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JOSE A. ALVAREZ AND WANDA ALVAREZ, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent; JOSE A. ALVAREZ, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentAlvarez v. CommissionerDocket Nos. 2849-91, 22719-93.
United States Tax Court T.C. Memo 1995-414; 1995 Tax Ct. Memo LEXIS 416; 70 T.C.M. (CCH) 518;August 24, 1995, Filed*416 Decisions will be entered under Rule 155.
H was arrested in 1985 and charged with conspiracy to distribute cocaine. When H was arrested, Ps possessed $ 551,000 in cash and $ 92,772 in cash equivalents. R used the net worth method to determine deficiencies in, and additions to, Ps' 1982 through 1984 Federal income taxes. R used the bank deposits method to determine deficiencies in, and additions to, H's 1985 through 1987 and 1989 Federal income taxes. Ps allege that R's determinations were arbitrary and capricious, and that the source of the income was a gift. W seeks innocent spouse relief under
sec. 6013(e), I.R.C. , for her 1982 through 1984 taxable years.Held : R's determination was not arbitrary and capricious, and Ps failed to prove that the source of the income was a gift.Held ,further , R's determinations of additions to tax for fraud, substantial understatement, delinquent filing of tax returns, and negligence are sustained.Held ,further , Ps are liable for self-employment tax.Held ,further , W is not entitled to innocent spouse relief for any year in issue.Howard B. Brownstein, for petitioners.Robert A. Fee, for respondent.LARO, JudgeLAROMEMORANDUM *417 FINDINGS OF FACT AND OPINION
LARO,
Judge : Two dockets are consolidated herein: (1) Jose A. Alvarez and Wanda Alvarez, docket No. 2849-91, and (2) Jose A. Alvarez, docket No. 22719-93. *418 See Rule 141(a).Jose A. and Wanda Alvarez, Docket No. 2849-91 Additions to Tax Year Deficiency Sec. 6653(b)(1) Sec. 6653(b)(2) Sec. 6661 1982 $ 27,519 $ 13,760 $ 6,880 1983 92,663 46,332 23,166 1984 395,696 197,848 98,924 Jose A. Alvarez, Docket No. 22719-93 Additions to Tax Sec. 6653 Year Deficiency Sec.6653(b)(1) (b) (2) Sec.6651(a)(1) 1985 $ 472,681 $ 236,431 -- 1986 10,752 -- -- $ 2,704 1987 10,425 -- -- 2,622 1989 8,440 -- -- 2,205 Additions to Tax Year Sec. 6653(a)(1)(A) Sec. 6653(a)(1)(B) Sec. 6661 Sec. 6662(a) 1985 -- -- $ 118,170 -- 1986 $ 574 2,688 -- 1987 553 2,606 -- 1989 -- -- -- $ 1,688 Following concessions, we must decide:
1. Whether respondent arbitrarily and capriciously issued the notices of deficiency. We hold she did not.
2. Whether petitioners are liable for additions to their 1982 through 1984 taxes for fraud, see
sec. 6653(b)(1) and(2) , and whether Mr. Alvarez is*419 liable for the same addition to his 1985 tax. We hold they are, and he is.3. Whether petitioners are liable for additions to their 1982 through 1984 taxes for substantial understatement, see
sec. 6661 , and whether Mr. Alvarez is liable for the same addition to his 1985 and 1986 taxes.sec. 6651(a)(1) . We hold he is.5. Whether Mr. Alvarez is liable for additions to his 1986, 1987, and 1989 taxes for negligence. See
sec. 6653(a)(1)(A) and(B) for 1986 and 1987;sec. 6662(a) and(b)(1) for 1989. We hold he is.6. Whether petitioners are liable for self-employment taxes, see
sec. 1401 , for their 1982 through 1984 taxable years, and whether Mr. Alvarez is liable for the same tax for his 1985 through 1987 and 1989 taxable years. We hold they are, and he is.*420 7. Whether Mrs. Alvarez is an innocent spouse, see
sec. 6013(e) , for her 1982 through 1984 taxable years. We hold she is not.FINDINGS OF FACT
Drug-Dealing Activities Involving Mr. Alvarez Mr. Alvarez was the subject of a criminal investigation conducted by a multiagency task force (Task Force). The Task Force's investigation culminated on October 3, 1985, with the arrest of Mr. Alvarez, Adolph V. *421 Carbone, and approximately 66 other suspects. Mr. Alvarez was charged with conspiracy to distribute cocaine. Mr. Alvarez was later acquitted of these charges.
Mr. Carbone was Mr. Alvarez' client. During the 2-month period ending on August 31, 1985, Mr. Carbone purchased 3 or 4 kilograms of high-quality cocaine from Mr. Alvarez at a cost ranging from $ 40,000 to $ 43,000 per kilo. Mr. Alvarez "fronted" (consigned) the kilos to Mr. Carbone, and Mr. Alvarez received cash payments for each front shortly afterwards. On one occasion, Mr. Carbone paid $ 43,000 to Mr. Alvarez at his residence in Bayville, New Jersey. Mrs. Alvarez was present at the residence when the cash payment was made.
Mr. Alvarez was arrested at his residence. A search of his residence at that time uncovered loaded weapons with at least nine rounds of ammunition, approximately 1 ounce of marijuana, an envelope containing $ 4,000 in cash, another envelope containing two safe deposit box keys, and a notebook ledger. The ledger contained numerous handwritten entries indicating that the aggregate value of assets held by petitioners in accounts, investments, and cash was $ 1,052,166.
On October 4, 1985, law enforcement*422 authorities used the keys found at Mr. Alvarez' residence to search the two safe deposit boxes. In the boxes, the authorities found: (1) $ 551,000 in cash and (2) bank passbooks and certificates of deposit totaling $ 92,772. On the same day, Mrs. Alvarez removed the contents from three safe deposit boxes of petitioners, *423 On November 22, 1989, Mr. Alvarez pleaded guilty to one count of making a false statement on the 1982 joint return in violation of
section 7207 .Respondent's Determinations of Deficiencies Petitioners failed to maintain adequate books and records during the years in issue. Respondent reconstructed Mr. Alvarez' 1985 through 1987 and 1989 taxable income through the bank deposits method. She reconstructed petitioners' 1982 through 1984 taxable income through the net-worth method. *424 This ledger, which was prepared by Mr. Alvarez, is reproduced in the appendix. The left-hand column of the table shows Mr. Alvarez' handwritten entries in the ledger.
OPINION
1. Respondent's *425Issuance of the Notices of Deficiency We must first decide whether respondent's issuance of the notices of deficiency was arbitrary and capricious. Petitioners allege that it was. In so alleging, petitioners attack the presumption of correctness that generally attaches to every deficiency notice.
Rule 142(a) ;United States v. Janis , 428 U.S. 433">428 U.S. 433Welch v. Helvering , 290 U.S. 111">290 U.S. 111Baird v. Commissioner , 438 F.2d 490">438 F.2d 490T.C. Memo. 1969-67 . Generally, taxpayers bear the burden to produce evidence to rebut the presumption.United States v. Janis ,supra at 441Gerardo v. Commissioner , 552 F.2d 549">552 F.2d 549T.C. Memo 1975-341">T.C. Memo. 1975-341 .The Court will usually not go behind a notice of deficiency to examine the evidence that the Commissioner used to make her determination.
Dellacroce v. Commissioner , 83 T.C. 269">83 T.C. 269Jackson v. Commissioner , 73 T.C. 394">73 T.C. 394Greenberg's Express, Inc. v. Commissioner , 62 T.C. 324">62 T.C. 324Anastasato v. Commissioner , 794 F.2d 884">794 F.2d 884T.C. Memo. 1985-101 ;Gerardo v. Commissioner ,supra at 554Dellacroce v. Commissioner ,supra at 280Jackson v. Commissioner ,supra at 401Anastasato v. Commissioner ,supra at 887Llorente v. Commissioner , 649 F.2d 152 (2d Cir. 1981)74 T.C. 260">74 T.C. 260 (1980).In arguing that respondent's notice of deficiency is arbitrary and capricious, petitioners rely upon
Weimerskirch v. Commissioner , 596 F.2d 358">596 F.2d 35867 T.C. 672">67 T.C. 672 (1977);Llorente v. Commissioner ,supra at 152Dellacroce v. Commissioner ,supra at 280We begin our analysis by noting that the case at issue is readily distinguishable from the
Weimerskirch case and similar cases. The instant record contains ample evidentiary support for respondent's determinations. In light of petitioners' failure to maintain adequate books and records, as required bysection 6001 , respondent's use of the net-worth method as an indirect reconstruction of petitioners' income was warranted.Holland v. United States , 348 U.S. 121">348 U.S. 121Goodman v. Commissioner , 761 F.2d 1522">761 F.2d 1522Cupp v. Commissioner , 65 T.C. 68">65 T.C. 68559 F.2d 1207">559 F.2d 1207 (3d Cir. 1977). From our examination of respondent's net-worth calculations, we also find that these calculations comport with the requirements ofHolland v. United States ,supra .Id. at 130-131Gambina v. Commissioner , 91 T.C. 826">91 T.C. 826Tokarski v. Commissioner , 87 T.C. 74">87 T.C. 74Parks v. Commissioner , 94 T.C. 654">94 T.C. 654Gambina v. Commissioner ,supra at 827 n.3Schad v. Commissioner , 87 T.C. 609">87 T.C. 609827 F.2d 774">827 F.2d 774 (11th Cir. 1987);Tokarski v. Commissioner ,supra at 76De Cavalcante v. Commissioner , 620 F.2d 23">620 F.2d 23T.C. Memo 1978-432">T.C. Memo. 1978-432 . Similarly the deficiencies*430 in Mr. Alvarez' income that respondent computed under the bank-deposits method are prima facie valid and entitled to the presumption.Tokarski v. Commissioner ,supra at 77Contrary to petitioners' argument, we find in any event that petitioners are linked to the $ 584,000 which was reflected in the first two entries on the appendix and was used in the net-worth computation of their 1984 taxable income. In addition to the testimony of Mr. Carbone, which we find to be credible, respondent presented petitioners' handwritten notebook ledger, as well as other evidence tracing those amounts to specific accounts, which provides sufficient probative and convincing evidence that petitioners possessed the $ 584,000 in cash in their 1984 taxable year. We conclude that respondent is entitled to the presumption of correctness with respect to the notices of deficiency, and petitioners retain the burden of proving respondent's determinations wrong.
Sullivan v. United States , 618 F.2d 1001">618 F.2d 1001We now turn to whether petitioners satisfied their burden of proving respondent's determinations wrong. In an attempt to*431 meet their burden, petitioners rely primarily on Mr. Alvarez' testimony at trial. Mr. Alvarez testified that Roberto Uribe, a Colombian citizen who was a personal friend and business associate, gave petitioners the $ 551,000 in cash and $ 92,772 in cash equivalents discovered by law enforcement authorities in petitioners' safe deposit boxes after Mr. Alvarez' arrest. Mr. Alvarez testified that, from 1981 to 1984, Mr. Uribe gave petitioners large sums of money to keep at their residence, and that they hid these funds in a trap door compartment underneath a closet in their apartment in Union City, New Jersey. Mr. Alvarez also testified that petitioners initially held these funds for use in a joint business relationship between him and Mr. Uribe.
Mr. Alvarez' testimony was unsupported by documentary evidence or by the testimony of another witness. We find that his testimony lacks credibility. Based on our review of the entire record herein, we find petitioners' assertion that the source of the unreported income was a gift to be unpersuasive. We find that petitioners contrived a gift scenario to attempt to explain their possession of large amounts of cash and cash equivalents.
We hold*432 that petitioners failed to prove that their cash and cash equivalents were received from a nontaxable source. We sustain the income tax deficiencies with one modification. Respondent conceded that she included (as a protective measure) the amount of assets seized from Mr. Alvarez' residence in calculating the income tax deficiencies for both 1984 and 1985. Given this concession, and due to our holding that the seized assets were includable in petitioners' 1984 taxable income, the deficiency for 1985 will be reduced accordingly, to prevent double counting of income.
2. Additions to Tax for Fraud Respondent also determined additions to tax for fraud for petitioners' 1982 through 1984 taxable years and for Mr. Alvarez' 1985 taxable year. Respondent must prove her determinations of fraud by clear and convincing evidence.
Sec. 7454(a) ;Rule 142(b) ;Rowlee v. Commissioner , 80 T.C. 1111">80 T.C. 1111Stoltzfus v. United States , 398 F.2d 1002">398 F.2d 1002section 6653(b)(1) , respondent must prove that: *433 (1) Petitioners (with respect to 1985, Mr. Alvarez) underpaid their taxes for the relevant years,section 6653(b)(2) , respondent must also prove the portion of the underpayments attributable to fraud.Sec. 6653(b)(2) ;Cooney v. Commissioner , T.C. Memo 1994-50">T.C. Memo. 1994-50Based on our review of the entire record, we hold that respondent has met her burden of proving the first prong of
section 6653(b)(1) ; i.e., underpayments of tax. In addition to the considerable evidence presented by respondent in support of her deficiency determinations, respondent's reconstruction of petitioners' 1982 through 1984 taxable income under the net-worth*434 method, and Mr. Alvarez' 1985 taxable income under the bank-deposits method, clearly and convincingly substantiates her position of an underpayment in each year. *435 Turning to the second prong ofsection 6653(b)(1) , i.e., the presence of fraud, the existence of fraud is a question of fact.Gajewski v. Commissioner , 67 T.C. 181">67 T.C. 181578 F.2d 1383">578 F.2d 1383 (8th Cir. 1978). Fraud is never presumed or imputed; it must be established by independent evidence that establishes a fraudulent intent on the taxpayer's part.Otsuki v. Commissioner , 53 T.C. 96">53 T.C. 96Spies v. United States , 317 U.S. 492">317 U.S. 492Stephenson v. Commissioner , 79 T.C. 995">79 T.C. 995748 F.2d 331">748 F.2d 331 (6th Cir. 1984). For example, an intent to conceal or mislead may be inferred from a pattern of conduct,Spies v. United States ,supra at 499Stone v. Commissioner , 56 T.C. 213">56 T.C. 213Parks v. Commissioner , 94 T.C. at 664We often rely on certain indicia of fraud in deciding the existence of fraud. The presence of several indicia is persuasive circumstantial evidence of fraud.
Beaver v. Commissioner , 55 T.C. 85">55 T.C. 85Bradford v. Commissioner , 796 F.2d 303">796 F.2d 303T.C. Memo. 1984-601 ;Petzoldt v. Commissioner , 92 T.C. 661">92 T.C. 661Based on our review of the record at hand, we conclude that respondent has*437 met her burden of proving fraud for each of the relevant years. Petitioners' (and, with respect to 1985, Mr. Alvarez') clear pattern of underreporting taxable income from 1982 through 1985, coupled with the lack of recordkeeping and concealment of cash assets, leads to a particularly strong inference of fraud.
Parks v. Commissioner ,supra at 664section 7207 . Although this conviction does not, in and of itself, establish fraudulent intent, we consider the crime evidence of Mr. Alvarez' propensity to defraud.Petzoldt v. Commissioner ,supra at 701-702*438 For the foregoing reasons, we hold that petitioners are liable for the additions to their 1982 through 1984 taxable years determined by respondent under
section 6653(b)(1) , and that Mr. Alvarez is liable for the same addition with respect to his 1985 taxable year. In so holding, we reject petitioners' argument that the period of limitations on assessment and collection for the 1982 through 1984 taxable years has expired. See sec. 6501(c)(1).We now move to respondent's additions to tax under
section 6653(b)(2) .Section 6653(b)(2) imposes an addition to tax equal to 50 percent of the interest payable on the understatement.Section 6653(b)(2) requires respondent to prove the portion of the deficiency attributable to fraud. In accordance with our discussion above, we find that the entire amount of each of the underpayments for the 1982 through 1985 taxable years was due to fraud, and we so hold.3. Additions to Tax for Substantial Understatement Respondent determined that petitioners are liable for additions to their 1982 through 1984 taxes for substantial understatement of income tax under
section 6661 , and that Mr. Alvarez is liable for the same addition to his 1985 through*439 1987 taxes. Because respondent has conceded her determination with respect to 1987, we concern ourselves only with the other years.For returns due before January 1, 1990, a taxpayer whose return contains a substantial understatement of income tax may incur an addition to tax equal to 25 percent of the underpayment attributable to the understatement.
Sec. 6661 ;Pallottini v. Commissioner , 90 T.C. 498">90 T.C. 498Sec. 6661(b)(1)(A)(i) and(ii) . An understatement is reduced to the extent that: (1) The position taken resulting in the understatement was supported by substantial authority, or (2) the taxpayer adequately disclosed in the return, or in an attachment to the return, relevant facts relating to his or her position.Sec. 6661(b)(2)(B)(i) and(ii) .The understatements on petitioners' 1982 through 1984 tax returns are clearly "substantial" under this standard. The record does not support an exception to these additions for any of the years in issue. We sustain these additions to tax against petitioners*440 for their 1982 through 1984 taxable years. With respect to Mr. Alvarez' 1985 and 1986 taxable years, we also sustain respondent's determination for: (1) The 1986 taxable year and (2) the 1985 taxable year, to the extent that the Rule 155 computation (which is necessary, in part, to "remove" the 1984 income from Mr. Alvarez' 1985 taxable year) reveals a substantial understatement for that year.
4. Additions to Tax for Untimely Filings Respondent determined an addition to tax under
section 6651(a)(1) , alleging that Mr. Alvarez failed to file timely his 1986, 1987, and 1989 tax returns. Given that Mr. Alvarez filed these returns untimely, he may avoid this addition to tax only if he proves that his failure to file timely was: (1) Due to reasonable cause and (2) not due to willful neglect.Sec. 6651(a)(1) ;United States v. Boyle , 469 U.S. 241">469 U.S. 241Sec. 301.6651-1(c)(1) , Proced. & Admin. Regs. Willful neglect means a conscious, *441 intentional failure or reckless indifference.United States v. Boyle ,supra at 245Mr. Alvarez presented no evidence on this issue. We sustain respondent's determination under
section 6651(a) for all relevant years.5. Additions to Tax for Negligence/Accuracy-Related Penalty Respondent determined additions to tax for negligence under
section 6653(a)(1)(A) and(B) for Mr. Alvarez' 1986 and 1987 taxable years, and an accuracy-related penalty undersection 6662(a) and(b)(1) for his 1989 taxable year.section 6653(a)(1)(A) imposes an addition to tax equal to 5 percent of the underpayment if any part of the underpayment is attributable to negligence, andsection 6653(a)(1)(B) imposes an addition to tax equal to 50 percent of the interest payable on the portion of the underpayment attributable to negligence. For 1989,section 6662(a) imposes a penalty equal to 20 percent of the underpayment attributable to negligence.*442 Negligence includes a lack of due care or a failure to do what a reasonable and ordinarily prudent person would do under the circumstances.
Neely v. Commissioner , 85 T.C. 934">85 T.C. 934section 6662(a) , "negligence" includes a failure to make a reasonable attempt to comply with the Internal Revenue Code, and "disregard" includes careless, reckless, or intentional disregard.Sec. 6662(c) ;sec. 1.6662-3(b)(1), Income Tax Regs. Mr. Alvarez bears the burden of proving these determinations wrong.
Rule 142(a) ;Luman v. Commissioner , 79 T.C. 846">79 T.C. 846sections 6653(a)(1) and(2) and6662(a) for all relevant years.6. Self-Employment Tax Respondent determined a deficiency in self-employment tax with respect to each year in issue. A self-employment tax is imposed on income in excess of $ 400 derived by an individual from his or her trade or business.
Secs. 1401 and1402(b) and(c) .The burden is on petitioners to prove respondent's determination wrong.
Rule 142(a) ;Welch v. Helvering , 290 U.S. 111">290 U.S. 1117. Innocent Spouse Relief A husband and wife filing a joint return for a year generally are jointly and severally liable for any tax due with respect to that year.
Sec. 6013(d)(3) .Section 6013(e) , however, provides an exception under which a spouse is relieved of his or her liability when: (1) A joint return was filed for the year in question; (2) there was a substantial understatement of tax attributable to a grossly erroneous item of the other spouse; (3) in signing the return, the "innocent spouse" neither knew, nor had any reason to know, of the substantial tax understatement; and (4) taking into account all facts and circumstances, it is inequitable to hold the claimed "innocent spouse" liable for the deficiency attributable to the tax understatement.Sec. 6013(e)(1) . The spouse claiming innocent spouse relief, in this case Mrs. Alvarez, must prove each of these four prongs.Rule 142(a) ;Bokum v. Commissioner , 94 T.C. 126">94 T.C. 126992 F.2d 1132">992 F.2d 1132 (11th Cir. 1993). Because the parties have not contested *444 the first two prongs, we limit our discussion to the last two prongs. In deciding whether it would be inequitable to hold Mrs. Alvarez jointly liable for the deficiencies in petitioners' 1982 through 1984 income taxes, we consider whether she significantly benefited from the underpayments of tax.Estate of Krock v. Commissioner , 93 T.C. 672">93 T.C. 672Mrs. Alvarez argues that it would be inequitable to hold her liable for the deficiencies because she received no significant benefit from the tax understatements. We disagree. Under the facts at hand, Mrs. Alvarez' acquisition of savings and other investment assets is a "significant benefit" to preclude innocent spouse relief.
Purificato v. Commissioner , 9 F.3d 290">9 F.3d 290T.C. Memo 1992-580">T.C. Memo. 1992-580 . In thePurificato case, the wives of two brothers sought innocent spouse relief from deficiencies due to their husbands' understatement of income. This Court concluded that neither spouse proved it would be inequitable to hold her liable for her husband's deficiency because each couple had acquired substantial joint savings and *445 other investment assets during the years in issue there. Upon appeal, the Court of Appeals for the Third Circuit agreed. In affirming this Court, the Court of Appeals rejected the wives' argument that the acquisition of joint savings or other investment assets could not, as a matter of law, constitute a significant benefit because the savings and assets did not relate to present consumption. The Court of Appeals held that the wives' position was unsupportable, observing that in the context of an income tax, i.e., a tax on income not consumption, such an argument "simply does not make sense."Id. at 294Id. Mrs. Alvarez derived a similar benefit during her 1982 through 1984 taxable years. In 1982 and 1983, Mrs. Alvarez benefited from a $ 35,000 increase in joint investment assets and savings. In 1984, petitioners' joint investments and accounts increased by at least another $ 48,000. Mrs. Alvarez also received the benefit of the $ 79,000 cash downpayment on petitioners' purchase of their Bayville residence in 1984. Accordingly, *446 we find that Mrs. Alvarez failed to prove that it would be inequitable to hold her liable for the tax understatements.
Mrs. Alvarez also failed to prove that she neither knew, nor had reason to know, of the substantial understatements.
Sec. 6013(e)(1)(C) . Mrs. Alvarez testified that she did not know of her husband's business affairs. Mrs. Alvarez testified that she witnessed Mr. Uribe showing Mr. Alvarez a briefcase full of cash, and that Mr. Uribe delivered money to her husband on several occasions. Mrs. Alvarez also testified that she knew about (and used for personal purposes) the money stashed below the trap door. We find that this testimony (the only evidence offered to prove her status as an innocent spouse) strains credulity. We find that Mrs. Alvarez knew of or should have known of the unreported income. We further note that Mrs. Alvarez' credibility before the Court was diminished by her removal of the contents of three of petitioners' safe deposit boxes the day after Mr. Alvarez' arrest. Her conduct in that respect makes us the more skeptical of her story that she knew nothing of the unreported income. We hold that Mrs. Alvarez failed to satisfy the elements ofsection *447 6013(e)(1)(B) and(C) , and that she is not entitled to "innocent spouse" relief for any of the relevant years.To reflect the foregoing,
Decisions will be entered under Rule 155 .APPENDIX
*448Ledger Date of Entries Balance Balance Location Explanation 271.0 CASA $ 271,000.00 313.0 MIMA 313,000.00 185.0 S.C. 185,000.00 12/31/84 cash in home 51.0 S.D. 51,000.00 12/31/84 cash in home 110.0 S.D. 110,000.00 12/31/84 cash in home Trust Co. of Savings Acct. No. 4.0 S. 4,000.00 12/84 New Jersey 15-500783 Trust Co. of 24.124 S. 24,196.89 08/21/84 New Jersey 5-52919 United Jersey Cert. of Dep. No. 13.794 C.D. 13,794.49 08/22/84 Bank 020237900002441 United Jersey Savings Acct. No. 2.217 S. 2,217.76 12/84 Bank 773-00688-5 United Jersey Savings Acct. in 2.000 S. 2,000.00 Bank Fairfield branch Provident Savings Acct. No. 8.527 S. 8,527.74 06/19/84 Savings 05-28524 Trust Co. of Cert. of Dep. No. 30.607 C.D. 30,607.09 07/18/84 New Jersey 51943 Cert. of Dep. in 4.000 Trust Co. of daughter's name No. AMADA C.D. 4,000.00 10/04/84 New Jersey 15-501485 Cert. of Dep. in 4.000 AMADA Banco Popular daughter's name P.C.D. 4,000.00 11/01/84 45387 Acct. jointly held by W. Alvarez and M. 6.000 WANDA Castellano 6,000.00 12/31/84 Loan to brother-in- 6.000 RICH 6,000.00 12/31/84 law 3.879 CH. Checking Acct. No. PUERTO 3,879.80 11/29/84 CitiBank 000594-836-3 3.613 S. Savings Acct. No. PUERTO 3,613.85 11/29/84 CitiBank 000594-836-3 6.153 S. Banco Popular Savings Acct. No. PUERTO 6,153.75 12/07/84 132-74780-4 3.252 CH. Banco Popular Checking Acct. No. PUERTO 3,252.13 12/07/84 132-74780-4 Total assets as of 1052166.0 1,052,166.00 Dec. 31, 1984 Footnotes
1. We separately refer to Jose A. Alvarez and Wanda Alvarez as Mr. Alvarez and Mrs. Alvarez, respectively, and collectively refer to them as petitioners.↩
2. Rule references are to the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years in issue.↩
1. 50 percent of the interest due on $ 27,519.↩
2. 50 percent of the interest due on $ 92,663.↩
3. 50 percent of the interest due on $ 395,696.↩
1. 50 percent of the interest due on $ 472,681.↩
2. 50 percent of the interest due on $ 10,752.↩
3. 50 percent of the interest due on $ 10,425.↩
3. With respect to this addition, respondent has conceded her determination for Mr. Alvarez' 1987 taxable year.↩
4. The stipulations of fact and attached exhibits are incorporated herein by this reference.↩
5. Shortly before, the Task Force's commanding officer had informed Mrs. Alvarez that the authorities would seize petitioners' assets if Mr. Alvarez did not cooperate with the investigation.↩
6. The net-worth method involves ascertaining the taxpayer's net worth at the beginning and end of a tax period and determining how much of any increase is not attributable to income reported in the return.
Petzoldt v. Commissioner , 92 T.C. 661">92 T.C. 661Tokarski v. Commissioner , 87 T.C. 74">87 T.C. 747. Petitioners concede that the entries in the ledger, with the exception of the first two items, represent their net worth on Dec. 31, 1984. Petitioners also concede that items 3 through 5, totaling $ 346,000, represent cash that they possessed in their Bayville, New Jersey, residence when Mr. Alvarez drafted the ledger.↩
8. Mr. Alvarez testified that the "271.0 CASA" and "313.0 MIMA" entries in the ledger were not part of petitioners' assets when the ledger was drafted. He testified that these items were merely cost projections associated with petitioners' plans to build a home for themselves, "CASA," and a home for Mrs. Alvarez' mother, "MIMA." We find Mr. Alvarez' testimony on this point to be patently incredible. Mr. Alvarez himself included the two ledger entries in his net worth calculation of $ 1,052,166. The inclusion of the first two items as a positive addition to net worth directly contradicts Mr. Alvarez' implausible and self-serving testimony.
Gerardo v. Commissioner , 552 F.2d 549">552 F.2d 549T.C. Memo. 1975-341 ;Jackson v. Commissioner , 73 T.C. 394">73 T.C. 3949. Given the fact that respondent bears the burden of proof, we will not bootstrap a finding of an underpayment upon petitioners and Mr. Alvarez' failure to prove respondent's deficiency determinations erroneous.
Parks v. Commissioner , 94 T.C. 654">94 T.C. 65410. Respondent's bank-deposits analysis for Mr. Alvarez' 1985 taxable year included her determination that Mrs. Alvarez was merely the nominee, and Mr. Alvarez the owner, of a certain bank account with a balance of approximately $ 1,404. The owner of property for tax purposes is a question of fact.
Schoenberg v. Commissioner , 302 F.2d 416">302 F.2d 416T.C. Memo. 1961-235 ;Hang v. Commissioner , 95 T.C. 74">95 T.C. 74Gerardo v. Commissioner , 552 F.2d 549">552 F.2d 549T.C. Memo. 1975-341 ;Tokarski v. Commissioner , 87 T.C. 74">87 T.C. 7411. We also find relevant the facts that Mrs. Alvarez witnessed Mr. Uribe delivering large sums of cash to her husband, and that she knew about the large sum of money hidden in their apartment.↩
12. Respondent also determined that the accuracy-related penalty for substantial understatement of income tax applies to Mr. Alvarez' 1989 taxable year.
Sec. 6662(a) and(b)(2) . We need not, and do not, address this determination because we sustain respondent's determination undersec. 6662(a) and(b)(1)↩ .
Document Info
Docket Number： Docket Nos. 2849-91, 22719-93.
Citation Numbers： 70 T.C.M. 518, 1995 Tax Ct. Memo LEXIS 416, 1995 T.C. Memo. 414
Judges： LARO
Filed Date： 8/24/1995
Precedential Status： Non-Precedential
Modified Date： 11/21/2020