DocketNumber： No. 13291-01S
Judges： "Panuthos, Peter J."
Filed Date： 12/11/2002
Status： Non-Precedential
Modified Date： 4/18/2021
*154 PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b), THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
PANUTHOS, Chief Special Trial Judge: This case was heard pursuant to the provisions of
Respondent determined a deficiency in petitioner's Federal income tax of $ 12,161 and an accuracy-related penalty under
Petitioner resided in Hyattsville, Maryland, at the time he filed the petition. Some of the facts have been stipulated and are so found. For convenience we combine*156 our findings of fact and conclusions.
During 1996, petitioner was employed part-time by a light fixture store. He reported $ 1,774 in wages received from his employer.
Petitioner also assisted a tax return preparer, Bakary Diomande (Mr. Diomande), with the preparation of Federal income tax returns; however, the exact nature and extent of petitioner's role in the preparation of tax returns is unclear. Although he testified that he was not a tax return preparer, petitioner also explained at trial that for tax returns that are filed electronically, "the tax preparer and the taxpayer have to sign that * * *. And if it's me who has prepared his taxes, my signature would appear there."
Petitioner testified that he received and cashed checks from Mr. Diomande's clients, which he then paid over to Mr. Diamonde, because Mr. Diomande did not accept checks as payment from his clients. The record contains a money order and numerous checks made payable to petitioner or a third party that petitioner either cashed or deposited into his Chevy Chase Bank account. For example, petitioner's Chevy Chase Bank account statements reflect that petitioner cashed in part and deposited in part a U.S. Treasury*157 refund check issued in 1996 to Somia Essomba Toto Ngosso, and deposited a U.S. Treasury refund check issued in 1996 to Constance Njombua Toto Ngosso. Petitioner, a native of the Republic of Cameroon, and Epee Ndolo Emmanuel (Mr. Emmanuel), his uncle who lives in Yaound<233>, Cameroon, engaged in a series of transactions in which they effectively exchanged U.S. dollars for Cameroonian francs (CFA francs) for the benefit of friends, business associates, and strangers. Petitioner engaged in*158 a "currency exchange transaction" and explained it as follows: Petitioner received a sum of U.S. dollars in cash from an individual who desired to send money to a third party in Cameroon; petitioner calculated the equivalent amount of CFA francs using the exchange rate for that day; petitioner either deposited the U.S. dollars he received into one of two bank accounts or held the cash in his house on behalf of Mr. Emmanuel; petitioner faxed the information concerning the U.S. dollar-CFA franc exchange rate to both Mr. Emmanuel and the designated recipient of the CFA francs in Cameroon; Mr. Emmanuel then paid the designated recipient of the CFA francs in Cameroon the equivalent amount of CFA francs in cash; and petitioner later purchased various items in the U.S., such as cars and computers, and shipped them to Mr. Emmanuel. Petitioner asserts that he did not charge a fee for his services. Three witnesses testified on petitioner's behalf that they engaged petitioner's services, free of charge, in the exchange of U.S. dollars for CFA francs. None of the witnesses provided any documentary evidence to support the testimony. As an example of the final step in the currency exchange transaction*159 petitioner presented some documents and testimony of items purchased and sent to Cameroon. Petitioner purchased a Jeep Cherokee in Virginia for approximately $ 20,000 in March or April 1996. He paid for the Jeep Cherokee with cash that he either kept in his house or withdrew from one of his bank accounts in increments of $ 2,000 or $ 3,000. At trial petitioner was unable to indicate which withdrawals or cash received from a deposit reflected on his bank account statements were used to pay for the Jeep Cherokee. Petitioner produced a bill of lading reflecting the shipping of the Jeep Cherokee from the U.S. to Cameroon in November 1996. Mr. Emmanuel's name does not appear on the bill of lading because the Jeep Cherokee was received by a shipping agent. Petitioner did not produce receipts or shipping documents for other items that he purchased for, and shipped to, Mr. Emmanuel. Petitioner did not produce other records from the currency exchange transactions, such as the letters faxed to Mr. Emmanuel or the designated recipient, because "there was no need to keep it" once the transaction was over. Petitioner explained that he accounted for the U.S. dollars that he held on behalf of Mr. *160 Emmanuel by using his bank account statements. The record contains account statements from a Citibank account that petitioner co-owned with two other individuals, Ebenezer Soh Kengne and Daniel P. Fleret. Petitioner did not explain, and it is not clear from the record, who owned the funds in the Citibank account. Respondent, utilizing a bank deposits methodology, determined that petitioner underreported $ 39,444 of income.*161 Unexplained bank deposits $ 104,239 Income tax refund checks $ 21,726 1997 receipts 2,000 Examiner error 1,624 Currency transactions 39,445 Total 64,795 ________ Underreported income 39,444 [14] Petitioner's position is that the currency exchanges are "net transactions" and that the money he received is not income to him because he acted as a conduit for Mr. Emmanuel. Gross income means all income from whatever source derived. The Commissioner is authorized to use bank deposit records to reconstruct a taxpayer's income. Generally the taxpayer bears the burden of proof. It is not clear from the record when respondent commenced the examination of petitioner's return; however, petitioner has not alleged that Respondent utilized the bank deposits method to reconstruct petitioner's income because petitioner did not present any books and records reflecting the income reported on his return. We accept petitioner's and the witnesses' generalized testimony that petitioner*164 engaged in some currency exchange transactions, and that a certain amount of the bank deposits is not income to petitioner. However, the documents and testimony are not necessarily consistent with the amounts reported on the return, and petitioner did not explain the flow of cash into and out of his bank accounts. Petitioner acknowledged at trial that he failed to retain records of the currency exchange transactions. As indicated above, respondent took into account $ 21,726 of income tax refund checks issued to third parties and cashed by petitioner on their behalf, and $ 39,445 of currency exchange transactions with Mr. Emmanuel as nontaxable sources of income. Under these facts, we conclude that respondent's reconstruction of petitioner's income was reasonable. We are satisfied that petitioner underreported income, and respondent is sustained on this issue. The next issue for our decision is whether petitioner is entitled to the claimed dependency exemption deduction. Petitioner claimed a dependency exemption deduction for Shanita Edwards (Shanita) on his return for 1996. Shanita, who was born in 1984, is the daughter of Barbara Nicholson (Ms. Nicholson), who was petitioner's girlfriend*165 during the year at issue. Petitioner testified generally that he provided for all of the food and shelter for Shanita, and that Ms. Nicholson provided for only Shanita's clothing. Petitioner admitted that he did not know whether Shanita's father or any other relative provided any of her support, and he did not know whether Ms. Nicholson received any form of Government benefit. Petitioner produced copies of Shanita's birth certificate and Social Security card. Petitioner alleges that Shanita, Ms. Nicholson, and Kimberly Nicholson (Kimberly), also a minor and a daughter of Ms. Nicholson, lived with him in his apartment in Silver Spring, Maryland, during 1996. Petitioner also alleges that Guy Behl (Mr. Behl) lived in his apartment during 1996. A taxpayer may be allowed a deduction for a dependent over half of whose support is provided by the taxpayer. The term "support" includes food, shelter, clothing, medical and dental care, education, and the like. Petitioner's testimony that he provided Shanita's food and shelter lacks credibility, and we need not accept it. The next issue for our decision is whether petitioner is*167 liable for a penalty under The penalties provided for in Respondent determined in the notice of deficiency that petitioner is liable for an accuracy-related penalty of $ 784 under At trial petitioner was unable to provide detailed and reliable testimony concerning the deposits in and withdrawals from his bank accounts. Petitioner's testimony concerning his income from tax return preparation and the currency exchange transactions was, at best, vague and inconsistent, and his testimony concerning support for Shanita was not credible or supported by any documentary evidence. He did not maintain records or accurately report his gross income. We are further satisfied that respondent's reconstruction of petitioner's income was reasonable. We conclude that his underpayment is attributable to negligence and disregard of the rules or regulations, and petitioner has not shown reasonable cause or that he acted in good faith with respect to the underpayments. Reviewed and adopted as the report of the Small Tax Case Division. To reflect the foregoing, Decision will be entered for respondent.
1. Petitioner timely filed his 1996 tax return on or about Apr. 15, 1997. The notice of deficiency at issue was mailed on Aug. 15, 2001. We note that the general 3-year period of limitations for the 1996 tax year expired on Apr. 15, 2000, but petitioner has not pleaded that the period of limitations has expired.
2. Petitioner concedes that he is not entitled to the claimed head-of-household filing status but is entitled to single filing status, and that he is not entitled to the claimed earned income credit.↩
3. There is nothing in the record indicating that these individuals are related to petitioner.↩
4. Petitioner testified at trial that he received income from his family in Cameroon and rental income from two houses that he owns in Cameroon. Respondent did not make a determination or a claim with respect to these two sources of income. Therefore, such matter is not at issue.↩