                       T.C. Memo. 2000-192



                     UNITED STATES TAX COURT



     FRISCIA CONSTRUCTION, INCORPORATED, ET AL.,1 Petitioners
         v. COMMISSIONER OF INTERNAL REVENUE, Respondent


    Docket Nos.   19874-98, 19973-98,          Filed June 28, 2000.
                  19975-98.


         Michael J. Friscia (an officer), for petitioner in

    docket No. 19874-98.

         Michael J. Friscia and Michelle R. Friscia, pro se in

    docket No. 19973-98.

         Michael J. Friscia, pro se in docket No. 19975-98.

         Patricia Pierce Davis and Claire R. McKenzie, for

    respondent.



                       MEMORANDUM OPINION

    1
      Cases of the following petitioners are consolidated
herewith: Michael J. and Michelle R. Friscia, docket No. 19973-
98, and Michael J. Friscia, docket No. 19975-98.
                                 - 2 -


     LARO, Judge:     These cases were consolidated for purposes of

trial, briefing, and opinion.    Respondent determined deficiencies

in, additions to, and penalties on petitioners’ Federal income

tax as follows:

Michael J. and Michelle R. Friscia, docket No. 19973-98:

                               Accuracy-Related Penalty
     Year         Deficiency        Sec. 6662(a)
     1994          $41,904           $8,380.80

Michael J. Friscia, docket No. 19975-98:

                               Addition to Tax and Penalty
     Year         Deficiency   Sec. 6651(a)   Sec. 6662(a)
     1995          $21,350      $2,146.10        $4,270

Friscia Construction, Inc., docket No. 19874-98:

  Fiscal Year                  Addition to Tax and Penalty
     Ended        Deficiency   Sec. 6651(a)   Sec. 6662(a)
    6/30/95        $84,814      $21,203.50     $16,963.80

Unless otherwise indicated, section references are to the

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

references are to the Tax Court Rules of Practice and Procedure.

Hereinafter, all dollar amounts are rounded to the nearest

dollar.

     After concessions, the issues for decision are:

     (1)    Whether Michael and Michelle Friscia (the Friscias) had

unreported income of $82,586 for 1994.    We hold that they had

unreported income of $28,215.
                                - 3 -

      (2)   Whether Michael J. Friscia (Michael Friscia) had

unreported income of $35,915 for 1995.    We hold that he had

unreported income of $4,196.

      (3)   Whether the Friscias and Michael Friscia are liable for

self-employment tax on the unreported income for 1994 and 1995,

respectively.    We hold that they are.

      (4)   Whether the Friscias and Michael Friscia are liable for

the accuracy-related penalty under section 6662(a) for the 1994

and 1995 taxable years.    We hold that they are.

      (5)   Whether Michael Friscia is liable for the addition to

tax for failure to file timely under section 6651(a)(1).       We hold

that he is.

      (6)   Whether deductions and costs of goods sold claimed by

Friscia Construction, Inc. (Friscia Construction), in excess of

$108,160 have been substantiated and are allowable.    We hold that

for the taxable year ended June 30, 1995, Friscia Construction

had gross receipts of $260,921 and allowable deductions and costs

of goods sold in the total amount of $229,796.

      (7)   Whether Friscia Construction is liable for the

accuracy-related penalty under section 6662(a).     We hold that it

is.

      (8)   Whether Friscia Construction is liable for the addition

to tax for failure to file timely under section 6651(a)(1).      We

hold that it is.
                               - 4 -

      To facilitate disposition of these issues, we shall first

make general findings of fact and then combine our findings and

opinion with respect to each issue.

General Findings of Fact

     Some of the facts and certain documents have been stipulated

pursuant to Rule 91.   The parties’ stipulations are incorporated

herein by reference and are found accordingly.

     At the time of the filing of the petitions herein, Michael

and Michelle Friscia resided in Lockport, Illinois, and the

principal place of business of Friscia Construction was also

Lockport, Illinois.

     During 1994 and 1995, Michael Friscia was an officer and

employee of Friscia Construction, a company founded by his

father.   Michael Friscia began working full time for Friscia

Construction after graduating from high school in 1979.   Michael

Friscia and his brother became the officers of Friscia

Construction upon their father's death in 1992.

     Friscia Construction is in the business of commercial

construction and home remodeling.   Michael Friscia worked for the

company as a carpenter and handled all of the company’s banking,

bill paying, and paperwork, including preparation of estimates

and proposals and filing tax returns.   In addition, Michael

Friscia performed construction services for his own clients

through his S corporation, Mik Mic, Inc. (Mik Mic).
                               - 5 -

     During 1994, Michelle Friscia was employed as a registered

nurse.   Through mid-1994, Michelle Friscia also operated a

business selling household products through an Amway

distributorship.

     In 1996, the Friscias’ neighborhood suffered a flood.     The

Friscias assert that as a result of the flood most of the records

substantiating income and expenses for the years at issue were

destroyed, including Friscia Construction’s invoices and accounts

receivable and the records from the Amway business.    Petitioners

did not reconstruct these records but did produce certain

substantiating documents such as bank statements, canceled

checks, check registers, and deposit slips.

Issue 1.   The Friscias’ 1994 Taxable Income

     The Friscias filed a joint 1994 Federal income tax return.

Upon audit, the Friscias were unable to produce detailed records

of their income.   As a result, respondent employed the bank

deposits method of proof.   Respondent determined that the

Friscias had gross deposits of $164,961 in 1994.    After

concessions, respondent asserts that $82,586 of this amount is

unreported income.

     Gross income is "all income from whatever source derived".

Sec. 61(a).   This text is construed broadly to include all

“accessions to wealth, clearly realized, and over which the

taxpayers have complete dominion.”     Commissioner v. Glenshaw
                                - 6 -

Glass Co., 348 U.S. 426, 431 (1955); Hawkins v. United States, 30

F.3d 1077, 1079 (9th Cir. 1994).

     Taxpayers are required to maintain adequate records of

income.   See sec. 6001.   In the absence of adequate books and

records, the Commissioner may reconstruct a taxpayer's income by

any reasonable method that clearly reflects income.    See sec.

446(b); Commissioner v. Hansen, 360 U.S. 446, 467 (1959); Harper

v. Commissioner, 54 T.C. 1121, 1129 (1970).    The bank deposits

method is an accepted method of income reconstruction when a

taxpayer has inadequate books and records and large bank

deposits.   See DiLeo v. Commissioner, 96 T.C. 858, 867 (1991),

affd. 959 F.2d 16 (2d Cir. 1992); Parks v. Commissioner, 94 T.C.

654, 658 (1990).

     Bank deposits are prima facie evidence of income.    See

Clayton v. Commissioner, 102 T.C. 632, 645 (1994).    The taxpayer

has the burden of proving that the bank deposits came from a

nontaxable source.   See Rule 142(a); Clayton v. Commissioner,

supra at 645; Estate of Mason v. Commissioner, 64 T.C. 651, 657

(1975), affd. 566 F.2d 2 (6th Cir. 1977); Sproul v. Commissioner,

T.C. Memo. 1995-207.   The bank deposits method assumes that all

money deposited into a taxpayer's bank account during a given

period constitutes taxable income, but the Government must take

into account any nontaxable source or deductible expense of which
                                - 7 -

it has knowledge.    See Clayton v. Commissioner, supra at 645;

DiLeo v. Commissioner, supra at 868.

     Respondent’s bank deposit analysis encompassed an

examination of seven different joint bank accounts owned by the

Friscias.    We review respondent’s determination as follows.

     1.     The 591 Account

     The Friscias deposited $14,043 into a bank account numbered

108034591 (the 591 account) in 1994 and earned interest thereupon

of $132.    The Friscias concede that these deposits are income.

Accordingly, $14,175 of the deposits and interest in the 591

account represents income taxable to the Friscias in 1994.

     2.     The 649 Account

     The Friscias deposited $46,172 into a bank account numbered

206090649 (the 649 account) in 1994.    The Friscias concede that

this figure represents gross receipts from Michelle Friscia’s

Amway distributorship.    However, the Friscias contend that this

figure should be offset by various claimed deductions all of

which respondent has denied.    Respondent asserts that the

Friscias’ testimony and canceled checks fail to substantiate that

any expenses were incurred in operating the Amway business.       We

disagree.

     The Amway distributorship system is well known to respondent

and this Court.    See, e.g., Elliott v. Commissioner, 90 T.C. 960

(1988), affd. without published opinion 899 F.2d 18 (9th Cir.
                               - 8 -

1990); Nissley v. Commissioner, T.C. Memo. 2000-178; Theisen v.

Commissioner, T.C. Memo. 1997-539; Rubin v. Commissioner, T.C.

Memo. 1989-290; Alcala v. Commissioner, T.C. Memo. 1984-664.      In

most of these cases, we found that the expenses of operating the

distributorship at issue were so great in comparison to the

revenue generated that the distributor lacked a true profit

motive.   Here, by contrast, respondent asserts that Michelle

Friscia’s Amway distributorship was exceptionally profitable in

that it generated $46,172 in proceeds with no expenses.    We find

this implausible, especially in light of the Friscias’ decision

to discontinue the distributorship in 1994.

     The Friscias used the 649 account as a business account for

the Amway distributorship, and the transactions therein reflect

the items of income and expense for the Amway business.    Michelle

Friscia admitted that after discontinuing the business in mid-

1994, she began to pay personal expenses out of the account.

However, she was able to identify legitimate business

expenditures through her testimony and the bank records.   The

Friscias made payments totaling $36,996 to upline distributors

and to Amway in 1994.   We find that these payments represented

$36,496 in deductible sales commissions and costs of goods sold.2




     2
      On the basis of Michelle Friscia’s testimony, we find that
$500 of the Amway products purchased in 1994 were for the
Friscias’ personal household use.
                                - 9 -

Accordingly, we hold that the Friscias’ net income in 1994 from

the Amway distributorship was $9,676 ($46,172 - $36,496).

     3.     The 533 Account

     The Friscias deposited $33,645 into a bank account numbered

206084533 (the 533 account) in 1994.    The Friscias concede that

these deposits were wages received by Michael Friscia from

Friscia Construction in 1994.

     4.     The 864 Account

     The Friscias deposited $1,450 into a bank acccount numbered

100446864 (the 864 account) in 1994 and earned interest thereupon

of $17.   Respondent concedes that the Friscias made $1,300 in

nontaxable transfers into this account.    The Friscias presented

no evidence concerning the source of the remaining $150 in

deposits.    Accordingly, $167 of the deposits and interest in the

864 account represents income taxable to the Friscias in 1994.

     5.     The 898 Account

     The Friscias deposited $1,135 into a bank account numbered

100446898 (the 898 account) in 1994.    The Friscias have provided

no explanation for the source of these deposits.    Accordingly,

the full $1,135 in deposits represents income taxable to the

Friscias in 1994.

     6.     The 522 Account

     The Friscias deposited $53,516 into a bank account numbered

206084522 (the 522 account) in 1994.    Respondent concedes that
                              - 10 -

the Friscias made $24,449 in nontaxable transfers into this

account.3

     The record reflects that the Friscias made additional

nontaxable deposits into the 522 account of $4,889, which were

Amway sales proceeds received by the Friscias in 1993.   These

proceeds are properly allocable to the Friscias’ 1993 return.

See Lavery v. Commissioner, 158 F.2d 859 (7th Cir. 1946)

(payments made by check to a cash basis taxpayer are includable

in income in the year the check is received, not the year it is

deposited), affg. 5 T.C. 1283 (1945).

     The Friscias also claim that $4,002 of the payments received

from Friscia Construction in 1994 and deposited into the 522

account were reimbursements for expenditures paid by the Friscias

on behalf of the company.   These include a $1,500 reimbursement

for a Christmas party and a $2,502 reimbursement for a computer.

The Friscias have failed to establish that these expenses were

incurred on the company’s behalf.   Thus, these amounts are

includable in the Friscias’ income for 1994.

     Accordingly, $24,178 of the deposits in the 522 account

represents income taxable to the Friscias in 1994.




     3
      Petitioners claim an additional nontaxable transfer in the
amount of $1,325 from “account 6930". This contention is
unsupported as there is no document in the record reflecting an
account 6930.
                                     - 11 -

         7.   The 004 Account

         The Friscias deposited $15,000 in a bank account numbered

252981004 (the 004 account) in 1994.          Respondent concedes that

these were proceeds from a nontaxable loan.

         8.   Summary of 1994 Income

         In sum, the deposits into the Friscias’ seven bank accounts

in 1994 reflect the following amounts of income taxable to the

Friscias in 1994:

                        Account           Income

                           591            $14,175
                           649              9,676
                           533             33,645
                           864                167
                           898              1,135
                           522             24,178
                           004              - 0 -
                                          -------
                             Total         82,976

The Friscias reported gross receipts of $54,760 in 1994, as

follows:

                 Wages less withholding1            $8,630
                 Interest                              201
                 Schedule C receipts                 4,825
                 Other income                        3,700
                 Schedule D sale                       405
                 Rental income                      22,000
                 Mik Mic proceeds2                  15,000
                                                    ------
                   Total                            54,761
     1
      The amount withheld is netted from wages because these
amounts would not have been deposited into the Friscias’ accounts.
     2
      Respondent concedes that the Friscias reported $15,000
in proceeds from Michael Friscia’s construction business on the
Mik Mic income tax returns in 1994.
                               - 12 -

Accordingly, we hold that the Friscias underreported their income

for 1994 by $28,215 ($82,976 - $54,761).4

Issue 2.   Michael Friscia’s 1995 Taxable Income

     Michael Friscia filed his 1995 tax return on December 9,

1996, claiming married filing separate status.     Again using the

bank deposits method of proof, respondent determined that Michael

Friscia made bank deposits in 1995 of $78,529, all of which

respondent determined is reportable as income.     After concessions,

respondent asserts that $35,915 of this amount is unreported

income.

     Respondent’s determination was based on an analysis of five

bank accounts, which we review as follows.

     1.    The 591, 864, and 898 Accounts

     In 1995, Michael Friscia made total deposits of $3,515,

$1,350, and $705, respectively, into the 591, 864, and 898

acounts.   Michael Friscia provided no nontaxable source for any of

these deposits.   However, these accounts were all joint accounts

in the names of Michael Friscia and Michelle Friscia.    Therefore,



     4
      This holding conflicts with respondent’s request for
admission No. 6, which was deemed admitted by reason of the
Friscias’ failure to serve and file a response to respondent’s
Requests for Admission within 30 days. See Rule 90. That
admission stated: “The total of petitioners’ unreported income
for the taxable year 1994 was at least $123,335.00.” Respondent
made no mention of admission No. 6 at trial or in his posttrial
brief and has made numerous concessions that conflict with the
admission. Under these circumstances, we conclude that
respondent has voluntarily withdrawn request for admission No. 6.
                                  - 13 -

only one-half of the unexplained deposits constitutes an item of

gross income to Michael Friscia.     See Van Eck v. Commissioner,

T.C. Memo. 1995-570.     Accordingly, $2,785 of the deposits into

these accounts represents income to Michael Friscia in 1995.

        2.   The 533 Account

     Michael Friscia deposited $20,760 into the 533 account in

1995.     Michael Friscia concedes that this entire amount represents

wages he earned from Friscia Construction in 1995 and is

reportable by him as income.

     3.      The 522 Account

     Michael Friscia deposited $52,199 into the 522 account in

1995.     Respondent concedes that Michael Friscia made $17,949 in

nontaxable transfers into this account.     Michael Friscia has

established that the following additional deposits into the 522

account are not taxable to him:     (i) $12,692 in wages earned by

Michelle Friscia, and (ii) $3,000 in nontaxable proceeds from the

sale of a truck inherited from his father.     Michael Friscia

concedes that he deposited $18,345 in proceeds from his Mik Mic

business and wages from Friscia Corporation into the account.

One-half of the remaining $213 (or $107) in unexplained deposits

is taxable to Michael Friscia because of his joint interest in the

account.     See id.   Accordingly, $18,452 of the deposits into the

522 account represents income to Michael Friscia for 1995.
                                 - 14 -

     4.    Summary of 1995 Income

     In sum, we find that Michael Friscia had the following

amounts of income in 1995:

                     Account              Income

                   591/864/898            $2,785
                   533                    20,760
                   522                    18,452
                                          ------
                     Total                41,997

We further find that Michael Friscia reported gross receipts of

$37,801 in 1995, as follows:

                  Interest                  $221
                  Rental income           22,000
                  Mik Mic proceeds1       15,580
                                          ------
                    Total                 37,801
     1
      Unlike for 1994, respondent contests the amount Michael
Friscia testified he reported on the Mik Mic returns in 1995.
Respondent provides no explanation for this inconsistency. We
find Michael Friscia's testimony as to the amounts reported on the
Mik Mic returns to be equally credible as to both 1994 and 1995.
Accordingly, we hold that Michael Friscia underreported his income

for 1995 by $4,196 ($41,997 - $37,801).

Issue 3.   Self-Employment Tax for 1994 and 1995

     In the notice of deficiency, respondent determined that the

Friscias and Michael Friscia are liable for self-employment taxes

for the amounts underreported in 1994 and 1995, respectively.    The

Friscias fail to offer any evidence or analysis of this issue and

so fail to meet their burden of proof.     Accordingly, we hold that

the amounts underreported represent income from self-employment
                               - 15 -

subject to self-employment tax under section 1401 and that the

Friscias may deduct one-half of the self-employment tax paid under

section 164(f).

Issue 4.   Negligence Accuracy-Related Penalty for 1994 and 1995

      Section 6662(a) imposes a penalty in an amount equal to 20

percent of the underpayment of tax attributable to one or more of

the items set forth in section 6662(b).      Section 6662(b)(1)

applies an accuracy-related penalty to the portion of an

underpayment attributable to negligence or disregard of rules or

regulations.   The Friscias bear the burden of proving that

respondent’s determination is erroneous.      See Rule 142(a); Axelrod

v. Commissioner, 56 T.C. 248, 258-259 (1971).      Negligence includes

any failure to make a reasonable attempt to comply with the

Internal Revenue Code.   See sec. 6662(c).    Such negligence may be

excused if it is found that the taxpayer acted with reasonable

cause and in good faith with respect to the underpayments.        See

id.

      Reliance on professional advice alone is not an absolute

defense to negligence but rather a factor to be considered.        See

Froehlich v. Commissioner, T.C. Memo. 1996-487.      In order for

reliance on professional advice to excuse a taxpayer from the

negligence penalty, the taxpayer must show that the professional

had the expertise and the knowledge of the pertinent facts to

provide competent advice on the subject matter.     See Goldman v.
                               - 16 -

Commissioner, 39 F.3d 402, 408 (2d Cir. 1994), affg. T.C. Memo.

1993-480; Freytag v. Commissioner, 89 T.C. 849, 888 (1987), affd.

904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991);

Kozlowski v. Commissioner, T.C. Memo. 1993-430, affd. without

published opinion 70 F.3d 1279 (9th Cir. 1995).

     The Friscias underreported their income for 1994 by $28,215,

and Michael Friscia underreported his income for 1995 by $4,196.

Though their returns were prepared by an accountant, the Friscias

did not present any evidence to show that the underreporting was

due to any act of their accountant or reliance upon his advice.

     The Friscias contend that the accuracy-related penalty should

not apply because their records were destroyed in a 1996 flood.

We have found as a fact that the Friscias underreported their

income.   The Friscias have admitted that at least a portion of the

underreported amount stems from their own negligence, such as

deducting personal expenses as Amway business expenses.   The

Friscias’ failure of proof as to the remaining amounts of

underreported income provides no basis for a finding of reasonable

cause.

     Accordingly, we find that the Friscias and Michael Friscia

are liable for the accuracy-related penalty for 1994 and 1995,

respectively.
                                 - 17 -

Issue 5.   Michael Friscia’s Section 6651 Addition to Tax

     Respondent determined an addition to tax under section

6651(a)(1) for Michael Friscia’s 1995 taxable year, asserting that

Michael Friscia failed to file a timely return.    In order to avoid

this addition to tax, Michael Friscia must prove that the failure

was due to reasonable cause and not willful neglect.    See sec.

6651(a)(1); Rule 142(a); United States v. Boyle, 469 U.S. 241, 245

(1985); Harris v. Commissioner, T.C. Memo. 1998-332.

     Michael Friscia received an extension of time to file his

1995 tax return, which extended the due date for filing his 1995

tax return to October 15, 1996.    He did not file his 1995 tax

return until December 9, 1996.    There is no evidence in the record

with respect to why Michael Friscia's 1995 tax return was filed

late or whether reasonable cause existed.

     Michael Friscia argues on brief that the loss of his business

records in the 1996 flood caused the delay in filing his 1995

return.    Implicit in Michael Friscia’s argument is that he needed

the extra time to reconstruct the lost records.    However, the

Friscias made no attempt to reconstruct any of the lost records at

that time.   Thus, the same records that were available to Michael

Friscia on October 15, 1996, when his return was due, were

available to him on December 9, 1996, when he filed his return.

Moreover, we have held that the loss of records in an involuntary
                                   - 18 -

action does not relieve taxpayers of their duty to file a timely

return.    See Chamberlin v. Commissioner, T.C. Memo. 2000-50.

     Accordingly, we hold that Michael Friscia is liable for the

section 6651 addition to tax with respect to the net amount of tax

due on his 1995 tax return.

Issue 6.    Friscia Construction’s Allowable Deductions

     Respondent’s notice of deficiency denied all of Friscia

Contruction’s costs of goods sold and deductions for the taxable

year ended June 30, 1995 (the 1995 taxable year).    On brief,

respondent concedes that Friscia Construction is entitled to costs

of goods sold and deductions of $108,160.

     Friscia Construction claimed costs of goods sold on its 1995

taxable year corporate tax return of $222,264 along with the

following deductions:

                Accounting                    $650
                Truck expense                5,393
                Misc.                          111
                Dues                           486
                Equipment rental                55
                Union dues                   1,204
                Insurance                    4,713
                Office                         345
                Postage                         64
                Telephone                    5,682
                Utilities                    1,105
                Supply                       1,501
                Bank charges                   132
                Promo                          430
                License                         96
                                            ------
                  Total deductions          21,967
                              - 19 -

     On the basis of Michael Friscia’s testimony, the canceled

checks, and banking records we are convinced that Friscia

Construction was conducting a legitimate construction business and

necessarily had a variety of expenses in connection with such

operations, which would be allowable as deductions herein.

Friscia Construction was thus entitled to some amount of

deductions under section 162(a) in connection with the business.

See Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).     Michael

Friscia provided specific testimony at trial about the company’s

construction projects for the year, and we find a majority of the

claimed expenses to be consistent with these activities.

     Upon our detailed review of the record we find that Friscia

Construction is entitled to costs of goods sold and deductions for

the 1995 taxable year as follows:

               Costs of goods sold     $135,645
               Wages1                    68,756
               Licenses                     220
               Advertising                  150
               Accounting                   650
               Truck maintenance/gas      4,375
               Supplies                     198
               Dues                       1,759
               Insurance                  4,743
               Office expense               736
               Telephone                  5,683
               Legal fees                 2,500
               Bank charges                 132
               Vehicle depreciation       4,249
                                       --------
                 Total                  229,796
     1
      The deduction for wages reflects a concession by
respondent, to which petitioner agrees.
                                 - 20 -

     Friscia Construction reported gross receipts for the 1995

taxable year of $262,211, which respondent has not challenged.

However, this figure included Amway sales of $1,290, which we

previously allocated to Michelle Friscia’s Amway distributorship

for the Friscias’ 1994 taxable year.      Accordingly, we find Friscia

Construction’s gross receipts for the 1995 taxable year to be

$260,921.

     Taking the above into account, Friscia Construction had a net

profit of $31,125 ($260,921 - $229,796) for the 1995 taxable year,

representing a profit margin of 11.9 percent.     Respondent conceded

on brief that Friscia Construction’s profit margin was between 8

and 12 percent.     Our determination is in the high range of

respondent’s concession, but the record does not support a lower

margin.

     Friscia Construction reported a loss for the 1995 taxable

year of $611.     Accordingly, we hold that Friscia Construction

underreported its income by $31,736.

Issue 7.    Friscia Construction’s Negligence Accuracy-Related
            Penalty

     Respondent determined a negligence accuracy-related penalty

under section 6662(a) for Friscia Construction’s 1995 taxable

year.     The record does not show that the company was not negligent

or the existence of reasonable cause.      Though Fricia

Construction’s return was prepared by an accountant, there was no

testimony at trial that the company relied upon its accountant’s
                                - 21 -

advice with respect to claiming any of the disallowed costs of

goods sold or deductions.   Accordingly, we sustain respondent’s

determination on the applicability of this penalty.

Issue 8.   Friscia Construction’s Section 6651 Addition to Tax

     Friscia Construction filed a Form 1120, U.S. Corporation

Income Tax Return, for the 1995 taxable year (the 1995 return), on

November 8, 1996.   As extended, the due date for Friscia

Construction’s 1995 return was March 15, 1996.

     Respondent determined an addition to tax under section

6651(a), asserting that Friscia Construction failed to file a

timely 1995 return and that it did not show that its failure was

due to reasonable cause.    Michael Friscia testified that he did

not know why the 1995 return was filed late.     There is no evidence

in the record that Friscia Construction had reasonable cause for

filing the 1995 return late.    Accordingly, we hold that Friscia

Construction is liable for an addition to tax under section

6651(a).

     We have considered all arguments by both parties for holdings

contrary to those which we reach herein, and, to the extent not

discussed above, have found those arguments to be irrelevant or

without merit.

     To reflect the foregoing and concessions,

                                          Decisions will be entered

                                     under Rule 155.
