T.C. Mem o. 2 01 3- 28 2

UNITED STAT ES TAX COURT

MOHAMM AD A. SULT AN AND MIRIAM AKHTER, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 14 73 3- 12
. File d Dec em be r 12 , 20 13
.

Mo ha m m adA. Sul ta n andMi ria m Akh te r, pr o s es e. Mi ch ael A. Raik en , for

res po nd en t.

MEMORANDUM OPINION GERBER, J ud ge : Re sp on de ntde te rm in edin co m e ta x d efi ci en ci es an d pe na lt ie s as fol lo ws:- 2 -

[* 2] Pen al ti es

Year Defi ci en cy Sec. 6 66 2( a) Sec. 6 66 3 20 07 $1 33 ,52 7 $7 84 .00 $1 ,31 5.4 0 20 08 11 8,1 56 97 ,20 5.2 5 83 ,68 4.2 5 Res po nd en t’s m ot io n fo r parti al su m m ary jud gm en t was fil edJu ne 13 , 20 13 . On Ju ne 17 , 20 13 , th e Co urt o rd eredpe ti ti on ers to fil e an ob jecti on , if an y , to
res po nd en t’s m ot io n o n o r be fo re J ul y 8, 2 01 3. No ob

jecti on or r es po ns e to
res po nd en t’s m ot io n h as be enrece iv edfro m pe ti ti on ers . 1 The is su es for

whi ch res po nd en t h as m ov edforsu m m ary jud gm en t i nc lu de 2 whe th er: (1) pe ti ti on ers un de rs ta te d t he ir g ro ss rece ip ts an d s al es rep orte d o n Sch edul es C, Pro fitor Lo ss Fro m Bu si ne ss , by $3 86 ,45 9 and$3 38 ,44 4 fo r 20 07
an d 2 00 8, re sp ect iv el y ; an d (2 ) pe ti ti on ers are l iabl e fo r th e se ct io n 6 66 3 civ il 3

Thi s ca se was p rev io us ly set f ortri al on May 20, 2 01 3, atBal ti m or e, 1 Mary la nd . Res po nd en t h adfil eda m ot io n fo r pa rti al su m m ary jud gm en t o n M arch 13 , 20 13 , andpe ti ti on ers were g iv enun ti l Ap ril 15 , 20 13 , to res po ndor o bjec t. The m ot io n was setfora he ari ng at the May 20, 2 01 3, t ria l s es si on . Peti ti on ers fai le d t o re sp on d o r ob

ject andin st eadask edfora co nt in uanc e so th atth ey co ul d ob ta in co un se l. The cas e was co nt in ue d o n t ha t b as is , andres po nd en t’s Ma rch 13 , 20 13 , m ot io n fo r parti al su m m ary jud gm en t was de ni edwitho utpre jud ic e. If res po nd en t i s s uc ces sf

ul inhi s p art ia l s umm ary jud gm en t m ot io n, o th er 2 is su es de te rm in edin th e n ot ic e o f de fic ie nc y rem ai n fo r tr ia l. All sec ti on refe ren ces are t o t he Int ern al Rev enue Co de in effe ctforth e 3 y ears in is su e, an d a ll Ru le refe ren ces are t o the Tax C ou rt Rul es of P ract ic e an d Pro cedur e.- 3 -

[* 3] frau d p en al ty for u nd erp aym en ts for20 07 an d 2 00 8 re su lt in g fr om fai lu re t o rep ort g ro ss in co m e wit h i nt en t t o e va de tax . Bac kg ro un d 4 Pet it io ne rs dro ve tax i cabs . In ad di ti on , pet it io ne r Mi ria m Akh te r so ld jewelry , andpe ti ti on er Mo ha m m adA. Sul ta n s ol d m

us ic al in st rum en ts an d equi pm en t. He o pe rat edth e fo ll owi ng bu si ne ss es : Ca rti er So un d, In c.; Deu ra, In c.; Deu ra In ve stm en ts , Inc .; Deen Int ern at io na l, In c.; Ap ex Dis tri bu ti on s; Deur a Pro du ct s; Deur a Harp es ; Tri pl eei gh tu sa ; Am eri can Mu si c Supp ly; M.A.S. Im po rts , In c.; Ap ex Indus tri es , Inc .; an d Deu ra Mu si c Supp ly. Mr. Su lt anus edva rio us
na m es or a li as es in hi s b us in es s ac ti vi ti es . Peti ti on ers rece iv edpa ym en t fo r th e go od s t he y

so ldby m ean s o f ch eck s, ca sh , andcred itcardpa ym en ts . Peti ti on ers
rece iv edin co m e th atwas n otrep orte d t o re sp on de nton th ei r 20 07 an d 2 00 8 in co m e ta x re tu rn s. Pet it io ne rs di d n otm ai nt ai n c om pl et e o r ad equa te reco rd s o f th ei r in co m epr oduc in g a ct iv it ie s, an d the y di d n otsubm itreco rd s t o re sp on de nt ’s age ntdu rin g th e au di t ex am in at io n. Re sp on de ntde te rm in edpe ti ti on ers ’ ad jus te d g ro ss in co m e

The ba ck gr ou ndfact s ar e b as edon res po nd en t’s af firm at iv e al le ga ti on s i n 4 th e an swe r th atwere d eem edadm it te d b y th e Co urt’s o rd er d at ed , Decem be r 18 , 20 12 , pu rs ua ntto Ru le 37 (c).- 4 -

[* 4] for20 07 an d 2 00 8 u si ng th e b an k d ep os it s m etho d o f rec on st ru ct in g i nc om e. Pet it io ne rs m ad e th e fo ll owi ng de po si ts in to ba nkacco un ts du rin g 2 00 7 and20 08 : Acco un t No
. Ban k Depo si to r 20 07 200 8 695 2 W ach ov ia Ms . Akh te r $8 5,7 97 .41 $1 05 ,31 7.8 7 498 3 Ban k o f Am eri ca Mr. Su lt an 11 ,06 5.0 0 121 .00 923 9 W ach ov ia Mr. Su lt an 24 ,72 2.9 7 8,3 23 .42 906 3 W ach ov ia Ms . Akh te r -0- 28 ,82 5.0 0 220 4 W ach ov ia Cart ie r So un d 33 8,8 19 .86 25 9,9 62 .45 410 0 W ach ov ia d.b .a Deu ra H arp s, N.A. -0 - 17 ,35 2.7 5 Tot al ba nkde po si ts 460 ,40 5.2 4 41 9, 9 02 .49 Res po nd en t d et erm in edth e fo ll owi ng no nt ax ab le so ur ces : N on ta xabl e so ur ces 20 07 20 08 Refu nd s $1 ,70 4.8 1 $4 67 .76 Fed eral tax st im

ul us refu nd -0- 90 0.0 0 Ch eckrev ers al s 5,4 22 .50 -0
- Non su ffi ci en t fu nd s ch eck s -0- 96 8.9 9 Tran sf ers be twee n a cco un ts 11 ,80 0.0 0 13 ,82 9.0 0 Tot al no nt ax ab le so ur ces /d ep os it s 18 ,92 7.3 1 16 ,16 5.7 5 Pet it io ne rs rep orte d t ot al gro ss rece ip ts or s al es of $ 55 ,01 9 fo r 20 07 an d $6 5,2 92 for20 08 . Res po nd en t d et erm in edpe ti ti on ers ’ un rep orte d a dju st ed gr os s i nc om e fo r 20 07 an d 2 00 8 a s fo ll ows : 20 07 20 08 Tot al ba nkde po si ts $4 60 ,40 5.2 4 $4 19 ,90 2.4 9 Less : n on ta xabl e it em s (18 ,92 7.3 1) (16 ,16 5.7 5) Net t ax ab le de po si ts 44 1,4 77 .93 40 3,7 36 .74 Less : i nc om e rep orte d (55 ,01 9.0 0) (65 ,29 2.0 0) Unrep orte d g ro ss rece ip ts 38 6,4 58 .93 33 8,4 44 .74- 5 -

[* 5] Pet it io ne rs ’ fai lu re t o m ai nt ai n c om pl et e rec or ds of i nc om e an d t he ir f ai lu re to pro vi de co m

pl et e an d a ccu rat e rec or ds to res po nd en t wer e fraudul en t wi th th e in te ntto ev ad e ta x. Pe ti ti on ers m ad e fal se an d m is le ad in g s ta te m en ts to
res po nd en t’s ag en t dur in g t he ex am in at io n. Pe ti ti on ers frau du le nt ly andwith in te ntto ev ad e ta x u nd erp ai d t he ir t ax for20 07 an d 2 00 8 b y $1 33 ,52 7 a nd $1 18 ,15 6, re sp ect iv el y . Dis cu ss io n Su m m ary jud gm en t i s ap pr op ria te wher e th ere i s n o g enui ne is su e o f
m at eri al fact . Rul e 1 21 (b ); S un ds tra ndCo rp . v. Co m m is si on er, 9 8 T.C. 5 18 , 52 0 (1 99 2) , aff’d, 1 7 F .3d96 5 (7 th Cir . 19 94 ). Res po nd en t s etforth m at eri al al le ga ti on s i n h is an swe r es tabl is hi ng th atpe ti ti on ers ha d, wi th in te ntto ev ad e ta x, frau du le nt ly und erp ai d the ir t ax by $13 3,5 27 an d $ 11 8,1 56 for20 07 an d 2 00 8,
res pe ct iv el y . After t he ti m e fo r fi li ng a rep ly hadex pi red , res po nd en t m ov ed , un de r Ru le 37 (c), t ha t t he un de ni edall eg at io ns inth e an swe r be de em edadm it te d. The Co urt i ss ue d ano ti ce t o p et it io ne rs to fil e a rep ly or othe rwis e o bjec t, b ut pe ti ti on ers fai le d t o fi le a rep ly or m ak e an y res po ns e to res po nd en t’s m ot io n o r th e Co urt’s n ot ic e. Acco rd in gl y , res po nd en t’s m ot io n was gra nt edan d the al le ga ti on s i n re sp on de nt ’s ans wer were de em edadm it te d. Se e Ru le 37 (c).- 6 -

[* 6] Res po nd en t h as advanc edth os e d eem edadm it te d a ll eg at io ns to supp ort h is
m ot io n fo r pa rti al su m

m ary jud gm en t. Res po nd en t i s re qu ire d t o s ho w th atin co m e was no t re po rte d a ndth atth e
res ul ti ng un de rp aym en ts of t ax were fraudul en t. Res po nd en t’s al le ga ti on s i n h is
an swe r, whi ch were d eem edadm it te d b y th e Co urt o n Dec em

be r 18 , 20 12 , m etth e bu rd enof p ro vi ng frau d b y cle ar an d c on vi nc in g e vi de nc e as requi redby sect io n 74 54 (a) a ndRu le 14 2( b) . See Do nc as te r v. C omm is si on er, 7 7 T.C. 3 34 , 33 6- 33 7 (1 98 1) ; s ee al so Mars ha ll v. Co m m is si on er, 8 5 T.C. 2 67 (19 85 ); El li s v . Co m m is si on er, T.C. Mem o. 2 01 2- 25 0. We acco rd in gl y ho ldth atpe ti ti on ers fai le d to rep ort i nc om e o f $3 86 ,45 8.9 3 a nd$3 38 ,44 4.7 4 fo r 20 07 an d 2 00 8, re sp ect iv el y
an d t ha t t he y

are l iabl e fo r ci vi l fr au d p en al ti es on th e res ul ti ng un de rp aym en ts of ta x u nd er s ect io n 6 66 3. Bec au se is su es rem ai n c on cern in g wh ethe r certa in ex pe ns es are al lo wab le
an d wh ethe r anaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a) ap pl ie s t o a ny
un de rp aym en ts of t ax th atm ay res ul t fr om

di sa ll owe d e xp en se de du ct io ns , An ap pr op ria te ord er wi ll be is su ed gr an ti ng res po nd en t’s m ot io n fo r pa rti al
su m m ary jud gm en t.