                         T.C. Memo. 2006-57



                       UNITED STATES TAX COURT



                    KAREN McMANUS, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13540-04.               Filed March 27, 2006.



     Philip A. Putman, for petitioner.

     Monica Gingras, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:    Respondent determined a deficiency in

petitioner’s Federal income tax for 1996 of $3,548 as well as

additions to tax under section 6651(a)(1) of $887 and section

6654 of $189.1


     1
         Unless otherwise indicated, all section references are to
                                                     (continued...)
                               - 2 -

     The issues for decision are:   (1) Whether petitioner

received $15,800 of unreported income in 1996 as respondent

determined; and (2) whether petitioner is liable for additions to

tax under sections 6651(a)(1) and 6654.

                         FINDINGS OF FACT

     Petitioner resided in La Habra, California, when she filed

the petition.

     Petitioner failed to file a Federal income tax return and

failed to pay Federal income taxes for the 1996 tax year.    On the

basis of third-party information, on April 28, 2004, respondent

issued a notice of deficiency to petitioner for the 1996 tax year

setting forth unreported non-employee income of $15,800.

     Petitioner timely filed a petition with the Court on July

29, 2004, disputing that she received unreported nonemployee

income in 1996.   Trial was held on this matter on March 17, 2005.

Although petitioner did not appear, her counsel did.

Petitioner’s counsel did not introduce witnesses nor provide

documentary evidence to support petitioner’s position.    However,

petitioner’s counsel did cross-examine respondent’s sole witness.

     During trial, respondent called one witness, Pam Wong, a tax

compliance officer employed by respondent.    Ms. Wong’s testimony

was based solely upon her memory of reviewing petitioner’s


     1
      (...continued)
the Internal Revenue Code, as amended.    Amounts are rounded to
the nearest dollar.
                                - 3 -

Internal Revenue Service administrative file, but the

administrative file was not introduced into evidence.

     According to the version of events presented by respondent

at trial, Ms. Wong had no involvement in or knowledge of this

case outside of reviewing petitioner’s administrative file for

the purpose of testifying.    On the basis of this review, Ms. Wong

testified respondent began investigating petitioner when Heath &

Associates reported it paid petitioner non-employee compensation

of $15,800 in 1996 and no corresponding return was filed by

petitioner in 1996.   To determine whether petitioner filed a

return under another name, respondent sent petitioner an initial

contact letter, to which petitioner failed to respond.

     Ms. Wong further testified respondent prepared a substitute

for return and sent a 30-day letter and a no-response report to

petitioner, to which she did not respond.   Next, respondent

issued a statutory notice of deficiency for tax year 1996 to

petitioner based upon the compensation paid to her by Heath &

Associates.

     During cross-examination as well as direct, Ms. Wong’s

responses appeared evasive.   It was also readily apparent she was

unfamiliar with the case and unprepared to provide any insight

outside of what she could recall from reading the file.

     Furthermore, respondent did not provide documentary evidence

to support Ms. Wong’s testimony or to show compensation was paid
                              - 4 -

to petitioner by Heath & Associates.   At one point during cross-

examination, Ms. Wong admitted she had no documentary evidence to

support her statements.

     Finally, respondent informed the court he was unable to

obtain the third-party records from Heath & Associates because

the company had ceased to exist.    Thus, any evidence concerning

moneys paid by Heath & Associates to petitioner was based solely

upon the notice of deficiency and the memory and credibility of

Ms. Wong.

                          OPINION

     Petitioner asserts she is not liable for the deficiency and

the additions to tax respondent determined because:   (1)

Respondent failed to meet the burden of producing evidence that

petitioner earned unreported income of $15,800 in 1996; (2)

respondent failed to meet the burden of producing evidence that

petitioner is liable for additions to tax.

     The Court of Appeals for the Ninth Circuit has determined

that in order for the presumption of correctness to attach to the

deficiency determination in unreported income cases, the

Commissioner must establish “some evidentiary foundation”

connecting the taxpayer with the income-producing activity,

Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir.

1979), revg. 67 T.C. 672 (1977), or demonstrate the taxpayer

received unreported income, Edwards v. Commissioner, 680 F.2d
                                 - 5 -

1268, 1270 (9th Cir. 1982); Malfatti v. Commissioner, T.C. Memo.

2005-19.   A deficiency determination which is not supported by

some evidentiary foundation is arbitrary and erroneous.

Weimerskirch v. Commissioner, supra at 362.   Under such

circumstances, the Commissioner has the burden of coming forward

with evidence to establish the existence and amount of any

deficiency.   Jackson v. Commissioner, 73 T.C. 394, 401 (1979).

     Respondent incorrectly relies upon Hardy v. Commissioner,

181 F.3d 1002 (9th Cir. 1999), affg. T.C. Memo. 1997-97, for the

proposition that a revenue agent’s testimony, based upon a review

of a taxpayer’s administrative file, and a copy of the taxpayer’s

notice of deficiency, identifying the third-party payor, satisfy

the needed evidentiary foundation demonstrating that the taxpayer

received unreported income.

     In Hardy v. Commissioner, supra at 1005, the Court of

Appeals for the Ninth Circuit found the Commissioner was relieved

from producing third-party income statements to prove a

taxpayer’s receipt of income because the taxpayer stipulated the

Commissioner received the statements.    Therefore, the evidentiary

foundation requirement was satisfied when the Commissioner

introduced worksheets showing tax owed on the basis of third-

party information and bank statements, in combination with the

parties’ stipulating the Commissioner’s receipt of the

third-party information.   Id.
                                 - 6 -

     Petitioner did not stipulate respondent’s receipt of

third-party information from Heath & Associates.      In addition,

the respondent was unable to provide any documentary evidence

from Heath & Associates establishing that income, of any amount,

was paid to petitioner.   Outside of Ms. Wong’s unconvincing

testimony, respondent presented no evidence proving petitioner

received any income in 1996.

     Although the Court of Appeals for the Ninth Circuit has not

defined “some evidentiary foundation”, this Court finds that the

notice of deficiency and the revenue agent’s testimony, based

upon review of the administrative file for the purpose of

testifying, without simultaneously providing the administrative

file to the Court, is an insufficient foundation.      Respondent

failed to provide adequate evidence linking petitioner with the

receipt of income from Heath & Associates.       Therefore, the Court

concludes petitioner is not liable for a deficiency of $3,548 for

1996.   On the basis of the foregoing, petitioner is not liable

for additions to tax under sections 6651(a)(1) and 6654.

     The Court, in reaching its holding, has considered all

arguments made and concludes that any arguments not mentioned

above are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                         Decision will be entered for

                                   petitioner.
