T.C. Memo. 1998-96

UNITED STATES TAX COURT

LARRY L. BENNETT, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8126-95. Filed March 9, 1998.

Larry L. Bennett, pro se.

Albert B. Kerkhove, for respondent.

MEMORANDUM OPINION

FAY, Judge: Respondent determined deficiencies in

petitioner's Federal income taxes and additions to tax as

follows:
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 Additions to Tax 

Year

1987

1988

1989

1990

1991

1992

1993

Deficiency

$15,678

 15,435

 16,301

 16,721

 17,410

 18,145

 19,059

Sec.

6651(a)(1)

$3,919.50

 3,858.75

 4,075.25

 4,180.25

 4,352.50

 4,536.25

 4,764.75

Sec.

6654

$841.61

 992.88

1,102.42 

1,094.74 

 994.99

 791.41

 798.56

All section references are to the Internal Revenue Code in

effect for the taxable years in issue, and all Rule references

are to the Tax Court Rules of Practice and Procedure, unless

otherwise indicated.

The issues for decision are: (1) Whether petitioner earned

income during the years 1987 through 1993 in the amounts determined by respondent; (2) whether petitioner is liable for selfemployment taxes as determined by respondent; (3) whether petitioner is entitled to deductions in excess of those determined by

respondent; (4) whether petitioner is liable for the additions to

tax provided by section 6651(a)(1) for failure to timely file a

Federal income tax return; and, (5) whether petitioner is liable

for the additions to tax provided by section 6654(a) for failure

to make estimated tax payments.

Background

Some of the facts have been stipulated, and they are so

found. The stipulation of facts and attached exhibits are

incorporated herein by this reference. During the years at
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1It is not clear whether petitioner's wife is a general

partner or a limited partner of Cedar Grove Limited Partnership.

issue, petitioner did not file Federal income tax returns. At

the time the petition was filed, petitioner resided in Runnells,

Iowa.

During the years at issue, petitioner worked as a business

consultant. For a number of years during this period, petitioner

was paid by Larryann Hunt, Inc. for rendering consulting services. The services provided to Larryann Hunt, Inc., primarily

consisted of bookkeeping functions. It is not clear how many

other clients petitioner worked for during these years, and

petitioner has not provided any documentary evidence relating to

the amount of consulting income that he earned from 1987 through

1993.

Petitioner is a general partner in Cedar Grove Limited

Partnership (Cedar Grove). Petitioner's four children are

limited partners in this partnership.1 Cedar Grove is the record

owner of a farm, and, from 1988 through 1993, this farm was

rented to an individual named Ken Cheers. Petitioner received

rental checks from Ken Cheers and deposited them into various

checking accounts. Petitioner maintained a number of checking

accounts in the name of Cedar Grove. At times, petitioner used

money from the accounts of Cedar Grove to pay his personal living

expenses. It is not clear whether all of the checks petitioner
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received from Ken Cheers were deposited into the Cedar Grove bank

accounts.

Revenue Agent Pamela Reicks (Ms. Reicks) was assigned to

examine the tax liabilities of petitioner. Ms. Reicks first

obtained information and documents from within the Internal

Revenue Service through the information returns program. This

program compiles information on taxpayers based upon informational returns submitted to the IRS, such as Forms 1099 and Forms

W-2.

Ms. Reicks then contacted petitioner and requested

additional information. Petitioner responded that he believed

the current tax system was a voluntary system, and he had no

intention of volunteering and filing returns. Petitioner

therefore did not provide Ms. Reicks with the information she

requested. Ms. Reicks reviewed the materials she did possess and

concluded that she did not have enough information to determine

petitioner's income accurately.

In order to determine the amount of petitioner's income for

the years 1987 to 1993, respondent relied on data obtained from

the Bureau of Labor Statistics (BLS). This data detailed what it

would cost a family to live, given petitioner's profession as a

business consultant. Thus, using the BLS data, respondent

determined that petitioner earned income of $44,939, $46,747,
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$48,847, $51,436, $53,732, $56,169, $58,697 for the taxable years

1987 to 1993, respectively.

Discussion

Section 61 provides that gross incomes includes income

derived from a business and as compensation for services. This

income is subject to the tax imposed by section 1. Section 63(b)

provides that, in the case of an individual who does not elect to

itemize deductions, the term "taxable income" means gross income

minus the standard deduction and the deduction for personal

exemptions. Respondent allowed petitioner these deductions.

Taxpayers are required to maintain books and records

sufficient to establish the amount of their gross income. Sec.

6001. If the taxpayer fails to do this, then respondent is

entitled to reconstruct the taxpayer's income through the use of

any reasonable method. Holland v. United States, 348 U.S. 121

(1954). The reliance on BLS statistics in reconstructing a

taxpayer's income has been held to be reasonable. See Giddio v.

Commissioner, 54 T.C. 1530, 1533 (1970).

In this case, petitioner neither filed Federal income tax

returns nor provided respondent with any books and records

concerning his business income or compensation income. Respondent has linked petitioner to income from his farm rental

activities and his consulting services. In these circumstances,

respondent has broad latitude to reconstruct petitioner's income
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2Petitioner also argues that we lack subject matter jurisdiction because the notice of deficiency was invalid. See Scar

v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), revg. 81 T.C. 855

(1983). In this case, the notice of deficiency explains respondent's determinations in detail, including the basis for, and

computation of, the income determinations. We therefore reject

this argument and conclude that the notice of deficiency is

valid. See Campbell v. Commissioner, 90 T.C. 110 (1988).

using the BLS data. See id. We find that respondent's reconstruction of petitioner's income using the BLS statistics was

reasonable under these circumstances.

Petitioner argues that respondent's determination is

arbitrary and excessive, and therefore respondent has the burden

of proving that he had taxable income. See Day v. Commissioner,

975 F.2d 534, 537 (8th Cir. 1992), affg. in part and revg. in

part T.C. Memo. 1991-140. Petitioner bears the burden of proving

that the determination is arbitrary and excessive. Id. While we

agree with some of petitioner's statements of the law, we

disagree with petitioner's conclusion as it applies to this

case.2

In certain cases, courts will not sustain a deficiency

determination unless there is some predicate evidence that the

taxpayer received income from an activity. United States v.

Janis, 428 U.S. 433, 441-442 (1976); Day v. Commissioner, supra

at 537; Anastasato v. Commissioner, 794 F.2d 884, 887 (3d. Cir.

1986), vacating T.C. Memo. 1985-101. The evidentiary foundation
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need only be minimal. Weimerskirch v. Commissioner, 596 F.2d

358, 361 (9th Cir. 1979), revg. 67 T.C. 672 (1977).

Petitioner's primary contention is that respondent has the

burden of proof in this case because it involves an underreporting of income. However, as previously discussed, respondent has successfully linked petitioner to several incomegenerating activities. Therefore, the burden of proof rests

squarely with petitioner. Petitioner's testimony at trial was

vague, diffuse, and did not address the factual issues in

dispute. We conclude petitioner has not produced sufficient

evidence to carry his burden of proof. Accordingly, we sustain

respondent's notice of deficiency with respect to the unreported

income.

Respondent determined that petitioner was liable for selfemployment taxes under section 1401. On brief, petitioner failed

to address this issue. We treat this failure as, in effect, a

concession by petitioner. See subparagraphs (4) and (5) of Rule

151(e); Money v. Commissioner, 89 T.C. 46, 48 (1987).

Respondent also determined that petitioner was entitled to

the standard deduction and exemptions for himself and his wife. 

The BLS table that respondent used to determine petitioner's

income indicates that the average family unit contains a child

under the age of 18. Under these circumstances, we are persuaded

that respondent should have allowed petitioner an additional
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exemption for a dependent child. Accordingly, we conclude that

petitioner is entitled to an additional exemption for each year

at issue.

Finally, respondent determined that petitioner is liable for

the addition to tax for failure to file a timely return under

section 6651(a)(1) and the addition to tax for failure to pay

estimated income tax under section 6654(a). Petitioner has not

put forth any evidence to indicate that his failure to file tax

returns was due to reasonable cause and not due to willful

neglect. Sec. 6651(a); United States v. Boyle, 469 U.S. 241

(1985). Further, petitioner has not shown that he satisfied any

of the exceptions under section 6654. Accordingly, we sustain

respondent's determinations on these issues.

To reflect the foregoing, 

Decision will be entered

under Rule 155.