DocketNumber： Docket No. 533-09.
Citation Numbers： 101 T.C.M. 1550, 2011 Tax Ct. Memo LEXIS 134, 2011 T.C. Memo. 114
Judges： WELLS
Filed Date： 5/31/2011
Status： Non-Precedential
Modified Date： 11/20/2020
Decision will be entered under
WELLS,
Some of the facts and certain exhibits have been stipulated. The parties' stipulations of fact are incorporated in this opinion by reference and are found accordingly. At the time they filed their petition, petitioners resided in Pennsylvania. Petitioners are husband and wife (hereinafter referred to individually as Mr. Chambers and Mrs. Chambers, respectively) who filed joint tax returns for their 2005 and 2006 tax years (the years in issue).
Mr. Chambers is an ordained minister who, during the years in issue, was the sole pastor of Biblical Church Ministries (sometimes also referred to as Biblical Church or Biblical Church and Global Ministries). Before he founded Biblical Church during 2003, Mr. Chambers had been the senior pastor of Pilgrim Bible Church since 1991. He resigned from his position at Pilgrim Bible Church because he wanted to concentrate more on global evangelism and planned to be out of the country for many weeks during the year. However, about a dozen of his former congregants at Pilgrim Bible Church asked him to continue 2011 Tax Ct. Memo LEXIS 134">*136 leading them in studying the Bible on Sunday mornings. Mr. Chambers agreed to continue leading them in Sunday worship with the understanding that he would be ministering abroad a number of weeks during the year and that someone else would lead worship when he was absent.
During 2003 Mr. Chambers organized Biblical Church as a "corporation sole" under Utah law. He designated himself as "overseer" of Biblical Church. As overseer, he had full control over the corporation sole, including the authority to amend its articles of corporation sole and appoint his successor. During 2006 petitioners transferred the ownership of their home from themselves as individuals to Mr. Chambers as overseer of Biblical Church, a corporation sole.
Since its inception Biblical Church has held worship services every Sunday and Bible studies on Wednesday nights. The Sunday services are held at the home of one of the church members, and the Wednesday night studies meet at petitioners' home. A typical service includes worship music, prayer, and teaching from the Bible. The normal attendance at the Sunday services ranges from 15 to 25 people. Many of those individuals attend Biblical Church exclusively as their 2011 Tax Ct. Memo LEXIS 134">*137 regular church. In addition to leading worship on Sundays and Bible studies on Wednesdays, Mr. Chambers provides pastoral counseling to the members of Biblical Church.
Mr. Chambers followed through on his plans to participate in many overseas evangelism trips. In addition to his job as a pastor at Biblical Church, he is on the staff of e3 Partners,
During each of the years in issue Mr. Chambers led two trips with e3 Partners and participated in a third trip. His travels included: A trip to Peru during April 2005; trips to two different locations in Venezuela from late June to mid-July 2005; a trip to India that lasted from December 31, 2005, until early February 2006; a trip to Costa Rica during March 2006; and a trip to South Africa during July 2006. His 2011 Tax Ct. Memo LEXIS 134">*138 family accompanied him on the mission trips, and at least five members of his congregation also participated in at least one trip. Other congregations sent volunteers on the trips he led, and he was responsible for training the members of his team in the United States before they traveled abroad.
The team members were responsible for raising their own funds for each trip, but e3 Partners coordinated fundraising by receiving donations on behalf of individual team members and using those donations to pay trip expenses for those team members. Portions of the funds raised by all of the team members were directed to the team leaders, like Mr. Chambers, who were responsible for handling all of the day-to-day expenses the team would encounter on the trip. Before each trip, e3 Partners deposited funds into a bank account provided by the team leader, who then withdrew the cash needed for the trip. All expenses incurred during the trip had to be documented by receipts, and the team leader was responsible for returning any unused funds to e3 Partners at the end of the trip. During the years in issue Mr. Chambers received into his personal bank account numerous deposits to cover trip expenses from 2011 Tax Ct. Memo LEXIS 134">*139 e3 Partners, and the parties agree that such funds were properly excluded from petitioners' income.
In addition to the funds deposited into petitioners' personal checking account by e3 Partners on behalf of other team members, petitioners also conducted their own, separate fundraising for their missions trips. Mr. Chambers solicited donations by personally contacting people through letters or phone calls. Some of the individuals he contacted made donations by writing checks to e3 Partners, but others gave by writing checks to Biblical Church, which Mr. Chambers would deposit in one of Biblical Church's bank accounts.
During both 2005 and 2006 petitioners maintained a personal checking account at M&T Bank (M&T account). Petitioners also maintained checking accounts for Biblical Church at National Penn Bank (National Penn account) and the Bank of Lancaster County (Lancaster account) (collectively, the Biblical Church bank accounts or the church bank accounts). Petitioners were the only authorized signatories for the Biblical Church bank accounts. The name listed on the church bank accounts was "Biblical Church and Global Ministries", but petitioners usually deposited checks made payable 2011 Tax Ct. Memo LEXIS 134">*140 to "Biblical Church" into the National Penn account and checks made payable to "Global Ministries" into the Lancaster account. Biblical Church had two bank accounts because Mr. Chambers was trying to separate funds for the church itself from funds that were intended to support its overseas mission trips. He had originally planned to save some of the church funds to purchase a building; but because he was very passionate about the mission work, he put most of the money toward missions.
Petitioners opened the Lancaster account before they had obtained an employment identification number (EIN) from the Internal Revenue Service (IRS). They told the bank representative that they had applied for an EIN but had not yet received it. The bank representative nonetheless allowed them to open a bank account, and she typed all of the information required on the new deposit account coversheet but left blank the space for the EIN. She then printed out the new deposit account coversheet, had petitioners sign it, and instructed them to inform the bank as soon as they received the EIN from the IRS. The bank representative's actions in setting up the account, printing out the new account coversheet, and 2011 Tax Ct. Memo LEXIS 134">*141 leaving blank the space for the EIN were consistent with protocol established by the Bank of Lancaster County at that time.
At some point, a nine-digit number was handwritten in the space for the tax identification number on the new account coversheet. The nine-digit number written on the new account coversheet and subsequently associated with the Lancaster account is the Social Security number of a minor child unrelated to petitioners, not the EIN assigned to Biblical Church. The minor child who was assigned the Social Security number was not an account holder at the Bank of Lancaster County when petitioners created the Lancaster account.
Several months after they opened the Lancaster account, petitioners also opened the National Penn account. Petitioners supplied National Penn Bank with Biblical Church's EIN, which they had obtained from the IRS by the time they opened the National Penn account. When petitioners discovered that the EIN associated with the Lancaster account was incorrect, at some point during 2006, they closed that account and opened a new account at Northwest Savings Bank (Northwest account), using a new EIN. Biblical Church also maintained an investment account at 2011 Tax Ct. Memo LEXIS 134">*142 LPL Financial during the years in issue.2011 Tax Ct. Memo LEXIS 134">*143 the compensation as income during 2006. The 2011 Tax Ct. Memo LEXIS 134">*144 IRS reconstructed petitioners' income for the years in issue by examining the deposits to the M&T account, the Lancaster account, and the National Penn account. The IRS did not include deposits into the Northwest account when it reconstructed petitioners' income. However, the parties have included bank statements and canceled checks from the Northwest account among the stipulated exhibits before the Court. Those records show that petitioners used the debit card from the Northwest account to pay for numerous purchases at Wal-Mart, K-Mart, Staples, Dollar General, and a variety of other retailers, as well as many purchases at gas stations and restaurants. Petitioners wrote checks on the Northwest account to pay for many household expenses, including their gas bills, cable bills, and sewer bills. They also wrote checks to a tile company, a chimney sweep, a mattress store, a dentist, a newspaper, a mechanic, and a cement company. On October 2, 2008, respondent mailed to petitioners a notice of deficiency determining deficiencies in income tax of $37,594 and $12,027 and penalties pursuant to Generally, the Commissioner's determination of a deficiency is presumed correct, and the taxpayer has the burden of proving it incorrect. The parties agree that petitioners bear the burden of proof on the amounts determined on the first page of the notice of deficiency. However, petitioners contend that respondent has the burden of proof on the additional amount of deficiency for 2006 asserted in the answer. Respondent contends that the additional deficiency should not be considered an increase in deficiency because the increase was due to a computation error. We agree with respondent. There is no "increase in deficiency" where the increase results from a computation 2011 Tax Ct. Memo LEXIS 134">*146 error. Respondent contends that Biblical Church is not a church. Respondent also contends that even if Biblical Church is a church, money deposited into the church bank accounts was still income to petitioners because they exercised complete control over the bank accounts and used money from those accounts to pay personal expenses. The term "church" is not defined in the Code or the regulations. We have held that whether an entity is a church is a fact-specific inquiry that considers primarily the entity's religious purposes and the means by which those purposes are accomplished. "(1) a distinct legal existence; (2) a recognized 2011 Tax Ct. Memo LEXIS 134">*148 creed and form of worship; (3) a definite and distinct ecclesiastical government; (4) a formal code of doctrine and discipline; (5) a distinct religious history; (6) a membership not associated with any other church or denomination; (7) an organization of ordained ministers; (8) ordained ministers selected after completing prescribed studies; (9) a literature of its own; (10) established places of worship; (11) regular congregations; (12) regular religious services; (13) Sunday schools for religious instruction of the young; and (14) schools for the preparation of its ministers. * * *" Biblical 2011 Tax Ct. Memo LEXIS 134">*149 Church satisfies many of the criteria. Mr. Chambers is an ordained minister, the church has a distinct legal existence as a corporation sole, the church has been meeting regularly on Sundays since 2003, its worship services include a core group of 15 to 25 attendees who exclusively attend Biblical Church, its worship services are consistently held at the same place, and Mr. Chambers teaches recognized Christian doctrine. On the basis of the foregoing, we conclude that Biblical Church is a church. We next consider respondent's contention that, even if Biblical Church is a church, money deposited into its accounts was still income to petitioners because they exercised full control over it and used it to pay personal expenses. When a taxpayer fails to keep adequate books and records, the Commissioner is authorized to determine the existence and amount of the taxpayer's income by any method that clearly reflects income. See One of the indirect methods of reconstructing income is the bank deposit method. "The use of the bank deposit method for computing income has long been sanctioned by the courts." The bank deposit method of reconstruction assumes that all of the deposits into a taxpayer's account are taxable income unless the taxpayer can show that the deposits are not taxable. Generally, where a taxpayer has dominion and control over diverted funds, they are includable in the taxpayer's gross income under We have held that deposits made to a lawyer's "cash management" accounts were income to the taxpayer where she was the only signatory on the account, used it to pay personal expenses, and did not disclose its existence to her law firm's accountant. See In It is not necessary to disregard the separate existence of the church or to challenge the tax status of the church as an entity in order to sustain respondent's determinations in this case. Whether they were entitled to the funds or embezzled the funds from the church, petitioners exercised complete dominion and control over deposits into the various bank accounts that were the basis of respondent's determination. * * * It is undisputed that 2011 Tax Ct. Memo LEXIS 134">*154 petitioners were the only signatories on the Biblical Church bank accounts and that the address listed on those accounts was that of petitioners. Mr. Chambers testified that he used the money in the church bank accounts for mission trips, mission expenses, other ministry expenses, and church expenses. Petitioners contend that the large number of checks written to themselves or to cash, totaling more than $70,000, were all for use on their mission trips, and they contend that the dates of those withdrawals line up with the dates of their mission trips. Yet many of the withdrawal dates bear little relationship to the dates of their mission trips. For instance, Mr. Chambers wrote checks to himself for $6,500 on October 31, 2005, $3,000 on November 23, 2005, and $3,500 on December 9, 2005, yet petitioners did not leave on their trip to India until December 31, 2005. Petitioners have supplied no receipts, records, or other evidence to substantiate their testimony regarding the use of the cash they withdrew from the Biblical Church bank accounts. Petitioners contend that their failure to supply records from Biblical Church to substantiate their testimony regarding the use of church funds 2011 Tax Ct. Memo LEXIS 134">*155 should be excused because pursuant to The record suggests that petitioners sometimes used Biblical Church funds to pay personal expenses. Although respondent has not contended that deposits into the Northwest 2011 Tax Ct. Memo LEXIS 134">*156 account are includable in petitioners' income, the parties nonetheless have included bank statements and canceled checks from that account in the evidence before the Court. Respondent contends that the statements and canceled checks from the Northwest account show that petitioners used Biblical Church funds to pay personal expenses. Indeed, those records show that petitioners used the debit card from the Northwest account to pay for numerous purchases at retail stores, gas stations, and restaurants. Petitioners wrote checks on the Northwest account to pay for many household expenses. Very few of the purchases from the Northwest account bear any obvious relation to Biblical Church, and petitioners did not offer any testimony or other evidence to explain how those purchases were used by the church. Petitioners contend that even if some of the expenses paid from the Northwest account were personal, those amounts are not includable in petitioners' income because they were for the purpose of providing a home for Mr. Chambers, a minister of the gospel, and therefore are exempt from taxation under The term "rental allowance" means an amount paid to a minister to rent or otherwise provide a home * * * if such amount is designated as rental allowance pursuant to official action taken in advance of such payment by the employing church or other qualified organization * * *. The designation of an amount as rental allowance may be evidenced in an employment contract, in minutes of or in a resolution by a church or other qualified organization or in its budget, or in any other appropriate instrument evidencing such official action. The designation referred to in this paragraph is a sufficient designation if it permits a payment or a part thereof to be identified as a payment of rental allowance as distinguished from salary or other remuneration. Petitioners testified that they used the cash they withdrew from the Biblical Church accounts for their overseas mission trips, and we believe they may have used some of the cash for those trips. However, the evidence also shows that petitioners sometimes used funds from the church bank accounts to pay their personal expenses, suggesting the likelihood that they also used some of the cash they withdrew from the church bank accounts for trips to pay their personal expenses. Petitioners produced no receipts or other documentation to show how the cash was used or how much money they spent on overseas mission trips. Because the burden of proof is on petitioners to produce such records and because petitioners have failed to produce any documentation, we conclude that petitioners have failed to meet their burden. Petitioners had unfettered access to the funds in the church accounts, and there is no evidence that the Biblical Church congregation had any say over how those funds were used. Indeed, the only member of the Biblical Church congregation who testified at trial had 2011 Tax Ct. Memo LEXIS 134">*159 no knowledge of the church's finances, suggesting that petitioners did not share any information about church finances with the congregation. The facts show that petitioners fully controlled the church accounts, used money in those accounts at will, including to pay personal expenses, and were not accountable to anyone in their congregation for their use of the church funds. Accordingly, we conclude that petitioners exercised dominion and control over the church bank accounts. Consequently, all deposits into those accounts, except those from nontaxable sources, are properly includable in petitioners' gross income. See When using the bank deposit method, the IRS may assume that all money deposited into the taxpayer's account during a given period constitutes taxable income, but it is required to take into account any nontaxable source or deductible expense of which it has knowledge. Respondent refused to concede that petitioners' Federal tax refunds for 2004 should not be included in petitioners' income for 2005. In his reply brief, respondent contends the following: The deposited checks in 2005 include federal income tax refund checks. In light of the circumstances and facts of this case, respondent is unwilling to concede that those refunds were correctly and properly made to petitioners. Therefore, respondent does not concede that those refunds are non-taxable in 2005. In addition to petitioners' Federal 2011 Tax Ct. Memo LEXIS 134">*161 tax refunds from 2004 and in addition to those items already conceded by respondent totaling $205, we also conclude that the following deposits into petitioners' personal bank account, the M&T account, during 2005 obviously were nontaxable: Petitioners 2011 Tax Ct. Memo LEXIS 134">*162 contend that a number of other deposits should also be considered nontaxable (disputed deposits), many of which petitioners contend are gifts. However, we conclude that the disputed deposits are properly included in petitioners' income. Although petitioners contend that the disputed deposits are nontaxable, petitioners have offered no testimony or other evidence to show that the disputed deposits are indeed nontaxable. It is not clear from looking at the list of disputed deposits that they are as petitioners claim them to be. Because petitioners have the burden of proving that such deposits are nontaxable but have not done so, we conclude that the disputed deposits are taxable. The parties agree that some of the payments into the M&T account from e3 Partners, also known as Global Partners or Global Missions, are nontaxable reimbursements. In the stipulations of fact, the parties agreed that those reimbursements totaled $10,826 for 2005. However, petitioners now contend that the reimbursements total more. We are unable to determine how the parties arrived at the sum of $10,826 and believe it to be an error. We may disregard a stipulation where it is clearly contrary to the evidence in 2011 Tax Ct. Memo LEXIS 134">*163 the record, and we do so here. See Petitioners received two types of distributions from e3 Partners during the years in issue. Mr. Chambers received what appears to be a regular salary from e3 Partners, which came in the form of regular checks of $1,000. During 2005 those checks were labeled as paid from the e3 Partners' payroll account. Mr. Chambers received other checks from e3 Partners which were payable in a variety of denominations. Halfway through 2005, e3 Partners switched to direct deposit for the nonpayroll checks. During 2006 the sum of those deposits equals exactly the amount that the parties have agreed constitutes nontaxable reimbursements. We therefore assume that those deposits are the nontaxable reimbursements to which the stipulation refers. The sum of those deposits during 2005 is $11,807.80, but that amount does not include checks that also appear to be reimbursements but that were received by Mr. Chambers before e3 Partners began depositing them directly into his account. Including those checks increases the total for nontaxable reimbursements to $15,303.87. Unless the parties agree to some other amount 2011 Tax Ct. Memo LEXIS 134">*164 during their We also conclude that respondent made several errors in his calculation of the sum of deposits into the M&T account during 2005. He made errors in petitioners' favor when he neglected to include $4,000 in "cash back" that petitioners received as part of two deposits. He also made an error in respondent's favor when he neglected to subtract a $1,000 deposit adjustment made by the bank after petitioners incorrectly recorded a $1,000 deposit as a $2,000 deposit. Accordingly, we have adjusted the sum of deposits listed below to reflect those corrections. We conclude that petitioners should include in their gross income for 2005 the deposits to the M&T account as follows: We now consider the amount from deposits into the Biblical 2011 Tax Ct. Memo LEXIS 134">*165 Church bank accounts that should be included in petitioners' gross income for 2005. Petitioners contend that certain amounts deposited into the Biblical Church bank accounts during the years in issue are not includable in petitioners' income because they represent proceeds from sales of gold coins that petitioners donated to Biblical Church. Mrs. Chambers testified that she inherited cash from her parents, used that cash to purchase gold coins, and later donated those gold coins to Biblical Church. She testified that petitioners then sold those gold coins, on behalf of Biblical Church, over the course of several years to a man named James Schlosser. Petitioners testified that James Schlosser paid for those coins with checks written on the account of Surgical Resources Business Trust by the trustee, Leroy E. Glick. During the years in issue petitioners deposited those checks, totaling $30,281, into the Biblical Church bank accounts. Petitioners offered no other evidence to substantiate their testimony about the sale of the gold coins. The checks from Surgical Resources Business Trust neither corroborate nor contradict petitioners' testimony. Many of the checks have no notation in the 2011 Tax Ct. Memo LEXIS 134">*166 memo line, but a few contain enigmatic notes such as: "Resources - i.e. See attached / Private & Confidential"; "Lawful Agreement"; or "Lawful/Resources per Agreement." Respondent contends that petitioners' testimony regarding the sale of the gold coins was contradictory. Respondent's contention is based on the premise that Mr. Chambers stated that Mrs. Chambers inherited the gold coins directly from her parents, which would contradict Mrs. Chambers' testimony that petitioners used cash they inherited from Mrs. Chambers' parents to purchase the coins. However, Mr. Chambers never clearly explained where the gold coins originated. In addition, he separately testified that petitioners had received cash from the inheritance. Although petitioners' testimony regarding the gold coins was somewhat difficult to follow, we do not find it contradictory. Nonetheless, because petitioners have the burden of proving that the $30,281 should not be included in their income and because petitioners failed to provide any evidence to corroborate their testimony, we conclude that petitioners have failed to carry their burden of proof that the income from the Surgical Resources Business Trust checks should 2011 Tax Ct. Memo LEXIS 134">*167 be excluded from petitioners' gross income. In reviewing respondent's bank deposit analysis of the Biblical Church bank accounts, we found that respondent made two minor transcription errors when he calculated the sum of deposits into the National Penn account during 2005, which we have corrected in the totals we set forth below. We found that respondent's calculations of total deposits into the Lancaster account were accurate, with minor differences due to rounding. Accordingly, we conclude that petitioners' gross income for 2005 is as follows: The sum of taxable deposits into the three accounts includes the income from Superior Walls, which the parties have agreed was taxable. The sum of $116,552.55 must be reduced by the income petitioners already reported on their return for 2005, insofar as any of that income was deposited into any of the three bank accounts. We now proceed to consider respondent's analysis of petitioners' bank deposits during 2006. In addition to those items already conceded by 2011 Tax Ct. Memo LEXIS 134">*168 respondent in his reply brief totaling $343.29, we conclude that the following deposits into the M&T account during 2006 were nontaxable: Petitioners 2011 Tax Ct. Memo LEXIS 134">*169 contend that a number of other deposits also are nontaxable, many of which petitioners contend are gifts. As we explained above, those deposits are properly included in petitioners' income because petitioners have the burden of proving that they are nontaxable but did not do so. The parties agree that $47,221 in deposits from e3 Partners during 2006 should not be included in petitioners' income because those deposits represent nontaxable reimbursements. We conclude that respondent made an error in calculating the total deposits into the M&T account during 2006 because he double-counted one deposit. Accordingly, we have adjusted the sum of deposits to reflect that correction. We conclude that petitioners should include in their gross income for 2006 the deposits from the M&T account as follows: For the reasons explained above, we conclude that petitioners also must include the deposits into the Biblical Church bank accounts in their income for 2006. Upon 2011 Tax Ct. Memo LEXIS 134">*170 review of respondent's bank deposit analysis of the Biblical Church bank accounts for 2006, we conclude that respondent neglected to include one $50 deposit from the National Penn account that we have included in the total we set forth below. We conclude that respondent's reconstruction of deposits into the Lancaster account was accurate. Accordingly, we conclude that petitioners' gross income for 2005 is as follows: The sum of taxable deposits into the three accounts includes the income from Superior Walls that the parties have agreed was taxable. The sum of $66,031.57 also must be reduced by the income petitioners already reported on their return for 2006, including the income from Superior Walls reported on their Schedule C, insofar as any of that income was deposited into any of the three bank accounts. In summary, we conclude that petitioners must include the following amounts from the bank deposit analysis in their income for the years in issue: The existence of fraud is a question of fact to be resolved upon consideration of the entire record. Respondent contends that there is sufficient circumstantial evidence in the record to conclude that petitioners fraudulently intended to evade taxes for 2005 and 2006. Respondent argues that petitioners' lack of records is circumstantial evidence of fraud. Petitioners failed to produce any Biblical Church records to substantiate their testimony 2011 Tax Ct. Memo LEXIS 134">*173 that they used cash withdrawn from the church bank accounts to fund their mission trips. Petitioners contend that pursuant to Respondent contends that the organization of Biblical Church as a corporation sole under Utah law shows that petitioners fraudulently intended to avoid paying taxes. The Commissioner has defined 2011 Tax Ct. Memo LEXIS 134">*174 a corporation sole as "a corporate form authorized under certain state laws to enable Although, as Respondent draws our attention to petitioners' failure to have Biblical Church recognized as a tax-exempt entity under Respondent further contends that Biblical Church's organizing documents set it up as a "tax-hostile" entity, showing that petitioners had no intention of complying with the tax law. Respondent points specifically to an article from Biblical Church's organizing document that states: This Corporation Sole is a full-time Ministry and Spiritual Order which * * * is mandatorily excepted by an "unrestricted" right, as referenced in United States law Title 26, Respondent contends that petitioners' attempt to assign the income they earned from janitorial work at Superior Walls to Biblical Church is evidence of their intent to conceal income. Petitioners contend that they intended their work for Superior Walls as a fundraiser for Biblical Church. The circumstances surrounding petitioners' conduct with Superior Walls are certainly suspect. However, the fact that petitioners later learned that they needed to report the income from Superior Walls on their income tax return and that they did report that income during 2006 mitigates the suspiciousness of the situation, suggesting that petitioners had no intent to evade taxes. In any case, mere suspicion does not satisfy respondent's burden 2011 Tax Ct. Memo LEXIS 134">*178 of proof for fraud, which requires clear and convincing evidence. See Finally, and most forcefully, respondent contends that petitioners' fraudulent intent to evade taxes is evidenced by the fact that they opened the Lancaster account using a false taxpayer identification number. If the record supported respondent's version of events, it would indeed be a badge of fraudulent intent. However, petitioners have offered a different story that is consistent with the uncontested facts. Both parties agree that the coversheet setting up the Lancaster account is typed except for the handwritten EIN. Respondent's witness from the bank2011 Tax Ct. Memo LEXIS 134">*179 established that the policies and procedures in place at that time permitted Bank of Lancaster County employees to open accounts for customers without an EIN, as long as those customers agreed to later supply the number. The employees were instructed to leave blank the EIN field, which would later be filled in by hand. Mr. Chambers testified that several months after petitioners originally had opened the Lancaster account, he went back to the Bank of Lancaster County to give the bank the EIN he had received from the IRS. However, when he told the bank representative that he wanted to provide the EIN for Biblical Church, she looked up the account and told him that the bank already had an EIN in its system. Mr. Chambers did not give the Bank of Lancaster County the EIN he had received from the IRS or verify that the EIN matched the number in the bank's system. The facts surrounding the EIN associated with the Lancaster account are certainly suspect, but respondent has the burden of proof to clearly and convincingly prove fraudulent intent, and he has not convinced us that his version of events is the one we should believe. As stated above, we will not sustain a finding of fraud on the basis of circumstances which at the most create only suspicion. Considering all of the facts and circumstances, we conclude that respondent has failed to prove petitioners' fraudulent intent by clear and convincing evidence. Accordingly, we hold that petitioners are not liable for the fraud penalty pursuant to In reaching these holdings, we have considered all the parties' arguments, and, to the extent not addressed herein, we conclude that they are moot, irrelevant, or without merit. To reflect the foregoing,1/14/05 136 LPL Financial Account 9842 $9,000.00 3/18/05 137 Unknown 170.00 4/13/05 139 LPL Financial Account 9842 9,000.00 4/14/05 Debit card Apple Computer 1,199.92 4/22/05 140 Unknown 1,039.00 4/22/05 141 LPL Financial Account 9842 7,000.00 5/4/05 142 CMTS 3,000.00 5/26/05 143 Association for Biblical 2,075.00 Research 6/14/05 144 Unknown 159.00 7/1/05 145 Unknown 9,000.00 8/4/05 8165 Kathryn Chambers 1,675.00 8/15/05 146 Unknown 9,500.00 10/31/05 148 Unknown 8,575.00 11/21/05 147 Unknown 300.00 2/7/06 19183 Thomas Chambers 1,500.00 2/14/06 149 Best Buy 849.99 2/28/06 150 Cash 4,500.00 3/6/06 151 Cash 8,500.00 3/21/06 152 Cash 8,000.00 3/30/06 153 Cash 7,675.00 4/11/06 154 Cash 4,100.00 4/21/06 Debit card WAWA 60.25 6/7/06 Debit card CHR*CHRISTIAN BK 430.08 6/15/06 Debit card DELL CATALOG SALES 1,590.46 7/3/06 157 Trinity Evangelical Divinity 1,000.00 School 8/7/06 158 Unknown 2,210.00 8/22/06 159 Unknown 100.00 9/7/06 160 Secretary of State 25.00 9/15/06 161 Byers Garage 601.36 9/18/06 162 Webster, Chamberlain & Bean 258.42 4/8/05 None Thomas F. Chambers $2,500 5/26/05 None Tom Chambers 2,000 6/24/05 None Thomas Chambers 2,700 10/31/05 None Thomas Chambers 6,500 11/23/05 None Thomas Chambers 3,000 12/9/05 None Tom Chambers 3,500 12/30/05 None Thomas Chambers 1,875 2/28/06 None Thomas Chambers 4,500 3/6/06 None CASA 1,100 3/29/06 None Thomas Chambers 900 4/18/06 None Thomas Chambers 3,500 5/1/06 None Kathryn Anne Chambers 800 6/1/06 None Thomas F. Chambers 1,000 6/9/06 None Tom Chambers 1,700 2/18/05 Elizabeth R. Kathryn Chambers art supplies B $6.35 Chambers 5/16/05 [Illegible] Jeremy Chambers prom gel B 8.50 5/16/05 Erie Insurance Kathryn Chambers & C2 39.00 Group Thomas Chambers 5/26/05 Elizabeth R. Justin Chambers A 5.00 Chambers 8/26/05 Elizabeth R. Kathryn Chambers A 5.00 Chambers 8/26/05 Cheryl D. Christy Chambers A 25.00 Chambers 9/6/05 Elizabeth R. Thomas F. Chambers B-day A 5.00 Chambers 9/14/05 Elizabeth R. Jeremiah Chambers A 5.00 Chambers 9/14/05 L. Jane Johnson Tom Chambers Happy 50th A3 50.00 10/7/05 Lisa B. Corby Christy Chambers mission trip A 80.00 10/31/05 Joseph B. Jeremy Chambers India A 75.00 Kirkland III Total 303.85 1 The letters correspond to the following nontaxable categories: (A) Gifts; (B) reimbursements; and (C) refunds. 2 Although the purpose of the check from Erie Insurance Group is not obvious to us, respondent conceded that a similar check paid to petitioners during 2006 was nontaxable. 3 Although we view purported gifts within the employment context, including gifts from church members to pastors, with some skepticism, see, e.g., and isolated nature of such a check from a single church member on the occasion of Mr. Chambers' birthday lead us to conclude that the transfer proceeded from a detached and disinterested generosity and is therefore a gift. Total deposits: $51,890.76 Less Federal tax refund 9,051.36 Less nontaxable items conceded by respondent 205.00 Less nontaxable items found by the Court 303.85 Less nontaxable reimbursements from e3 Partners Amount to be included in gross income 27,026.68 Taxable deposits into M&T account $27,026.68 Taxable deposits into Lancaster account 67,746.62 Taxable deposits into National Penn account Total 116,552.55 5/19/06 Yvonne S. Jeremy Chambers Congratulations A $50.00 Miller 5/19/06 L. Jane Johnson Jeremy Chambers Congratulations A 50.00 5/19/06 Elizabeth R. Jeremy Chambers A 35.00 Chambers 5/19/06 Timothy P. Jeremy Chambers graduation A 50.00 Chambers 5/19/06 Gail J. Reitzel Jeremy Chambers gift A 20.00 5/19/06 Lancaster Bible Jeremiah Thomas C 787.00 College Chambers 5/19/06 Elizabeth R. Christen Chambers [drawing of a A 5.00 Chambers birthday cake] 5/30/06 Elizabeth R. Kathryn Chambers A 5.00 Chambers 5/30/06 Donna J. Jeremy Chambers Graduation Gift A 50.00 Gregory 6/20/06 Elizabeth R. Christen Chambers A 15.00 Chambers 9/7/06 Elizabeth R. Kathryn Chambers A 73.00 Chambers 9/7/06 Pennsylvania Kathy Chambers C 15.00 Turnpike Commission 9/7/06 Paul N. Thomas F. Chambers Birthday 06 A 25.00 Chambers 9/7/06 Elizabeth R. Thomas F. Chambers [drawing of a A 5.00 Chambers birthday cake] 9/26/06 Temitope O Christy Chambers Amazon bk refund C Jegede Total 1,210.07 1 The letters correspond to the following nontaxable categories: (A) Gifts; (B) reimbursements; and (C) refunds. Total deposits $79,561.18 Less nontaxable items conceded by respondent 343.29 Less nontaxable items found by the Court 1,210.07 Less nontaxable reimbursements from e3 Partners Amount to be included in gross income 30,786.82 Taxable deposits into M&T account $30,786.82 Taxable deposits into Lancaster account 26,805.75 Taxable deposits into National Penn account Total 66,031.57 2005 $116,552.55 2006 66,031.57
1. Unless otherwise indicated, section references are to the Internal Revenue Code of 1986 (Code), as amended and in effect for the years in issue, and Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. The notice of deficiency issued to petitioners stated that respondent had determined a deficiency for 2006 of $12,027, but in his answer respondent asserts that that number was incorrect because of a computation error and that the correct amount of petitioners' deficiency is $18,769.
3. The organization was also known as Global Partners during some of the years in issue. However, to avoid confusion, we will refer to it only as e3 Partners.↩
4. Respondent has not contended that deposits into the Northwest account or into the investment account at LPL Financial should be included in petitioners' income.↩
5. Petitioners concede that compensation of $12,122 that they received from Superior Walls during 2005 should have been reported on their return for that year.↩
6. States that have corporation sole statutes include: Alabama,
7.
8. We note that respondent's witness was not the person who actually opened the Lancaster account for petitioners, nor did respondent's witness work for the Bank of Lancaster County at the time petitioners opened the account. Rather, respondent's witness was a bank employee familiar with the procedures for opening a new account that were in place at the Bank of Lancaster County during the period when petitioners opened the Lancaster account.
United States v. Wallace (Vernard), A/K/A Johnson (Anthony) , 929 F.2d 702 ( 1991 )
American Guidance Foundation, Inc. v. United States , 490 F. Supp. 304 ( 1980 )
TERRETT & OTHERS v. Taylor & Others , 3 L. Ed. 650 ( 1815 )
Neely v. Commissioner , 116 T.C. 79 ( 2001 )
Schroeder v. Commissioner , 40 T.C. 30 ( 1963 )
Estate of Bowers v. Commissioner , 94 T.C. 582 ( 1990 )
Poncet Davis v. United States , 226 F.2d 331 ( 1955 )
Nell La Compte Reaves, as of the Will of Jesse Ullman ... , 295 F.2d 336 ( 1961 )
County of San Luis Obispo v. Ashurst , 194 Cal. Rptr. 5 ( 1983 )
Reid v. Barry , 93 Fla. 849 ( 1927 )
Rutkin v. United States , 72 S. Ct. 571 ( 1952 )
Beaver v. Commissioner , 55 T.C. 85 ( 1970 )
Eden v. Commissioner , 41 T.C. 605 ( 1964 )
Tokarski v. Commissioner , 87 T.C. 74 ( 1986 )
Bruce K. Price, as Administrator of the Estate of A. M. ... , 335 F.2d 671 ( 1964 )
Thomas M. Kerr v. United States , 801 F.2d 1162 ( 1986 )
Joseph R. Dileo, Mary A. Dileo, Walter E. Mycek, Jr., ... , 959 F.2d 16 ( 1992 )
Spies v. United States , 63 S. Ct. 364 ( 1943 )
City of Little Rock v. Linn , 245 Ark. 260 ( 1968 )