 1998 as follows:




     4
         As of May 22, 2001, this appeal remained pending.
                                         - 12 -

              Business   Business   Adjusted                  Self-             Earned
                gross       net       gross     Taxable    employment   Total   income
 Year         receipts    profit     income     income1        tax       tax    credit
 1989            N/A     $2,718     $2,718         N/A       $354       $354      N/A
 1990         $5,879        858        798         N/A        121        121     $110
 1991          7,210      3,731      3,467     ($10,833)      527        527      601
 1992         16,935      2,702      2,511     (12,689)       382        382      465
 1993         14,260      2,368      2,200     (13,400)       335        335      434
 1994         15,415      2,127      1,977     (14,173)       300        300      593
 1995         12,087      4,271      3,969     (12,581)       603        603    1,352
 1996         17,908      4,181      3,885     (10,465)       591        591    1,318
 1997         13,724      4,387      4,077     (10,773)       620        620    1,386
 1998         55,430      1,993      1,852     (13,348)       282        282      638
              158,848    29,336     27,454     (98,262)     4,115       4,115   6,897
 Total
Average       17,650      2,934      2,745     (12,283)       412        412      766
  per
  year


          1
         Petitioners reported no taxable income. This column shows
petitioners’ adjusted gross income minus the standard deduction for joint
filing status and petitioners’ personal exemptions.

          By notice of deficiency dated December 29, 1999, respondent

determined that petitioners had unreported income of $149,200 for

1997 (the amount seized from their residence on March 19, 1998)

from petitioner’s participation in the fencing operation.

                                         OPINION

A.        Burden of Proof Relating to Petitioner’s Cash Hoard

          We first decide which party bears the burden of proving the

amount of petitioner’s cash hoard on December 31, 1996.
                               - 13 -

     1.     Section 7491

     Section 74915 was enacted in 1998.    See Internal Revenue

Service Restructuring & Reform Act of 1998 (RRA 1998), Pub. L.

105-206, sec. 3001(a), 112 Stat. 685, 726.    Section 7491 applies

to court proceedings arising in connection with examinations

beginning after July 22, 1998.    See RRA 1998 sec. 3001(c).

Respondent’s examination in this case began after July 22, 1998.

Under section 7491, the burden of proof is placed on the

Secretary in any court proceeding if the taxpayer:




     5
          Sec. 7491 provides in pertinent part:

     SEC. 7491. BURDEN OF PROOF.

          (a) Burden Shifts Where Taxpayer Produces Credible
     Evidence.--

                 (1) General Rule.--If, in any court proceeding, a
            taxpayer introduces credible evidence with respect to
            any factual issue relevant to ascertaining the
            liability of the taxpayer for any tax imposed by
            subtitle A or B, the Secretary shall have the burden of
            proof with respect to such issue.

                 (2) Limitations.--Paragraph (1) shall apply with
            respect to an issue only if--

                       (A) the taxpayer has complied with the
                 requirements under this title to substantiate any
                 item;

                      (B) the taxpayer has maintained all records
                 required under this title and has cooperated with
                 reasonable requests by the Secretary for
                 witnesses, information, documents, meetings, and
                 interviews; * * *
                               - 14 -

     (a)   Has complied with substantiation requirements under the

Internal Revenue Code.   See sec. 7491(a)(2)(A).   Respondent

concedes that petitioners meet this requirement;

     (b)   has maintained all records required by the Internal

Revenue Code and has cooperated with reasonable requests by the

Secretary for information, documents, meetings, etc.    See sec.

7491(a)(2)(B).   Respondent concedes that petitioners meet this

requirement;

     (c)   introduces, in a court proceeding, credible evidence

with respect to any factual issue relevant to ascertaining the

liability of the taxpayer for any tax imposed under subtitle A or

B.   See sec. 7491(a)(1).   Respondent disputes whether petitioners

meet this requirement.

     In its report for the RRA 1998, the Senate Finance Committee

explained the burden of proof provision as follows:

          The burden will shift to the Secretary under this
     provision only if the taxpayer first introduces
     credible evidence with respect to a factual issue
     relevant to ascertaining the taxpayer's income tax
     liability. Credible evidence is the quality of
     evidence which, after critical analysis, the court
     would find sufficient upon which to base a decision on
     the issue if no contrary evidence were submitted
     (without regard to the judicial presumption of IRS
     correctness). A taxpayer has not produced credible
     evidence for these purposes if the taxpayer merely
     makes implausible factual assertions, frivolous claims,
     or tax protestor-type arguments. The introduction of
     evidence will not meet this standard if the court is
     not convinced that it is worthy of belief. If after
     evidence from both sides, the court believes that the
                                - 15 -

     evidence is equally balanced, the court shall find that
     the Secretary has not sustained his burden of proof.
     [Emphasis added.]

S. Rept. 105-174, at 45-46 (1998), 1998-3 C.B. 537, 581-582.

     Petitioners contend that petitioner had a $149,200 cash

hoard on December 31, 1996.     Thus, we first decide whether

petitioners introduced evidence of petitioner’s cash hoard which,

after critical analysis, we would find sufficient upon which to

base a decision on the issue if no contrary evidence were

submitted (without regard to the judicial presumption of IRS

correctness).    See id. at 46, 1998-3 C.B. at 582.

     2.      Petitioners’ Evidence

     Petitioner testified that he accumulated a cash hoard over a

30-year period from his various jobs and from selling two houses

he owned.     He introduced bank records showing that he had a safe

deposit box which he entered 53 times from December 1987 to March

1998.     Danney Sykes and Gary Sykes each testified that they saw

petitioner with a large amount of cash on several occasions.

     Petitioner testified that, by 1970, he had saved $4,000 from

working at a store and doing odd jobs, and that, by 1971, he had

saved another $3,000 from working at a pallet mill and as a tree

trimmer.     He said that he saved about half of his income from

International Paper from 1973 to 1981 and that he had saved

$54,000 from International Paper by 1981.     He testified that he

saved $6,000 from a settlement he received from International
                              - 16 -

Paper for an injury on the job.   He said that he saved $17,000

from the sale of a house in Kansas City in 1981, and $23,000 from

the sale of a house in Yellville in 1985.   He stated that he

saved $6,000 from selling personal possessions when he sold the

house in Yellville in 1985.   He stated that his grandmother gave

him $20,000 in 1986 to replace personal items he had kept in her

house and that were lost when the house burned down.    He said

that he saved about $22,000 from 1987 to 1997 from his buying and

selling activity.

     Petitioners’ son, Gary, testified that he once “took a bunch

of money” from petitioner when he was about 6 or 7 years old and

got in a lot of trouble.

     Petitioner’s brother, Danney, testified that petitioner told

him he had saved money for many years.   Danney said:   “Every time

I’d turn around he [petitioner] had a roll of bills.”    “I’ve seen

him with * * * [what] appeared to be large sums of money.”

Danney also testified that petitioner sold his personal items

from the Yellville house at auction.

     Petitioner’s uncle, Ireland, testified that he did not know

how much money, if any, his mother (petitioner’s grandmother)

gave petitioner for items he lost when her house burned down.

Ireland said that petitioner’s grandparents lived through the

Depression and taught petitioner and him how to save money.     He

testified that he saw petitioner with “a lot of U.S. savings
                              - 17 -

bonds in his car” when petitioner visited him in the early

1980's.   He also saw petitioner with “hands full of money” and “a

considerable sum” of money.

     3.   Whether Petitioners Introduced Credible Evidence of the
          Existence and Amount of Petitioner’s Cash Hoard

     Petitioners introduced credible evidence that petitioner had

a cash hoard, such as the fact that he entered his safe deposit

box 53 times from December 1987 to March 1998 and that his family

saw him with large amounts of cash over the years.    However,

petitioners did not introduce credible evidence that petitioner

had accumulated $149,200 before 1997.    Petitioner testified that

he received a $6,000 settlement from International Paper because

he cut his finger while on the job.    However, he did not state

when the injury occurred or when he received the money.    He did

not mention the alleged payment in the jeopardy assessment

proceeding or to respondent before the trial in this case.

Petitioner’s explanation of his grandmother’s alleged $20,000

gift to him changed over time.   He told Fridley that he received

$20,000 from his grandmother’s estate in 1992.    He stated in his

December 1999 affidavit prepared for the jeopardy assessment

proceeding that his grandmother gave him $20,000 in 1986 to

replace valuable items he had kept in her house and then lost in

a house fire.   At trial, he testified that his grandmother gave

him $20,000 shortly before she went into the nursing home; i.e.,

around 1990.
                              - 18 -

     Petitioners bought the houses in Kansas City and Yellville

for $16,000 and $20,000, respectively, and sold them for $17,000

and $23,000, respectively.   Petitioner’s claim that he made a

profit of $40,000 from the sale of those houses is not credible.

Petitioner testified that he paid $6,000 towards the purchase

price of the Kansas City house from a settlement he received from

International Paper for an injury he sustained on the job, and

that he paid the remainder owed on the house ($10,000) with wages

he received from International Paper.   Petitioner’s claim that he

paid the remainder owed on the house from his wages from

International Paper is implausible in light of the fact that he

also claims that he saved $54,000 from his $96,825 wages from

1973 to 1981; that would leave less than $33,000 for petitioners

to live on for 9 years.   Petitioners’ claim that they made a

$23,000 profit in selling the Yellville house is also

implausible.   Petitioner and his uncle made an $8,000 downpayment

for the Yellville house, and petitioner later traded his pickup

truck for his uncle’s share of the house.   There is nothing in

the record to show that petitioner had the means to pay the

$12,000 balance on the house and pay petitioners’ living expenses

while working various odd jobs from 1981 to 1985.

     Petitioners contend that petitioner saved half of what he

earned.   This claim conflicts with their claim that he saved

$54,000 from his work for International Paper from 1973 to 1981
                             - 19 -

and $22,000 from his buying and selling activity from 1987 to

1997 because his total earnings from International Paper were

$96,825 (half of this would be $48,413), and his tax returns from

1989 to 1997 show that his adjusted gross income totaled $25,602

(half of this would be $12,801).    Petitioner’s claim that he

saved half of his wages from International Paper is also

implausible because that would leave only $48,413 to support

himself and his family for 9 years.

     Petitioner’s claim that he accumulated $149,200 of cash by

his frugal lifestyle, e.g., petitioners did not have long

distance telephone service, and because Mrs. Sykes received

disability payments, lacks credibility.    Petitioner stated that

Mrs. Sykes received disability payments of about $494/month,

i.e., about $5,928/year; however, he did not indicate for what

years she received those amounts.

     Petitioner’s claim that he received $6,000 from

International Paper for a work-related injury is suspicious

because he had not previously made that claim.

     Danney, Gary, and Ireland testified that they saw petitioner

with a large amount of cash on several occasions in the early

1980's, but they did not testify about the amount of the cash

hoard.

     Petitioner admitted that he incorrectly told Fridley that

the source of the cash seized from petitioners’ house on March
                                - 20 -

19, 1998, was loans.     He incorrectly certified to the Missouri

Division of Family Services that he did not have property in a

safe deposit box.     He told Pierce that he had put about $25,000-

$30,000 in the safe deposit box between January 1 and March 18,

1998.     However, the last time petitioner entered the safe deposit

box before March 18, 1998, was December 10, 1997.

     4.      Effect of the District Court Opinion in the Jeopardy
             Assessment Proceeding

     The District Court found in the jeopardy assessment

proceeding that petitioner had a cash hoard of $100,727.6

However, the issue before the District Court was whether the

jeopardy assessment was appropriate, not petitioner’s liability

for tax.     See sec. 7429(b); Gaw v. Commissioner. T.C. Memo. 1995-

373 (section 7429 review is a summary proceeding; the court does

not decide the taxpayer's tax liability); Bean v. United States,

618 F. Supp. 652, 659 (N.D. Ga. 1985); Revis v. United States,

558 F. Supp. 1071, 1074 (D.R.I. 1983).

     In deciding whether a taxpayer has offered credible

evidence, we may consider another court’s findings.     However,

absent application of res judicata or collateral estoppel, the

findings of another court are not controlling because, in this



     6
        The parties agree that respondent is not collaterally
estopped by the District Court decision from disputing that
petitioner had a cash hoard larger than $100,727. See Estate of
Merchant v. Commissioner, T.C. Memo. 1990-160, affd. 947 F.2d
1390 (9th Cir. 1991).
                                - 21 -

Court, the presiding Judge “is the trier of the facts, the judge

of the credibility of witnesses and of the weight of the

evidence, and the drawer of appropriate inferences.”    Hamm v.

Commissioner, 325 F.2d 934, 938 (8th Cir. 1963), affg. T.C. Memo.

1961-347; see Commissioner v. Scottish Am. Inv. Co., 323 U.S.

119, 123-124 (1944).

     The legislative history of section 7429 makes clear that a

determination of the taxpayer’s liability for tax is unrelated to

the jeopardy assessment proceeding:

          A determination made under new section 7429 will
     have no effect upon the determination of the correct
     tax liability in a subsequent proceeding. The
     proceeding under the new provision is to be a separate
     proceeding which is unrelated, substantively and
     procedurally, to any subsequent proceeding to determine
     the correct tax liability, either by action for refund
     in a Federal District Court or the Court of Claims or
     by a proceeding in the Tax Court.

S. Rept. 94-938, at 365 (1976), 1976-3 C.B. (Vol. 3) 57, 403;

see also Petzoldt v. Commissioner, 92 T.C. 661, 674-675 (1989).

     5.   Conclusion

     Petitioners introduced evidence relating to the amount of

petitioner’s cash hoard, but a substantial amount of that

evidence was not credible.   Section 7491(a)(1) refers to credible

evidence relating to “any factual issue”.   We do not place the

burden on respondent to prove one part of that issue and on

petitioner to prove the rest.    Thus, petitioners bear the burden

of proving the amount of the cash hoard.
                                - 22 -

B.     The Amount of Petitioner’s Cash Hoard

       We find that petitioner saved $7,000 from 1966 to 1971.   For

reasons discussed above at paragraph A-4, we believe that

petitioner saved substantially less than the amounts he claimed

from his International Paper wages, the sale of his personal

possessions, and his buying and selling activity.    Thus, we find

that he saved about one-fourth of his International Paper wages

($24,500), $2,000 from selling his personal possessions in 1985,

and about one-fourth of his total adjusted gross income from 1989

to 1997 ($6,500) from his buying and selling activity.    Upon due

consideration of the findings of the District Court, we conclude

that petitioner had a cash hoard of $40,000 ($7,000 + $24,500 +

$2,000 + $6,500) on December 31, 1996, and that petitioners had

unreported taxable income of $109,200 in 1997 from petitioner’s

participation in the fencing operation.

C.     Whether Petitioners Are Liable for the Accuracy-Related
       Penalty

       Respondent contends that petitioners are liable for the

accuracy-related penalty for negligence and substantial

understatement under section 6662(a) for 1997.

       Taxpayers are liable for a penalty equal to 20 percent of

the part of the underpayment attributable to negligence or

disregard of rules or regulations or to a substantial

understatement of income tax.    See sec. 6662(a) and (b)(1) and

(2).    Negligence includes failure to make a reasonable attempt to
                              - 23 -

comply with internal revenue laws or to exercise ordinary and

reasonable care in preparing a tax return.   See sec. 6662(c).

An understatement is substantial if it exceeds the greater of 10

percent of the tax required to be shown on the return or $5,000.

See sec. 6662(d)(1)(A).

     Petitioners concede that they are liable for the section

6662 accuracy-related penalty if we find that they earned any of

the $149,200 seized from petitioner’s participation in a fencing

operation in 1997.   Because we found that petitioners had

unreported taxable income of $109,200 from petitioner’s

participation in the fencing operation in 1997, we hold that

petitioners are liable for the section 6662 accuracy-related

penalty for 1997.

     To reflect the foregoing,

                                         Decision will be entered

                                    under Rule 155.
