T.C. Memo. 1997-80

UNITED STATES TAX COURT

JUDY DAVIS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11713-94. Filed February 18, 1997.

Judy Davis, pro se.

C. Glenn McLoughlin, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: Respondent determined deficiencies in and

additions to petitioner's Federal income taxes as follows:

 Additions to Tax 

Year Deficiency Sec. 6651(a)(1) Sec. 6654

1990 $27,179 $6,795 ---

1991 28,752 7,188 $1,656
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1 Petitioner in her brief states: "Petitioner for the

primary purpose of resolving this matter at the trial court

level, temporarily concedes all issues set out in the Trial

Memorandum for Respondent filed with the Court on March 8, 1996 

* * * except the following: [issues number 1 and 2 above]". As

petitioner in her brief does not otherwise contest respondent's

deficiency determinations or additions to tax and did not offer

any evidence at trial, we conclude that petitioner has conceded

the uncontested items. Money v. Commissioner, 89 T.C. 46, 48

(1987).

2 Unless otherwise indicated, all descriptions of

petitioner pertain to the 1990 and 1991 years. 

All section references are to the Internal Revenue Code in effect

for the years in issue, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

After concessions,1 the issues for decision are:

(1) Whether petitioner failed to report wage income from

Flair Agency, Inc. (Flair), for the years 1990 and 1991 in the

amounts of $45,325 and $47,550, respectively; and

(2) whether petitioner may deduct net operating losses

(NOLs) for the years 1990 and 1991 in excess of the $13,935

allowed by respondent for the year 1990.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Judy Davis resided in

Edmond, Oklahoma, at the time the petition was filed. Ms. Davis

did not file individual Federal income tax returns and was

unmarried during the years in issue.2
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3 Unless otherwise noted, all descriptions of Flair pertain

to the 1990 and 1991 tax years.

Respondent's Reconstruction of Ms. Davis' and Flair's Income

Ms. Davis was a "nonselling" real estate broker licensed by

the State of Oklahoma; she worked in the Oklahoma City area. Ms.

Davis conducted her real estate operations primarily through

Flair, an Oklahoma corporation. Flair was a cash method taxpayer

that used the calendar year to compute its taxable income.3 

Flair filed an election under section 1362 to be treated as

an S corporation on January 6, 1986, and filed a U.S. Income Tax

Return for an S Corporation (Form 1120S) for the year 1989. 

There is no evidence that Flair's S corporation election was

terminated. Ms. Davis owned 60.55 percent of the stock in Flair

during 1989. There is no evidence that Ms. Davis' percentage of

stock ownership in Flair changed during the years in issue. 

Flair did not file tax returns for the years in issue. 

Respondent used a bank deposits analysis to reconstruct

Flair's gross receipts. Flair deposited its gross receipts into

three bank accounts at First Enterprise Bank, Oklahoma City,

Oklahoma. 

Ms. Davis was the president of Flair and was responsible for

the overall operations of the real estate company. Flair

deposited corporate funds in the amounts of $45,325 and $47,550

into Ms. Davis' personal bank account at First Enterprise Bank

during the years 1990 and 1991, respectively. Ms. Davis used the
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transferred funds to pay personal living expenses. Ms. Davis

received no other compensation from Flair. In the notice of

deficiency, respondent treated these deposits as wages to Ms.

Davis, deductible by Flair. 

Unexplained Deposits

During the taxable years 1990 and 1991, Ms. Davis deposited

$59,582 and $54,612, respectively, into her personal bank account

at First Enterprise Bank. Ms. Davis' deposits into First

Enterprise Bank, Oklahoma City, Oklahoma, included the $45,325 

from Flair for the year 1990 and the $47,550 from Flair for the

year 1991. 

Country Club Properties

Ms. Davis' individual Federal income tax returns for the

taxable years 1986 and 1987 included her distributive share of

losses from a partnership, Country Club Properties (Country

Club). Ms. Davis' individual Federal income tax return for the

taxable year 1988 did not include her distributive share of

ordinary losses from Country Club. 

Ms. Davis' distributive share of ordinary losses, net

section 1231 gains, and income from discharge of indebtedness

from Country Club for the year 1989 was: 

Net loss from rental real estate operations ($32,691)

Net section 1231 gain 103,246

Income from discharge of indebtedness 240,598

Ms. Davis' individual Federal income tax return for the year 1989

did not include the above items. 
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OPINION

Neither petitioner nor Flair filed income tax returns or

kept accounting records other than bank statements and canceled

checks for the years in issue. Respondent's revenue agent was

forced to construct records of income and expense for both

petitioner and Flair. Petitioner offered little in the way of

testimony at trial and called no witnesses. As the following

colloquy between the Court and petitioner illustrates, petitioner

did not dispute respondent's reconstruction of income:

THE COURT: Do you have any -- do you dispute as

to how the revenue agent came up with his numbers?

MS. DAVIS: I don't know whether I have a dispute

or not. I mean, I think that he [the revenue agent]

did that in a remarkably good way. * * * And I have

absolutely no issue with Mr. Talbott [the revenue

agent] or Mr. McLoughlin [respondent's counsel]. 

A. Wage Issue

Petitioner argues on brief that the amounts received from

Flair were either loan payments or return of capital. 

Petitioner's arguments, however, incorporate facts that are not

in the record. Assertions on brief are not evidence. See Rule

143(b). There is no evidence in the record that the amounts

received by petitioner from Flair were not compensation to

petitioner. Petitioner kept no accounting records; section 6001

requires taxpayers to maintain adequate records from which their

tax liability can be determined. Petzoldt v. Commissioner, 92

T.C. 661, 686 (1989). Respondent's determinations in the

statutory notice of deficiency are presumed to be correct. 
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Petitioner bears the burden of proving that respondent erred in

her determination. Rule 142(a). Petitioner has failed to prove

that the amounts received from Flair were not income. 

Consequently, we sustain respondent's determination on this

issue.

B. NOL Issue

Petitioner argues that she is entitled to an NOL carryover

deduction generated by losses in Country Club. Petitioner wants

the Court to allow her deductions for Country Club's losses but

not to take into account the section 1231 gain or income from

discharge of indebtedness shown on Country Club's 1989 tax

return, which exceeded the losses. Deductions are a matter of

legislative grace; petitioner has the burden of showing that she

is entitled to any deduction claimed. New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934). Petitioner offers her 1989

tax return as proof that she is entitled to a NOL deduction. A

tax return is merely a statement of a taxpayer's position and is

not evidence of the correctness of the figures and information

contained therein. Wilkinson v. Commissioner, 71 T.C. 633, 639

(1979). Petitioner has not proved either the fact or the amount

of any net operating loss for 1990 or 1991 in excess of the
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4 Respondent's notice of deficiency allowed petitioner a

NOL deduction of $13,935 for the 1990 taxable year. Respondent

has conceded the NOL deduction allowed in the notice of

deficiency.

amount conceded by respondent.4 Consequently, we sustain

respondent's disallowance.

In reaching all of our holdings herein, we have considered

all arguments made by petitioner and to the extent not mentioned

above find them to be irrelevant or without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.