T.C. Memo. 1998-403

UNITED STATES TAX COURT

CAROLYN M. FANKHANEL, Petitioner v. 

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 2835-95. Filed November 12, 1998.

P failed to file returns for 11 years. P claims

that R’s notice of deficiency constituted a “naked

assessment”, that she is entitled to additional

dependency exemptions for some years, that she received

no interest income on child-support arrearages, that

she had additional rental property connected expenses,

and that she is not liable for additions to tax.

Held: R’s determination of deficiencies is not

arbitrary and, thus, is not a naked assessment. Held,

further, sufficient evidence supports R’s determination

of unreported income. Held, further, P received

interest on child-support arrearages. Held, further,

P failed to prove her entitlement to additional

dependency exemptions. Held, further, P failed to

prove additional rental-property-connected expenses. 

Held, further, P is liable under secs. 6651(a)(1) and

6654(a), I.R.C., additions to tax. Held, further, on

Court’s own motion, a penalty in the amount of $5,000

is imposed under sec. 6673(a)(1), I.R.C. 
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Carolyn M. Fankhanel, pro se.

Charles Baer, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HALPERN, Judge: By notice of deficiency dated November 21,

1994 (the deficiency notice), respondent determined deficiencies

in petitioner's Federal income taxes, and additions to tax, as

follows:

 Additions to Tax 

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

1983 $7,892 $1,973 $483

1984 2,622 656 165

1985 27,556 6,889 1,579

1986 9,535 2,384 461

1987 1,941 485 104

1988 3,601 900 232

1989 3,892 973 263

1990 

198 62 -

1991 1,398 350 80

1992 178 100 -

1993 8,689 2,172 -

1In 1990, $36 was withheld from wages received by petitioner

and was submitted to the Internal Revenue Service. Thus, the 

balance of tax that respondent claims is due from petitioner for

that year is $62.

The issues for decision are whether (1) respondent’s notice

of deficiency is arbitrary, (2) respondent bears the burden of

proof with respect to items of unreported income, (3) petitioner

may claim personal exemption deductions on account of her two

sons, (4) petitioner must report interest payments with respect

to child-support arrearages, (5) petitioner must report items of

income received in kind, (6) petitioner is entitled to additional
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1 In part, Rule 151 provides as follows:

RULE 151. BRIEFS

* * * * * * *

(e) Form and Content: * * *

* * * * * * *

 (3) * * * In an answering or reply brief, the party

shall set forth any objections, together with the

reasons therefor, to any proposed findings of any other

party, showing the numbers of the statements to which

the objections are directed; in addition, the party may

set forth alternative proposed findings of fact.

Petitioner failed to file an answering brief. Because

petitioner failed to file an answering brief, petitioner failed

to object to any of respondent’s proposed findings of fact. 

(continued...)

deductions on account of rental real estate related expenditures,

and (7) the additions to tax apply. On our own motion, we also

decide that petitioner must pay a penalty under section

6673(a)(1) on account of proceedings instituted primarily for

delay and for taking groundless positions.

Unless otherwise noted, 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.

FINDINGS OF FACT

Introduction

The parties failed to stipulate any facts. They have,

however, stipulated to certain exhibits, and those exhibits are

incorporated herein by this reference.1 Certain matters are
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1(...continued)

Accordingly, we must conclude that petitioner has conceded

respondent’s proposed findings of fact as correct except to the

extent that petitioner’s opening brief contains proposed findings

clearly inconsistent therewith. See, e.g., Estate of Freeman v.

Commissioner, T.C. Memo. 1996-372.

deemed admitted by petitioner pursuant to Rule 90; those matters

also are incorporated herein by this reference.

Petition

At the time petitioner filed the petition in this case, she

resided in Bristol, West Virginia.

Failure to File

Petitioner failed to file Federal income tax returns for the

11 taxable (calendar) years in issue (1983 through 1993). 

Introduction to Petitioner’s Income Producing Activities

Petitioner lived in Colorado from 1978 until November 1989,

when she moved to Florida. Petitioner obtained a Colorado real

estate salesperson’s license in 1978 and worked for various real

estate agents in Colorado from then until 1984, when she obtained

a Colorado real estate broker’s license. She then formed her own

real estate company, Fankhanel and Associates, which employed two

to four persons and provided petitioner with an income until she

left Colorado in 1989. During the time she lived in Colorado,

petitioner also owned several pieces of rental real estate,

engaged in real estate development, and was a partner in a plant

store. Petitioner sold her Colorado real properties when she

left Colorado. 
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Petitioner moved to Florida in November 1989. From then

through 1993, petitioner engaged in various income-producing

activities. Petitioner earned limited income in 1990. For a

period of 9 months, beginning in October 1991, petitioner worked

as a real estate and money broker in Orlando, Florida. During

1991, 1992, and 1993, petitioner received various payments in

kind for legal services and lobbying activities. During 1991,

1992, and 1993, petitioner also received payments of interest

with respect to child support arrearages. 

Specifics of Petitioner’s Income-Producing Activities

1983

Petitioner deposited in excess of $36,000 in her bank

accounts. 

Petitioner filed a verification of employment form with

Waterfield Mortgage Co. in 1984 that stated that she was employed

by “FRCC” and received base pay of $36,500 from her job in 1983. 

Petitioner jointly purchased real property at 2272 Bannock, 

Denver, Colorado, with Terry Harper and collected gross rental

income of $4,800 from that property. Petitioner and Mr. Harper

split the rental income on a 50-percent basis.

1984

Petitioner filed a verification of employment form with

Waterfield Mortgage Co. that stated that petitioner’s base pay

for 1984 from "FRCC" was $36,000.

Petitioner received rental income of $10,463 from real

property in Denver, Colorado. 
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1985

Petitioner stated in a financial statement filed in 1986

with South Denver National Bank (SDNB) that she received $48,000

in gross commissions in 1985 from Fankhanel and Associates as an

investment broker.

Petitioner received rental income of $13,950 from real

property in Denver, Colorado.

Petitioner sold her partnership interest in Tiara Apartments

Limited Partnership for a recognizable gain of $66,667.

1986

Petitioner stated in a financial statement filed in 1987

with SDNB that she received $50,000 in salary and commission

income in 1986.

Petitioner received a commission check in the amount of

$32,500 and deposited $23,500 of that amount in Landmark Bank on

January 28, 1986. 

Petitioner received rental income of $13,950 from real

property in Denver, Colorado. 

1987

Petitioner deposited at least $20,072 in her bank accounts. 

Petitioner stated in a financial statement filed in 1987

with SDNB that, as of the date of the statement, she was employed

as a real estate broker with an annual income of $50,000. 

Petitioner received rental income of $8,754 from real

property in Denver, Colorado. 
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1988

Petitioner deposited at least $27,780 in her bank accounts. 

Petitioner received rental income of $4,464 from real

property in Denver, Colorado. 

1989

Petitioner deposited at least $16,101 in her bank accounts. 

Petitioner received rental income of $1,860 from real

property in Denver, Colorado. 

Petitioner exchanged real estate commissions due her for a

mobile home in Gamby, Colorado, with an assessed value of $2,140. 

1990

Petitioner deposited at least $6,680 in her bank accounts. 

Petitioner received nonemployee compensation of $694 from

CFI Hospitality Group, Inc. 

Petitioner received employee compensation of $475 from

Island One, Inc. 

1991

Petitioner deposited at least $3,526 in her bank accounts. 

Petitioner received $3,043 in interest with respect to child

support arrearages. 

Petitioner performed legal research for Mary Ann Smania in

exchange for room and board. 

For 1991, the average expenditure for a one-person household

for food was $2,283, and the average expenditure for housing for

one person was $6,143. 
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1992

Petitioner deposited at least $5,711 in her bank accounts. 

Petitioner received $7,085 in interest with respect to child

support arrearages.

Petitioner received rent free use of a room in exchange for

legal research. 

1993

Petitioner received $2,683 in interest with respect to child

support arrearages.

Petitioner received $21,000 in equity in a house from Norma

Vaughan in exchange for representing Ms. Vaughan in legal

matters.

In petitioner’s bankruptcy proceeding, she stated that her

1993 monthly expenses were $1,698.84. 

Petitioner’s Children

Zachary A. and Syme A. Kutz (Zachary and Syme, respectively)

are the sons of petitioner and Clarence A. Kutz (Clarence). Syme

was born on March 26, 1968, and Zachary was born on July 4, 1969. 

Petitioner and Clarence were divorced in 1977 (the divorce). The

divorce was accomplished by order and judgment of the Circuit

Court for the Twelfth Circuit of Florida in and for Sarasota

County (the Circuit Court). The Circuit Court awarded petitioner

custody of Zachary and Syme.

After the divorce, Syme spent time living with each of his

parents, but lived with his father, in Florida, most of the time. 
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He lived with his father during 1983 and during the majority of

1984. Petitioner provided no support for Syme during the time he

lived with his father. 

Zachary lived with petitioner until he moved out of her

house in January 1988. In August 1988, Zachary began college in

Colorado. In 1988, petitioner's father, Warren Fankhanel,

provided $4,000 so that Zachary could attend college. In 1989,

petitioner's father provided an additional $13,000 towards

Zachary’s college. In May 1990, Zachary graduated from college. 

Zachary was a full-time student during 1988, 1989, and 1990. He

earned wage income of $8,234 in 1990.

OPINION

I. Introduction

Petitioner has assigned error to respondent’s determination

of deficiencies in, and additions to, petitioner’s Federal income

taxes for the years in question. Petitioner states that the

entire deficiency for each year is in controversy. In support of

her assignments of error, petitioner avers that (1) the amounts

stated as gross and taxable income in the deficiency notice are

incorrect, (2) petitioner is entitled to the normal business

deductions for the years in issue, (3) petitioner is entitled to

the normal personal deductions associated with the years in

issue, and (4) because no deficiencies exist, no additions to tax

apply. Petitioner also raises as a defense the claim that this

Court lacks jurisdiction to hear this case because respondent’s
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notice of deficiency is void and without legal effect. In

support of that defense, petitioner avers that (1) respondent

failed to make a determination, as required by the Internal

Revenue Code, (2) the deficiency notice is arbitrary and

erroneous because it fails fully to state the foundational

evidence relied on by respondent, (3) respondent’s determination

does not enjoy a presumption of correctness since it is a naked

assessment, and (4) respondent has denied petitioner due process.

At trial and on brief, petitioner limited the issues before

the Court. On brief, petitioner states that there are three

issues before the Court: (1) A child support issue, involving

the number of dependents petitioner may claim and the character

(whether interest or not) of certain payments received by her

from her ex-husband, (2) the amount of income received and the

amount of expenses incurred in connection with her real estate

activities, and (3) whether the deficiency notice constituted a

“naked assessment”. We assume that petitioner has abandoned all

grounds raised in the petition but not addressed in her brief. 

With respect to the additions to tax, petitioner relies on our

finding no deficiencies in tax.

At trial, respondent conceded certain increased deductions 

with respect to petitioner’s rental income. After trial,

respondent conceded certain deductions with respect to personal

exemptions. We accept those concessions.
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2 To hold that a deficiency notice is invalid within the rule

of Helvering v. Taylor, 293 U.S. 507 (1935), because it

constitutes a “naked assessment” is not to hold that it is

invalid in the usual sense or that this Court lacks jurisdiction

over such notice. "Helvering v. Taylor, 293 U.S. 507 (1935),

teaches that when a petitioner makes a showing casting doubt on

the validity of a deficiency determination, the statutory notice

itself is not rendered void; the result of such showing is that

the respondent must then come forward with evidence to establish

the existence and amount of any deficiency." Suarez v.

Commissioner, 58 T.C. 792, 814 (1972), overruled as to another

issue Guzzetta v. Commissioner, 78 T.C. 173 (1982). To avoid

confusion, we shall refer to a notice of deficiency held to

constitute a naked assessment as being “arbitrary”.

We shall first address petitioner’s “naked assessment”

argument and shall then address the remaining issues.

II. “Naked Assessment”

A. Introduction

Petitioner has devoted 10 pages of her 23 page brief to

arguing that respondent has made a naked assessment. We distill

petitioner’s arguments to claims that the statutory notice is

arbitrary and respondent has failed to come forward with evidence

of any unreported income so that respondent bears the burden of

proof.

B. Arbitrariness

Petitioner argues that the statutory notice is without

foundation and is inherently arbitrary. Accordingly, petitioner

argues that the notice of deficiency constitutes a “naked

assessment”, which is “invalid” within the rule of Helvering v.

Taylor, 293 U.S. 507 (1935).2 See United States v. Janis, 428

U.S. 433, 441 (1976). The rule of Helvering v. Taylor, supra,
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may be simply put: a court is given sufficient cause to set aside

respondent’s determination of a deficiency if it is shown to the

court that such determination was arbitrarily made. Helvering v.

Taylor, supra at 515.

Petitioner has the burden of proving the arbitrariness of

respondent’s deficiencies, Williams v. Commissioner, 999 F.2d

760, 763 (4th Cir. 1993), affg. T.C. Memo. 1992-153; Shriver v.

Commissioner, 85 T.C. 1, 3 (1985). The statutory notice, which

is in evidence, states that, in various amounts, for the various

years here in issue, petitioner had unreported income from selfemployment, rentals, bartering transactions, wages, capital

gains, and interest. The statutory notice allows various

deductions. Petitioner has produced no evidence that any of the

deficiencies in question were arbitrarily and erroneously

determined. Petitioner principally relies on her own testimony

and unsupported statements on brief that, during the years in

question, she did not work, had no bartering income, lost money

on her rental real estate properties, lived with a "significant

other", and existed on gifts from her parents. First, we do not

believe much of what petitioner claims. There is convincing

evidence that petitioner had items of income from real estate

sales, brokerage activities, and other sources during the years

in issue. Second, petitioner was not a credible witness. On

cross-examination, petitioner was unable to explain why a check

she claimed as child support carried the notation “Cash for
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register Store”. On brief, respondent points out other

contradictions in her testimony. Assuming she told the same

story to respondent’s agents responsible for the statutory

notice, we do not believe it was arbitrary and erroneous for

those agents to disbelieve petitioner. Petitioner has failed to

prove that respondent’s determinations of deficiencies in tax for

the years in question were arbitrarily made.

C. Burden of Proof

The general rule is that the burden of proof is upon the

taxpayer, Rule 142(a), which the taxpayer must carry by a

preponderance of the evidence, e.g., Schaffer v. Commissioner,

779 F.2d 849, 858 (2d Cir. 1985), affg. in part and remanding

Mandina v. Commissioner, T.C. Memo. 1982-34. This case involves 

unreported income, however, and, in cases of unreported illegal

income, we require the Commissioner to provide a minimal

evidentiary foundation supporting his determination of unreported

income or else the burden of going forward with the evidence

shifts to him. E.g., Berkery v. Commissioner, 91 T.C. 179, 186-

187 (1988), affd. without published opinion 872 F.2d 411 (3d Cir.

1989). Certain of the Courts of Appeals require such a showing

even if the unreported income is not from illegal sources. See,

e.g., Portillo v. Commissioner, 932 F.2d 1128, 1133 (5th Cir.

1991), revg. in part and remanding T.C. Memo. 1990-68; Anastasato

v. Commissioner, 794 F.2d 884, 887 (3d Cir. 1986), vacating and

remanding T.C. Memo. 1985-101. The position of the Court of
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Appeals for the Fourth Circuit, the court to which any appeal of

this case is likely to go, is not clear with respect to income

from legal sources. See Williams v. Commissioner, supra at 763. 

Whatever the position of the Court of Appeals for the Fourth

Circuit, however, the record in this case contains ample evidence

that petitioner received substantial amounts of unreported income

from various, legal sources during the years in issue. We have

found that petitioner made substantial deposits in bank accounts

during 1983, and during 1986 through 1992. “A bank deposit is

prima facie evidence of income and respondent need not prove a

likely source of that income.” Tokarski v. Commissioner, 87 T.C.

74, 77 (1986). For 1983, 1987, 1988, 1989, and 1990, such

deposits equal or exceed all of the cash items of income (selfemployment and rental income) charged to petitioner by

respondent. For 1984, 1985, 1986, and 1992, we have found that

petitioner either received items of gross income (e.g., rental

income) or reported on financial statements items of gross income

equal to what respondent charged her. For 1991, petitioner had

bank deposits and worked as a real estate and money broker

beginning in October; by indirect methods of proof, respondent

has provided evidence of substantial personal expenditures,

sufficient to explain the self-employment income charged to

petitioner for 1991. For 1993, petitioner admitted in her

bankruptcy proceeding monthly expenditures of $1,698.84, which
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are sufficient to explain the self-employment income charged to

her for 1993.

Petitioner has shown nothing that justifies placing any

aspect of the burden of proof on respondent. Petitioner bears

the burden of proof. Petitioner’s only factual defense to

respondent’s adjustments increasing petitioner’s gross income is

that petitioner existed on gifts from her parents and

"significant other". We did not find petitioner to be a credible

witness concerning the sources of her income. On brief,

petitioner points us to one exhibit, Exhibit 16, “Funds Advanced

to Carolyn Fankhanel”, which, to the extent it addresses gifts to

her, was objected to by respondent and is not in evidence. 

Beyond the conclusion to be drawn from petitioner’s admissions

that she received $5,000 from her father in 1983 and $2,000 from

her parents in 1984, petitioner has failed to prove the amount of

any gifts to her during the years in issue. She has failed to

prove any facts supporting her assignments of error with respect

to respondent’s adjustments increasing her gross income for any

of the years in issue. Respondent’s determinations of

deficiencies resulting from those adjustments are sustained.

III. Deduction for Personal Exemptions

A. Introduction

Respondent adjusted petitioner’s income by disallowing

personal exemption deductions claimed by petitioner for her son

Syme A. Kutz (Syme) for all of the years in issue and for her son
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3 For petitioner’s taxable years 1983 through 1986 the

dependency exemption was provided under subsection (e) of

sec. 151. Former subsection (e) was redesignated subsection

(c) and amended by the Tax Reform Act of 1986, Pub. L. 99-514,

sec. 103(b), 100 Stat. 2103. For simplicity, we have used

section references as redesignated by the Tax Reform Act of 1986. 

Zachary A. Kutz (Zachary) for 1988 through 1993. Subsequently,

respondent conceded such deductions for Syme for 1985 and 1986. 

Petitioner concedes some of the remaining adjustments but claims

that she is entitled to personal exemption deductions for Syme

for 1983 and 1984 and for Zachary for 1988 through 1990. 

B. Applicable Law

In computing taxable income, an individual is allowed a

deduction for the exemptions specified in section 151. Those

exemptions include an exemption for the individual herself and,

with limitations, an additional exemption for each dependent.

Sec. 151(b) and (c).3 The term “dependent” is defined in section

152(a)(1) to include a son or daughter of the taxpayer “over half

of whose support, for the calendar year * * * was received from

the taxpayer”. Section 152(e) provides a special test for

determining support in the case of children of divorced parents. 

Section 152(e) was amended by Deficit Reduction Act of 1989

(DRA), Pub. L. 98-369, sec. 423(a), 98 Stat. 494, 799-800 (the

amendment), for tax years beginning after 1984. The amendment

did not materially change the general rule of section 152(e)(1): 

A child shall be treated as receiving more than half of his
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4 In 1988, Technical and Miscellaneous Revenue Act of 1988,

Pub. L. 100-647, sec. 6010(a), 102 Stat. 3691, added “who has not

attained the age of 24 at the close of such calendar year” in

clause (c)(1)(B)(ii), effective for tax years beginning after

1988. That change has no consequence to this case.

support from the parent having custody for a greater part of the

year, if he receives more than half of his support from one or

both of his parents and is in the custody of his parents for over

half the year. The amendment did eliminate the following

exception to the general rule. Prior to amendment, section

152(e)(2)(B) provided that the noncustodial parent was treated as

having provided over one-half of the child’s support if (1) he or

she provided $1,200 or more during the year for support of the

child and (2) the custodial parent failed to “clearly establish”

that he or she provided more for the child’s support than the

noncustodial parent.

In the case of a dependent who is a child of the taxpayer,

the additional exemption allowed by section 151(c)(1)(B) is

allowed only if the child: "(i) has not attained the age of 19

at the close of the calendar year in which the taxable year of

the taxpayer begins, or (ii) is a student."4

C. Syme

Petitioner claims an additional personal exemption deduction

for Syme for 1983 and 1984. Respondent has determined that

petitioner is not entitled to a dependency exemption for Syme for

those years because Syme usually lived in the actual care and
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control of his father and only occasionally visited petitioner. 

Petitioner contests respondent's determination, contending that

Syme, who turned 16 years old in 1984, lived with her and was in

her actual custody during these years. We have found that Syme

lived in Florida with his father, Clarence, during 1983 and

during the majority of 1984 and that petitioner provided no

support for Syme during the time he lived with Clarence.

To determine whether Syme was a dependent of petitioner’s

during 1983 and 1984, we apply the special test for determining

support in the case of children of divorced parents found in

section 152(e). We apply section 152(e) as in effect prior to

the amendment. Syme lived with Clarence during 1983 and during

the majority of 1984; petitioner, Syme’s custodial parent,

provided no support to him while he lived with his father. We

are persuaded that, during 1983 and 1984, Clarence provided at

least $1,200 a year in support to Syme. Petitioner also has

failed to prove that she provided more of Syme’s support than did

Clarence during 1983 and 1984. Thus, under the special rule of

section 152(e)(2)(B), Clarence is deemed to have provided over

half of Syme’s support for those years. For 1983 and 1984, Syme

was Clarence’s dependent, not petitioner’s. See sec. 152(a). 

Accordingly, petitioner is not entitled to an additional

exemption for Syme for 1983 and 1984. See sec. 151(c). 

Respondent’s determination of deficiencies is sustained to the
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extent of the adjustments disallowing additional exemptions for

Syme for 1983 and 1984.

D. Zachary

Petitioner claims an additional personal exemption deduction

for Zachary for 1988, 1989, and 1990. Zachary turned 19 in 1988,

but, during 1988, 1989, and 1990, he was a full-time student. 

Thus, petitioner is entitled to an additional personal exemption

deduction for Zachary for 1988 through 1990 if Zachary was

petitioner’s dependent, within the meaning of section 152(a)(1),

for those years.

We need not concern ourselves with the section 152(e) test

for determining support in the case of children of divorced

parents. Under Florida law, Zachary’s minority ended in 1987

when he turned 18 years of age. See Fla. Stat. Ann. sec.

1.01(13) (West 1998). He was then emancipated under Florida law,

see Cronebaugh v. Van Dyke, 415 So. 2d 738, 741 (Fla. Dist. Ct.

App. 1982), and neither parent had custody, so that section

152(e)(1) is inapplicable for 1988 through 1990. See Kaechele v.

Commissioner, T.C. Memo. 1992-457 (finding that neither parent

had "custody" of their children within the meaning of section

152(e)(1) since the daughters had reached the age of majority and

were considered emancipated under Ohio law).

To show that Zachary was her dependent for the years in

question, petitioner must prove that, for those years, she

provided over half of his support. See sec. 152(a)(1); Rule
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142(a). Petitioner has failed to prove that she provided over

half of Zachary’s support for any of the years in question. 

Petitioner has made no persuasive showing of the amounts expended

by her in support of Zachary for any of the years in issue. She

has made no showing of the total amounts expended for Zachary’s

support during those years. We have found that petitioner’s

father paid $4,000 and $13,000 towards Zachary’s college costs in

1988 and 1989, respectively, and that Zachary earned $8,234 in

1990. Absent some estimate of the total dollar amount expended

for Zachary's support, we cannot accurately determine whether

petitioner provided more than one-half of the total amount spent

in support of Zachary. See Pillis v. Commissioner, 47 T.C. 707,

708-709 (1967), affd. per curiam 390 F.2d 659 (4th Cir. 1968). 

Petitioner's minimal showing of the support she provided to

Zachary during her taxable years 1988 through 1990 is

insufficient to overcome the presumptive correctness of

respondent's determination that petitioner did not furnish over

one-half of Zachary's support during these years. Respondent's

determination of deficiencies is sustained to the extent of the

adjustments disallowing additional exemptions for Zachary for

1988 through 1990. 

IV. Interest Income

Respondent made adjustments increasing petitioner’s income

by $3,043, $7,085, and $2,683 for 1991, 1992, and 1993,
- 21 -

respectively. Respondent explained such adjustments as interest

payments received by petitioner on account of child support

arrearages. Petitioner denies that she received any such

interest payments. Petitioner concedes that she received some

payments with respect to child support, but she claims that “she

never received any interest at all on child support debt”.

We have found that petitioner received interest payments

with respect to child support arrearages in the amounts, and in

the years, determined by respondent. That finding is based on

petitioner’s admissions. In addition to the admissions, the

record contains a document entitled “Orange County Clerk of

Courts Support Payment History”, which shows interest paid to

petitioner in those same amounts. Apparently, those interest

payments were made pursuant to court order that interest should

be calculated and paid on arrearages owed to petitioner by

Clarence. See Kutz v. Fankhanel, 608 So. 2d 873, 877-878 (Fla.

Dist. Ct. App. 1992). Payments made under a divorce or

separation agreement that the terms of such agreement fix as

child support are excludable from gross income. See sec. 71(c)

(as amended by DRA, sec. 422(a), 98 Stat. 795-797); and sec.

71(b), prior to such amendment. Petitioner has failed to prove

that the subject payments were fixed payments made under a

divorce or separation agreement. To the contrary, the payments

appear to have been made as court-ordered payments of interest. 

Interest is includable in gross income. See sec. 61(a)(4). 
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Respondent’s determination of a deficiency is sustained to the

extent it is based on the interest adjustments here described.

V. Real Estate Activities

A. Income

Petitioner argues that she is a “cash basis” taxpayer and

does not owe taxes on money that was not received. She states

that she managed property for people and, “[i]n order to build

a[n] investment program for herself, she took a[n] interest in

the property instead of a management fee.” It is unclear exactly

what error petitioner is ascribing to respondent. Petitioner may

misunderstand the term “cash basis”. The cash receipts and

disbursements method of accounting (cash method) is a permissible

method of accounting. See sec. 446(c)(1). Generally, under the

cash method, all items that constitute gross income, “whether in

the form of cash, property, or services” (emphasis added), are

includable in gross income for the taxable year in which

received. Sec. 1.446-1(c)(1)(i), Income Tax Regs. With certain

exceptions not here relevant, “if services are paid for in

property, the fair market value of the property taken in payment

must be included in income as compensation”. Sec. 1.61-2(d)(1),

Income Tax Regs. Petitioner has shown no error in respondent’s

adjustments increasing petitioner’s income on account of

compensation received in forms other than cash payments.
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B. Expenses

Petitioner argues that she has additional rental activity

expenses beyond those allowed by respondent. Simply put,

petitioner has failed to prove deductible amounts in excess of

those allowed by respondent. Petitioner failed to produce books

and records detailing her real estate activities. The purpose of

certain checks presented to us by petitioner is unclear. 

Petitioner has failed to prove rental activity related deductions

in excess of those allowed by respondent. Respondent’s

determination of deficiencies in that respect is sustained.

VI. Additions to Tax

A. Section 6651(a)(1)

Section 6651(a)(1) imposes an addition to tax for failure to

file a timely return, unless it is shown that such failure is due

to reasonable cause and not due to willful neglect. Petitioner

bears the burden of proof as to reasonable cause and the absence

of willful neglect. See Rule 142(a).

Respondent has determined section 6651(a)(1) additions for

each of the years in issue. As a defense to the section

6651(a)(1) additions, petitioner relies on our finding no

deficiencies in tax. Except with respect to concessions made by

respondent, we have sustained respondent’s determinations of

deficiencies. Moreover, petitioner has failed to prove

reasonable cause and lack of willful neglect. Respondent’s
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determinations of additions to tax under section 6651(a)(1) are

therefore sustained.

B. Section 6654(a)

Section 6654(a) imposes an addition to tax for failure to

make timely estimated income tax payments. Section 6654(e)

contains several computational exceptions to application of the

addition to tax. Petitioner bears the burden of proving that she

paid estimated tax or that any of the exceptions excuse her from

paying estimated tax. See Rule 142(a). The estimated tax

penalty is mandatory, unless petitioner can show that she

qualifies for one of these exceptions. Grosshandler v.

Commissioner, 75 T.C. 1, 20-21 (1980) (citing Estate of Ruben v.

Commissioner, 33 T.C. 1071, 1072 (1960)). 

Respondent has determined that petitioner is liable for the

addition to tax under section 6654(a) for each of the years 1983

through 1989 and 1991 through 1993. Petitioner has failed to

show that she had paid estimated tax or that any of the

exceptions apply. Respondent's determinations of additions to

tax under section 6654(a) therefore are sustained.

C. Section 6673(a)(1)

1. Introduction

 Section 6673(a)(1) provides that we may impose a penalty of

up to $25,000 where, among other things, a taxpayer has

instituted or maintained proceedings primarily for delay or where

the taxpayer takes positions that are frivolous or groundless. 
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A taxpayer’s failure to provide the Commissioner with information

requested and his failure to offer evidence at trial pertaining

to the substantive issues raised in the notice of deficiency are

evidence that a suit in this Court was instituted primarily for

delay. Stamos v. Commissioner, 95 T.C. 624, 638 (1990), affd. 

without published opinion 956 F.2d 1168 (9th Cir. 1992). A

taxpayer’s position is frivolous “if it is contrary to

established law and unsupported by a reasoned, colorable argument

for change in the law. * * * The inquiry is objective. If a

person should have known that his position is groundless, a court

may and should impose sanctions.” Coleman v. Commissioner, 791

F.2d 68, 71 (7th Cir. 1986); Booker v. Commissioner, T.C. Memo.

1996-261; see also Hansen v. Commissioner, 820 F.2d 1464, 1470

(9th Cir. 1987) (apparent finding that petitioner should have

known that claim was frivolous allows for section 6673 penalty).

Based on the record in this case, we conclude that, in many

respects, petitioner’s position in this proceeding is both

frivolous and groundless and petitioner undertook certain actions

primarily for delay.

2. Background

Petitioner’s initial petition lacks any explanation of the

basis of her disagreement with respondent and fails to comply

with Rule 31(a), which states that the purpose of the pleadings

is to give the parties and the Court fair notice of the matters

in controversy and the basis for their respective positions. 
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Petitioner’s amended petition avers no particular facts with

respect to respondent’s numerous adjustments but, for the most

part, raises constitutional and other arguments that petitioner

later abandons.

In December 1995, petitioner submitted three documents:

(1) Motion to Dismiss, (2) Motion to Compel a Constitutional

Guarantee, and (3) Request for Production of Documents and

Things. By order dated January 22, 1996 (the January 22 order),

the Court denied the two motions and returned the request. The

January 22 order cautions petitioner:

Rather than relying on groundless constitutional

arguments and misconceived notions about the Tax

Court’s procedures, petitioner’s interests will be

better served by continuing to confer with respondent’s

counsel in an attempt to settle this case and by

following the instructions in the Court’s standing pretrial order * * *.

The January 22 order also informs petitioner that she bears the

burden of proof and advises her to submit to respondent the

documentary evidence to substantiate her assertions that

respondent’s notice of deficiency is incorrect.

This case was calendared for trial at a trial session of

this Court commencing on September 30, 1996. On that date, a

hearing was held to determine whether the case was ready for

trial. At that hearing, petitioner’s failures to cooperate with

respondent to prepare this case for trial were cataloged.

Petitioner was instructed to meet with respondent’s counsel to

attempt a stipulation for trial. That effort was unsuccessful,
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and the case was continued. Petitioner was ordered to file a

status report no later than December 1, 1996. Petitioner failed

to file the required report. On December 9, 1996, petitioner was

again ordered to file a status report due no later than

January 27, 1997. She was also ordered to show cause why her

case should not be dismissed on account of her failure properly

to prosecute and why the Court should not sanction her for

failure to comply with orders of the Court.

Petitioner had not complied with our December 9, 1996, order

by January 2, 1997, the date on which petitioner filed for

bankruptcy (causing us to order all proceedings automatically

stayed because of 11 U.S.C. sec. 362(a)(8) (1994)). The

Government moved in bankruptcy court for relief from the

automatic stay in order that this case could continue in this

Court. Petitioner objected and sought sanctions and damages

against the Government. The bankruptcy court recited the

Government’s position as follows: “In sum, the Government

contends this is nothing more than a two-party dispute which is

already pending before the Tax Court”. The bankruptcy court

granted the Government’s motion and lifted the stay on March 25,

1997. The bankruptcy court said that petitioner’s contentions

were “without merit concerning her right to have her tax

liability determined by this Court.” Petitioner’s motion for

sanctions was denied with prejudice, the bankruptcy court

stating: “[T]here is not a scintilla of evidence presented to
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support * * * [sanctions]”. Petitioner was discharged as a

debtor on April 2, 1997. On July 2, 1997, we lifted the stay in

these proceedings and restored the case to the general docket for

trial or other disposition. Subsequently, on August 12, 1997,

the case was set for trial on January 20, 1998, in Tampa,

Florida.

Between August 12, 1997, and January 20, 1998, petitioner

twice moved to stay this case due to loss of jurisdiction to the

bankruptcy court. We denied her motion once, explaining that the

stay had been lifted, and then, on her motion to reconsider, we

denied it again, stating that the motion for reconsideration

restated the arguments made in the original motion and considered

by the Court in issuing its order in response to the original

motion. In denying her motion for the second time, we stated:

To assist petitioner in understanding our order of

October 24, 1997, we point out that certain taxes are

not discharged in bankruptcy. See, e.g., 11 U.S.C.

523(a)(1). The automatic stay of 11 U.S.C. 362(a)(8)

was terminated on April 2, 1997, allowing this Court to

proceed to redetermine the deficiencies as petitioned. 

See, e.g., United States v. Wilson, 974 F.2d 514 (4th

Cir. 1992. * * *

 On January 20, when the case was called for trial, petitioner

again moved to stay proceedings because of the bankruptcy

proceeding. We again denied the motion.

Petitioner failed to file a trial memorandum, as called for

by our pretrial order.
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3. Discussion

Petitioner failed to file income tax returns for 11 years

and offers no justification for that failure. She instituted a

proceeding in this Court without assigning any error to

respondent’s determinations. When she finally did state her

position in her amended petition, she relied on few averments of

fact and relied principally on Constitutional and procedural

arguments, which she later abandoned or was unable to prove. She

made Constitutional arguments that we described as groundless. 

She failed to cooperate with respondent in preparing this case

for trial. She failed to stipulate to any facts. She instituted

proceedings in the bankruptcy court that were intended only to

shift the forum of her dispute with respondent and could

accomplish little other than to delay a resolution of the issues

in this case. The bankruptcy court described her contentions as

being “without merit”. She has twice brought motions on grounds

rejected by this Court. She has produced nothing to justify her

total rejection of all adjustments made by respondent.

4. Conclusion

We are firmly convinced that petitioner both instituted and

maintained these proceedings primarily for delay. Also, she has

made groundless arguments. She has caused both the Court and

respondent to expend scarce resources to respond to her many

filings and other actions and to conduct a trial at which she

presented evidence that barely touched on even a few of the
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grounds of respondent’s determinations of deficiencies. We find

petitioner is deserving of a significant penalty because of the

persistence of her frivolous assault. On our own motion,

pursuant to section 6673(a)(1), we will require petitioner to pay

a penalty to the United States in the amount of $5,000.

Decision will be entered

under Rule 155.