T.C. Memo. 1995-608

UNITED STATES TAX COURT

JOHN J. BURKE AND VIVIAN BURKE, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18772-93. Filed December 26, 1995.

Michael N. Balsamo, for petitioner John J. Burke.

Vincent R. Barrella, for petitioner Vivian Burke.

Catherine Chastanet and Mark A. Ericson, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

RUWE, Judge: Respondent determined deficiencies in

petitioners' Federal income taxes and additions to tax as

follows:

 Additions to Tax 

 Year Deficiency Sec. 6653(b)(1) Sec. 6653(b)(2) Sec. 6661

 1985 $38,140 $36,201 50 percent of $5,847

 the interest due

 on $23,388
 

1In her answer, respondent determined an increased deficiency against

petitioners for 1986 in order to reflect an additional $22,448 of funds

allegedly embezzled by Mr. Burke and transferred to Ard Rhei, Inc. As a

result of this increased deficiency, respondent also increased the amounts of

the additions to tax against petitioners for fraud, delinquent filing, and

substantial understatement of income tax. This Court has jurisdiction to

redetermine the correct amount of a taxpayer's deficiency even when the amount

so redetermined is greater than the amount listed by respondent in her notice

of deficiency. Sec. 6214(a), I.R.C. Respondent bears the burden of proof,

however, with respect to "any new matter, increases in deficiency, and

affirmative defenses, pleaded in the answer". Rule 142(a), Tax Court Rules of

Practice and Procedure.

 

2Unless otherwise indicated, 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. 

 

3Respondent concedes the addition to tax for fraud against petitioner

Vivian Burke for each of the years in issue. See sec. 6653(b)(4).

 

4As an alternative to the additions to tax for fraud, respondent asserts

additions to tax for negligence against petitioners for each of the taxable

years in issue. Because of our resolution of the fraud issue, infra, it is

unnecessary for us to consider respondent's alternative arguments. 

 Additions to Tax 

Year Deficiency Sec. 6651(a)(1) Sec. 6653(b)(1)(A) Sec. 6653(b)(1)(B) Sec. 6661

1986 $256,295 $34,692 $88,473 50 percent of the $28,401

 interest due on

 $113,605

1987 $12,973 -- $12,791 50 percent of the $3,124

 interest due on

 $12,497

The issues for decision are: (1) Whether petitioners failed to report

income of $59,648, $242,669,1 and $50,746 on delinquent returns filed for the

years 1985, 1986, and 1987, respectively; (2) whether petitioners are entitled

to deduct embezzlement losses of $21,800 and $215,000 in 1985 and 1986,

respectively; (3) whether petitioners are entitled to deductions of $20,253,

$141,418, and $37,348 in 1985, 1986, and 1987, respectively, for ordinary

losses allegedly incurred by Ard Rhei, Inc., a small business corporation (S

corporation) under section 1366;2 (4) whether petitioner John J. Burke is

liable for an addition to tax for fraud3 under section 6653(b);4 (5) whether

petitioner Vivian Burke tacitly consented to the filing of a joint Federal
 

5The names "Jury's" and "Ard Rhei" are used interchangeably throughout

this opinion.

income tax return for each of the years in issue; and, if so, (6) whether Mrs.

Burke is entitled to "innocent spouse" protection pursuant to section

6013(e)(1); (7) whether petitioners are liable for an addition to tax under

section 6651(a)(1) for delinquent filing of their Federal income tax returns

for 1986; and (8) whether petitioners are liable for an addition to tax for a

substantial understatement of income tax under section 6661(a) for each of the

taxable years in issue. 

FINDINGS OF FACT

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

stipulation of facts and attached exhibits are incorporated herein by this

reference. At the time the petition was filed, petitioners resided in

Setauket, New York. 

I. Background

During the years in issue, Mr. Burke was a licensed insurance agent and

the sole owner of two insurance brokerage agencies, John J. Burke &

Associates, and Burke-Shepis & Co. (Burke Insurance Agencies). 

In 1985, Mr. Burke acquired a 50-percent interest in a restaurant known

as Jury's of Setauket (Jury's). Jury's was organized as an S corporation

pursuant to section 1366 and operated under the name "Ard Rhei, Inc." (Ard

Rhei).5 The remaining 50-percent interest in Jury's was owned by Bernard

Hillick. Mr. Burke eventually purchased Mr. Hillick's interest in Jury's. 

During the years in issue, Mr. Burke frequently made large wagers at

casinos and with bookmakers. In addition, Mr. Burke used cocaine and

marijuana. 

II. John Burke's Agreement with U.S. Life
A. The Terms of the Agreement

Mr. Burke was an agent for, and sold insurance policies issued by, the

U.S. Life Insurance Co. (U.S. Life). In early 1985, Mr. Burke entered into an

agreement under which U.S. Life would issue group life insurance policies to

the Metropolitan Police Conference (MPC), which represented 38 Long Island

Village police departments, police officers' benevolent associations, and

other police and transit worker organizations. 

Pursuant to his agreement with U.S. Life, Mr. Burke collected premiums

from the MPC and deposited the funds into a premium account (MPC premium

account) that he had established for the MPC at Marine Midland Bank in

Setauket, New York. Under his agreement with U.S. Life, Mr. Burke was

entitled to a 15-percent annualized commission, which he was permitted to

withdraw from the MPC premium account prior to the receipt of all premiums

that were due. Commissions were transferred from the MPC premium account to

the expense accounts of the Burke Insurance Agencies. After withdrawing his

commission, Mr. Burke was required to remit the balance of the premiums in the

MPC premium account to U.S. Life. Mr. Burke had no authority to appropriate

U.S. Life premium funds in excess of his commissions. Between May 1985 and

May 1987, Mr. Burke collected more than $3 million in premiums from the MPC. 

B. Mr. Burke's Misappropriation of MPC Premium Account Funds

During the years at issue, JoAnn Romano was the office manager of the

Burke Insurance Agencies. As such, she supervised the administrative staff,

managed in-house property and casualty sales, served as a liaison to

representatives of police groups and insurance companies, and handled banking

matters as well as the payroll, accounts payable and receivable, and premiums

that were received in the office. 

Both Ms. Romano and Mr. Burke had signature authority over the MPC

premium account and the Burke Insurance Agencies' expense accounts. When Mr.

Burke wanted cash, he would usually arrange for office workers at the Burke
Insurance Agencies to cash checks and deliver the cash to him. He would

usually instruct Ms. Romano to transfer funds from the MPC premium account to

one of the Burke Insurance Agencies' expense accounts. She would then write a

check that was drawn on one of these expense accounts made payable to an

employee of the Burke Insurance Agencies, John J. Burke, or "cash". Checks

payable to employees were cashed by the employee who would deliver the cash to

Mr. Burke or a person designated by him. When Mr. Burke needed funds in

excess of $10,000, he would usually instruct Ms. Romano to write multiple

checks in smaller amounts so that a currency transaction report would not be

generated by the bank. On some occasions, Mr. Burke ordered checks to be made

payable to a bookmaker with whom Mr. Burke gambled. On several occasions, Mr.

Burke instructed Ms. Romano to write a check payable to Don Balsamo who

supplied Mr. Burke with cocaine. On other occasions, Mr. Burke directed Ms.

Romano to transfer funds to Ard Rhei. Pursuant to Mr. Burke's instructions,

Ms. Romano falsely characterized these withdrawals from the Burke Insurance

Agencies' accounts as expenses, commissions, or premium refunds. 

At some point, Kenneth S. Silver, the accountant for the Burke Insurance

Agencies caused Forms 1099 to be issued to employees to whom checks were

issued in order to obtain cash for Mr. Burke. Upon realizing this, Mr. Burke

had the Forms 1099 withdrawn. 

On some occasions, checks were drawn directly on the MPC account and

either cashed, made payable to Ard Rhei, or paid to Mr. Burke's bookmaker. 

The proceeds of cashed checks, which were drawn on the MPC premium account,

were delivered to Mr. Burke. Ms. Romano withdrew funds from the MPC premium

account and the Burke Insurance Agencies' expense accounts only when

instructed to do so by Mr. Burke.

During 1986 and 1987, the following amounts were withdrawn from the MPC

premium account by checks payable to the following payees: 
1986

 Payee Total Amount Payable

 John Burke $120,297.61

 Burke & Associates 432,823.00

 Burke & Associates Premium Account 66,000.00

 Burke & Associates Expense Account 122,880.00

 Burke-Shepis 21,200.00

 Burke-Shepis Premium Account 46,573.71

 Burke-Shepis Expense Account 720.00

 "Cash" 16,000.00

 Evelyn Coleman1 550.00

 Jury's 12,300.00

 Lisa Tobin2 6,000.00

 Rex Wyon, Inc. 500.00

 Total $845,844.32

 

1Ms. Coleman was an employee of the Burke Insurance Agencies during the

years in issue.

2Mrs. Tobin was the wife of Steven Tobin, a bookmaker with whom Mr.

Burke gambled during the years in issue.

1987

 Payee Total Amount Payable

 Burke & Associates $122,900.00

 Burke & Associates Premium Account 40,000.00

 Burke & Associates Expense Account 22,000.00

 Burke & Associates C.H.I.E. Account 35,000.00

 Burke-Shepis 23,100.00

 Don Balsamo3 4,000.51

 North Island Express Ltd. & Don Balsamo 2,100.00

 Total $249,100.51

 

3Mr. Balsamo supplied Mr. Burke with cocaine during the years in issue.

Premiums due U.S. Life continued to increase throughout 1986. On April

16, 1986, Felix C. Curcuru, vice president of U.S. Life, wrote to Mr. Burke

regarding premium payments of $542,894, which were overdue from the MPC. Mr.

Burke had previously advised U.S. Life that the MPC premium account was in

arrears because the Burke Insurance Agencies' administrative billing

procedures had not been fully developed. At a meeting in May 1986, Mr. Burke

informed U.S. Life that MPC premium payments were late due to billing system
 

6A "drag" is a grace period given by an insurance company when it permits

an insured to pay premiums after the specified due date. 

problems and a misunderstanding as to the length of the "drag"6 that U.S. Life

had extended to several of the police units. In the original agreement

between U.S. Life and the MPC, U.S. Life granted several of the police units a

3-month drag. 

In an October 15, 1986, letter to Mr. Burke, Mr. Curcuru summarized the

matters that were discussed at an October 9, 1986, meeting, including an MPC

premium reconciliation presented by Mr. Burke that showed $681,079 due and

unpaid to U.S. Life through October 31, 1986. At this meeting, Mr. Burke

agreed to pay the amount owed by October 31, 1986, but he failed to do so. On

December 15, 1986, Mr. Curcuru again wrote to Mr. Burke to demand payment in

the amount of $843,670 by December 22, 1986, for unpaid MPC premiums owing

from Mr. Burke through December 31, 1986. The letter further stated that if

full payment were not received by December 22, 1986, U.S. Life would commence

legal action to collect the unpaid premiums. 

On December 24, 1986, Mr. Burke wrote to Mr. Curcuru concerning a

December 2, 1986, meeting at which Mr. Burke was asked to prepare a payment

schedule that would bring the MPC account current. In his letter, Mr. Burke

informed Mr. Curcuru that the account "shall be brought current by April 30,

1987 with a major portion * * * being * * * [supplied] some time in January." 

Mr. Burke and Mr. Curcuru met again on or about December 30, 1986. At this

meeting, Mr. Burke falsely claimed that he had negotiated a 6-month drag with

the MPC, and he then proposed a repayment schedule, which he failed to meet. 

On March 12, 1987, U.S. Life filed a Motion for Summary Judgment in Lieu

of Complaint with the New York Supreme Court (County of New York) against Mr.

Burke and John J. Burke & Associates. At that time, the total premiums due

U.S. Life from the MPC insurance account was $1,029,096.07. On June 18, 1987,

U.S. Life obtained a default judgment in the amount of $1,029,096.07, together

with interest and costs of $28,300.17 and $117, respectively. 
C. Mr. Burke's Indictment

In May 1987, Mr. Burke informed Ms. Romano that he was under

investigation by the New York State Department of Insurance. Mr. Burke then

instructed her to collect the insurance agency checkbooks, destroy them, and

report them as stolen. Ms. Romano refused to carry out these instructions. 

The records of the Burke Insurance Agencies were seized by the Suffolk

County District Attorney's office pursuant to search warrants authorized on

May 11, 1987. Mr. Burke was indicted on two counts of grand larceny for

embezzling more than $1.2 million from his insurance premium account. 

However, Mr. Burke was neither tried nor convicted for this indictment. 

Instead, pursuant to a plea agreement with the Suffolk County District

Attorney, Mr. Burke pled guilty to Grand Larceny 4 (a felony) for his failure

to remit sales tax from Jury's to the New York State Department of Taxation

and Finance. In exchange for his guilty plea, the embezzlement charges were

dismissed. 

III. Tax Returns Filed for 1985, 1986, and 1987

A. The Alleged Joint Returns 

On March 29, 1991, Mr. Burke filed untimely Federal income tax returns

for the taxable years 1985, 1986, and 1987. These returns purport to be joint

returns. Although a signature for Mrs. Burke appears on the returns at issue,

the parties stipulated that Mrs. Burke did not sign any of the returns, and

Mrs. Burke had no involvement in the preparation of the delinquent returns or

in the audit process leading up to the issuance of the notice of deficiency. 

Mr. Burke signed Mrs. Burke's name to the returns without asking for or

receiving her consent. Prior to the filing of the returns in issue, Mr. Burke

had never signed his wife's name to a tax return. 

Mrs. Burke, individually, was not required to file a Federal income tax

return of her own for any of the years in issue. In March 1991, Mrs. Burke
was aware of the financial and legal problems that Mr. Burke had encountered

during the years at issue.

Mr. Burke did not inform his wife that he filed the returns in issue

until at least the summer of 1993, after the couple had met with attorney

Michael N. Balsamo. Moreover, Mr. Burke never discussed the contents of the

returns with Mrs. Burke, nor did he advise her that he had signed her name to

the returns. Mrs. Burke did not learn that a signature, purporting to be her

own, appeared on the returns until June 29, 1994, when she examined the

returns at her attorney's office. 

Mrs. Burke filed joint returns with Mr. Burke for years prior to the

years in issue. Mrs. Burke personally signed these returns. Similarly,

petitioners filed joint returns, which Mrs. Burke personally signed, for the

taxable years 1989 through 1991.

B. Income and Losses as Reported on the Returns

The 1985, 1986, and 1987 returns filed by Mr. Burke on March 29, 1991,

reported the following items: 

Burke Insurance Agencies

 1985 1986 1987

Gross income $203,961 $350,653 $39,900

Embezzlement loss 21,800 215,000 -- 

Ard Rhei, Inc.

 1985 1986 1987

Ordinary loss $23,453 $141,418 $37,348

Regarding these alleged losses, the following disclosure statements are

contained in each of the returns for the years in issue: 

As per the direction of John J. Burke, amounts which were

withdrawn from two corporations operated by Mr. Burke and

attributed to him, were embezzled by two employees of these

corporations during the years, 1985, 1986 and 1987. As such,

these amounts have not been included as income on this tax return. 

Attached please find all legal papers filed to date relating to

this matter.
The disclosure concerning Ard Rhei's alleged losses states:

As per the direction of John J. Burke, amounts approximating the

results of Ard Rhei, Inc.'s (S-corporation, I.D.# 11-2734819)

operations have been included on the shareholders personal tax

return in order to more accurately reflect the income stated on

the Form 1040. The corporation's tax return has not been filed to

date.

C. Respondent's Determination of Income

During the years in issue, the following bank accounts were maintained

by petitioners and the Burke Insurance Agencies:

 Bank Account Title Account no.

 Bank of Smithtown John J. Burke or 164002479

 Vivian Burke

 Bank of Smithtown John J. Burke & 134014141

 Associates

 Expense Account

 Bank of Smithtown John J. Burke & 134014133

 Associates

 Premium Account

 Bank of Smithtown Burke-Shepis and 134014166

 Co., Inc.

 Marine Midland John J. Burke & 921133120

 Associates

 MPC Premium Account

 Marine Midland John J. Burke & 921119747

 Associates

 Marine Midland John J. Burke & 921119755

 Associates

 Premium Account

 Marine Midland John J. Burke & 921692978

 Associates

 C.H.I.E. Account

 Marine Midland John J. Burke & 921119763

 Vivian Burke

 Marine Midland Burke-Shepis & Co. 928127753

 Inc. Expense Account
 

7The claimed increased deficiency is based upon the following checks

drawn on Marine Midland Bank account no. 921-11974-7 (John J. Burke &

Associates):

 Date Check no. Amount Endorsement

 06/02/86 1472 $5,000 Ard Rhei/Jury's

 11/18/86 1739 2,500 Ard Rhei

 11/19/86 1742 2,500 Ard Rhei

 12/01/86 1750 1,548 Ard Rhei

 12/03/86 1753 3,200 "For Deposit Only"

 12/11/86 1761 4,300 Ard Rhei

 12/16/86 1770 2,200 Ard Rhei

 12/23/86 1781 1,200 Ard Rhei

 Total $22,448

 

8A description of specific transactions upon which this summary is based

is contained in the Appendix.

Relying on certain transactions with respect to the above accounts,

respondent determined that petitioners' gross receipts for the years in issue

were as follows:

 1985 1986 1987

 $263,609 $570,874 $90,646

In her answer, respondent asserted an increased deficiency of $22,448

for 1986 based upon additional funds that were transferred from Marine Midland

Bank--account no. 921-11974-7 to Ard Rhei, but which had not been included in

income pursuant to the notice of deficiency.7

The banking transactions upon which respondent's notice of deficiency

and claimed increase in deficiency are based are summarized8 as follows:

 Bank Account Account Transaction

Name Number Title Type 1985 1986 1987

Marine 921-13312-0 John J. Burke checks to $41,800.00 $4,000.51

Midland & Assoc. Balsamo, John

 MPC Premium Burke, cash,

 A/C Jury's, and 

 Tobin

Marine 921-69297-8 John J. Burke cash $53,500.00 50,500.00 31,400.00
 

9This includes $22,448 in addition to the amount determined in the notice

of deficiency. See supra note 1.

 

10We note the inconsistencies in Mr. Burke's position. On brief, Mr.

Burke admitted that he "often withdrew sums in excess of his actual commission

entitlement [and that] [s]uch excess withdrawals were treated * * * [as] loans

due from Mr. Burke to the Life insurance company." However, when asked by

respondent at trial if he characterized his use of MPC account funds as loans,

Mr. Burke denied even using funds from the premium accounts. Nevertheless,

when questioned again about this issue later in the trial by his own counsel,

Mr. Burke explained: "They [U.S. Life] had the option of treating it [Mr.

Burke's withdrawal of funds in excess of his commissions] like a loan, okay. 

They, however, never exercised that option. They never charged me any

interest." 

Midland & Assoc. withdrawals

 C.H.I.E. A/C

Marine 921-11974-7 John J. Burke checks to 23,658.95 413,038.00 20,540.00

Midland & Assoc. Ard Rhei/

 Jury's, John

 Burke, and cash

Bank of 01-3-401414-1 John J. Burke checks to 7,500.00

Smithtown & Assoc. cash, John

 Expense A/C Burke, and

 employees

Bank of 01-6-400247-9 John J. Burke checks to 66,900.00

Smithtown or Vivian cash, Ard

 Burke Rhei, and 

 John Burke

Marine 921-11976-3 John J. Burke noncash 112,050.00 87,984.00 34,706.07

Midland & Vivian deposits

 Burke

 

Total income $263,609.00 $593,322.00 $90,646.00

OPINION

Additional Income

Respondent determined that Mr. Burke failed to report income in the

amount of $59,648, $242,669,9 and $50,746 on the delinquent returns that he

filed for 1985, 1986, and 1987, respectively, and that the source of this

income was money that Mr. Burke diverted from U.S. Life premium funds. Mr.

Burke contends that the amounts in question constituted either loans from U.S.

Life10 or money that was embezzled by his employees.
The determinations in respondent's notice of deficiency are presumed

correct, and petitioners bear the burden of proving otherwise. Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

Section 61(a) defines gross income to include "all income from whatever

source derived". In addition, the Supreme Court has determined that gross

income includes all "'accessions to wealth, clearly realized, and over which

the taxpayers have complete dominion'", including illegal earnings. James v.

United States, 366 U.S. 213, 219 (1961) (quoting Commissioner v. Glenshaw

Glass Co., 348 U.S. 426, 431 (1955)); accord Rutkin v. United States, 343 U.S.

130, 137-138 (1952); Ianniello v. Commissioner, 98 T.C. 165, 173 (1992). 

Borrowed funds are not included in the taxpayer's gross income "because

the taxpayer's obligation to repay the funds offsets any increase in the

taxpayer's assets". United States v. Centennial Sav. Bank FSB, 499 U.S. 573,

582 (1991); accord Moore v. United States, 412 F.2d 974, 978 (5th Cir. 1969);

United States v. Rochelle, 384 F.2d 748, 751 (5th Cir. 1967). The hallmarks

of a loan are: (1) Consensual recognition between the borrower and the lender

of the existence of the loan, i.e., the obligation to repay; and (2) bona fide

intent on the part of the borrower to repay the funds advanced. Collins v.

Commissioner, 3 F.3d 625, 631 (2d Cir. 1993), affg. T.C. Memo. 1992-478.

There is no credible evidence in the record of any loan agreement

between U.S. Life and Mr. Burke. Rather, the evidence clearly establishes

that Mr. Burke was obligated to place all MPC premiums in a special premium

bank account. From this account, Mr. Burke was permitted to withdraw his 15-

percent annualized commission, but he was obligated to remit the remaining

amounts to U.S. Life. Mr. Burke never received permission from U.S. Life to

take any amounts from the MPC premium account in excess of his commissions. 

When U.S. Life realized it was not receiving its portion of the premiums in a

timely fashion, it made inquiries and demanded payment. Mr. Burke responded

with false statements and never told U.S. Life that he had "borrowed" the

money from the premium account. Eventually, U.S. Life brought suit and

obtained a judgment against Mr. Burke.
 

11For instance, a check was drawn on the MPC premium account and made

payable for $6,000 to Lisa Tobin, the wife of a bookmaker with whom Mr. Burke

gambled. 

 

12Another check was made payable for $4,000.51 to Don Balsamo. Mr. Burke

purchased cocaine from Mr. Balsamo during the years in issue. 

 

13Sufficient evidence exists to explain petitioners' need for funds well

in excess of the income reported on the returns at issue. Petitioners lived

in an expensive house, incurred significant home improvement expenses, paid

for their son's college tuition and provided him with an automobile and

insurance coverage. Mr. Burke also purchased illegal narcotics and gambled

heavily.

 As to Mr. Burke's allegation that his employees embezzled funds from him

and his insurance agencies, we find that no such embezzlement took place. The

employees whom Mr. Burke accuses of embezzlement were credible witnesses at

trial. They explicitly denied receipt of any of the money in question. As we

have already stated in our findings of fact, these employees were operating

under Mr. Burke's instructions when they withdrew funds from the MPC premium

account and the accounts of the Burke Insurance Agencies. Such funds were

either given to Mr. Burke, transferred to Ard Rhei, or otherwise dispersed on

Mr. Burke's behalf. For example, on several occasions, funds were used to

satisfy Mr. Burke's gambling debts11 or to pay persons who supplied Mr. Burke

with illegal drugs.12

We conclude that Mr. Burke improperly diverted funds for his own

personal use without the consent of U.S. Life,13 and these funds are,

therefore, includable in his gross income. See James v. United States, supra

at 219. Accordingly, we sustain respondent's determination that Mr. Burke had

unreported income for the years in issue. We also conclude that respondent

has presented sufficient evidence to carry her burden of proof regarding the

increased deficiency for 1986. We note that the amounts, which should have

been paid to U.S. Life during the years in issue, actually exceed the income

amounts determined by respondent. 

Embezzlement Losses

Mr. Burke argues that he is entitled to deductions for losses of $21,800

and $215,000 in 1985 and 1986, respectively, as a result of the embezzlement
of funds by employees of the Burke Insurance Agencies. Taxpayers bear the

burden of proving that they are entitled to the losses they claim. Burnet v.

Houston, 283 U.S. 223, 227 (1931). 

Mr. Burke testified at trial that Ms. Romano and Evelyn Coleman,

employees of the Burke Insurance Agencies, embezzled funds from him. In

particular, Mr. Burke claims that these women would write checks payable to

him, endorse the checks in his name, and then keep the funds for themselves. 

Both Ms. Romano and Ms. Coleman denied these accusations. Ms. Romano

testified that she would write and endorse checks in Mr. Burke's name only

when instructed to do so by Mr. Burke himself, and she would always provide

him with the funds she received. 

As already explained, we believe that Mr. Burke's allegations are

nothing more than an attempt to conceal his diversion of funds for his own

personal use. Therefore, we sustain respondent's disallowance of any

embezzlement losses for the years in issue.

Schedule E Losses

Mr. Burke claimed Schedule E (Supplemental Income Schedule) losses of

$23,453, $141,418, and $37,348 for the taxable years 1985, 1986, and 1987,

respectively. Mr. Burke alleges that these losses were sustained by Ard Rhei,

his wholly owned S corporation. With the exception of a $3,200 deduction for

1985, respondent disallowed any deduction for these losses.

An S corporation is not normally subject to corporate income tax. Sec.

1363(a). Instead, shareholders include their pro rata share of the

corporation's income, losses, deductions, or credits on their individual tax

returns. Sec. 1366(a)(1). Shareholders are only entitled to claim losses and

deductions to the extent of their adjusted basis in the corporation's stock

and any indebtedness of the S corporation to the shareholder. Sec.

1366(d)(1). 
 

14Kenneth S. Silver, Mr. Burke's accountant, testified that he prepared

these returns only a few weeks before trial. 

Petitioners bear the burden of proving that the corporation actually

incurred losses for the years in issue. Our review of the record convinces us

that petitioners have failed to do so in this case.

There are several reasons for our conclusion. First, the record does

not contain Ard Rhei's income tax returns for the years in issue.14 Second,

Mr. Burke failed to offer sufficient documentation to substantiate that Ard

Rhei incurred the losses for which Mr. Burke claimed deductions. Aside from

the unconvincing testimony of Mr. Burke and his accountant, the record only

contains Ard Rhei's general ledger for 1985. This ledger, without more, is

insufficient to substantiate these losses. Finally, a disclosure statement in

each of the returns for the years in issue demonstrates the uncertainty

regarding these loss deductions. These disclosures state:

As per the direction of John J. Burke, amounts approximating the

results of Ard Rhei, Inc.'s (S-corporation, I.D.# 11-2734819)

operations have been included on the shareholders personal tax

return in order to more accurately reflect the income stated on

the Form 1040. The corporation's tax return has not been filed to

date. [Emphasis added.] 

Because Mr. Burke has failed to substantiate that Ard Rhei incurred any losses

for the years in issue, we sustain respondent's determination.

Additions to Tax for Fraud

We must next consider whether Mr. Burke is liable for additions to tax

for fraud under section 6653(b) for the taxable years 1985, 1986, and 1987. 

Respondent bears the burden of proof on this issue. Sec. 7454(a). For the

taxable year 1985, if any portion of an underpayment of tax required to be

shown on a return is due to fraud, there shall be added to the tax an amount

equal to 50 percent of the underpayment as well as an amount equal to 50

percent of the interest payable under section 6601 with respect to that

portion of the underpayment attributable to fraud. Sec. 6653(b)(1) and (2). 

For the taxable years 1986 and 1987, the addition to tax is equal to 75
percent of the portion of any underpayment attributable to fraud, plus 50

percent of the interest due on this portion. If respondent establishes that

any portion of an underpayment for 1986 and 1987 is attributable to fraud,

then the entire underpayment is to be treated as attributable to fraud, except

with respect to any portion of the underpayment that the taxpayer establishes

is not attributable to fraud. Sec. 6653(b)(1)(A) and (B). 

In order to discharge her burden, respondent must prove that: (1) An

underpayment exists for the years in issue; and (2) that the underpayment is

due to fraud. Sec. 7454(a); Rule 142(b); Petzoldt v. Commissioner, 92 T.C.

661, 699 (1989); Hebrank v. Commissioner, 81 T.C. 640, 642 (1983); HabershamBey v. Commissioner, 78 T.C. 304, 311 (1982). 

Respondent's income determination is based on the diversion of funds

from the MPC premium account for Mr. Burke's personal benefit. Mr. Burke does

not deny that funds belonging to U.S. Life were taken from the MPC premium

account. Instead, Mr. Burke claims that funds, which were in excess of what

was properly due to the Burke Agencies as commissions, were either loans from

U.S. Life or were funds embezzled by several of Mr. Burke's employees. 

We have previously found that none of the withdrawn funds that should

have been paid to U.S. Life constituted loans. U.S. Life neither explicitly

nor implicitly consented to lend Mr. Burke any of the funds withdrawn from the

MPC premium account. Mr. Burke could not have misapprehended this situation. 

He neither sought nor received U.S. Life's permission to borrow money. U.S.

Life continuously requested payment of amounts to which it was entitled. In

response, Mr. Burke provided numerous false explanations to U.S. Life. 

Finally, in 1987, U.S. Life brought suit and obtained a judgment against Mr.

Burke for the unpaid premiums.

With respect to Mr. Burke's claim that his employees embezzled funds, we

have already explained why we reject this claim. The evidence clearly

demonstrates that Mr. Burke used his employees to divert funds from the MPC

premium account by instructing them to move money out of that account and give

it to him or transfer it to Ard Rhei and others for his benefit.
Mr. Burke engaged in a scheme to divert funds for his own benefit. We

reject his claims that the funds, which he should have paid to U.S. Life, were

either loans or embezzlements by his employees. Respondent's determination of

Mr. Burke's gross receipts for the years in issue is actually less than the

total amount of premiums that was owed to U.S. Life as of March 1987. 

Respondent has clearly demonstrated that Mr. Burke failed to report income and

erroneously claimed deductions for embezzlement losses. Consequently,

respondent has clearly proven the underpayment of income tax for the taxable

years in issue.

Next, respondent must show that Mr. Burke intended to evade taxes known

to be owing by conduct that was designed to conceal, mislead, or otherwise

prevent the collection of such taxes. Stoltzfus v. United States, 398 F.2d

1002, 1004 (3d Cir. 1968); Webb v. Commissioner, 394 F.2d 366, 377-378 (5th

Cir. 1968), affg. T.C. Memo. 1966-81; Rowlee v. Commissioner, 80 T.C. 1111,

1123 (1983). The existence of fraud is a question of fact to be resolved upon

consideration of the entire record. Gajewski v. Commissioner, 67 T.C. 181,

199 (1976), affd. without published opinion 578 F.2d 1383 (8th Cir. 1978). 

Fraud is never imputed or presumed. Instead, it must be affirmatively

established by respondent with clear and convincing evidence. Beaver v.

Commissioner, 55 T.C. 85, 92 (1970). However, since direct evidence of a

taxpayer's intent is rarely available, fraud may be proven with circumstantial

evidence and reasonable inferences which are drawn from established facts. 

Spies v. United States, 317 U.S. 492, 500 (1943); Rowlee v. Commissioner,

supra. 

Factors which are indicative of fraudulent intent on the part of a

taxpayer include: (1) Understatements of income; (2) inadequate records; (3)

failure to file tax returns; (4) implausible or inconsistent explanations of

behavior; (5) concealment of assets; (6) failure to cooperate with tax

authorities; (7) engaging in illegal activities; (8) attempting to conceal

these activities; and (9) dealing in cash. Bradford v. Commissioner, 796 F.2d
303, 307-308 (9th Cir. 1986), affg. T.C. Memo. 1984-601; Niedringhaus v.

Commissioner, 99 T.C. 202, 211 (1992); Recklitis v. Commissioner, 91 T.C. 874,

911 (1988). Upon examination of the entire record, we conclude that Mr.

Burke's underpayment of Federal income taxes for 1985, 1986, and 1987 is

attributable to fraud. 

Mr. Burke substantially understated his income on the delinquent returns

for the taxable years in issue. Such consistent and substantial

understatement of income constitutes strong evidence of fraudulent intent. 

Grudin v. Commissioner, 536 F.2d 295, 296 (9th Cir. 1976), affg. T.C. Memo.

1974-251; Ruark v. Commissioner, 449 F.2d 311, 313 (9th Cir. 1971), affg. T.C.

Memo. 1969-48; Merritt v. Commissioner, 301 F.2d 484, 487 (5th Cir. 1962),

affg. T.C. Memo. 1959-172; Otsuki v. Commissioner, 53 T.C. 96, 107-108 (1969). 

The failure by a knowledgeable taxpayer to maintain adequate records is

also evidence of fraud. Galant v. Commissioner, 26 T.C. 354, 364-365 (1956). 

There were no adequate records kept to reflect the nature of the transactions

in issue. Mr. Burke held several insurance licenses and had extensive

experience in the insurance business. He was obviously aware, therefore, of

the need to maintain adequate books and records. His accountant repeatedly

warned him of the inadequacy of the Burke Insurance Agencies' books and

records. For instance, in a letter to Mr. Burke dated June 19, 1986, Mr.

Silver states:

Over the past year or so it has become extremely difficult

to properly account for the results of operations for both

companies. In addition to no longer having an idea of how much

you owe to insurance companies for premiums collected, I have to

seriously question your position that your draw is nothing more

than loans from the company to you. 

Failure to file Federal income tax returns may be persuasive

circumstantial evidence of fraudulent intent. Marsellus v. Commissioner, 544

F.2d 883, 885 (5th Cir. 1977), affg. T.C. Memo. 1975-368; Castillo v.

Commissioner, 84 T.C. 405, 409 (1985); Grosshandler v. Commissioner, 75 T.C.
1, 19 (1980). Mr. Burke did not file the returns for the taxable years in

issue until March 29, 1991. Mr. Burke filed delinquent returns only after

being contacted by a revenue agent. Mr. Burke also failed to file sales tax

returns for Jury's with the New York State Department of Taxation and Finance. 

Misleading a taxpayer's return preparer also constitutes evidence of

fraud. Parsons v. Commissioner, 43 T.C. 378, 395 (1964). Mr. Burke made

numerous misrepresentations to Mr. Silver, his accountant. For instance, he

informed Mr. Silver that his withdrawals of MPC premiums were loans. However,

we have already determined that no loan agreement existed between Mr. Burke

and U.S. Life and that his diversion and use of these premiums were made

without the knowledge and consent of U.S. Life. In addition, when delinquent

returns were prepared, Mr. Burke directed Mr. Silver to deduct embezzlement

losses for funds that he alleged had been misappropriated by Ms. Romano and

Ms. Coleman. Nevertheless, the record contains no evidence establishing that

either individual embezzled any funds from the Burke Insurance Agencies and,

after reviewing the entire record, we are convinced that the embezzlement

alleged by Mr. Burke did not take place. 

The destruction of books or records to conceal finances is persuasive

evidence of fraud. Spies v. United States, 317 U.S. at 499; Reynolds v.

Commissioner, T.C. Memo. 1977-181. Mr. Burke instructed Ms. Romano to destroy

insurance agency checkbooks and report them as stolen after he learned that he

was under investigation by the New York State Department of Insurance. Ms.

Romano did not carry out Mr. Burke's instructions.

The omission of income and the commission of other criminal acts are

additional indicia of fraud. Petzoldt v. Commissioner, 92 T.C. at 701-702. 

Pursuant to a plea agreement with the Suffolk County District Attorney, Mr.

Burke pleaded guilty to Grand Larceny 4, a felony under New York law, for

failing to file sales tax returns and to remit sales taxes owed from Jury's to

the New York State Department of Taxation and Finance. We have also

determined that Mr. Burke diverted premiums owing to U.S. Life. As the Court
 

15For purposes of applying this addition to tax, the "underpayment" is

not reduced by any amount of tax reported on a delinquently filed return. 

Sec. 6653(c).

of Appeals for the Sixth Circuit remarked long ago in Rogers v. Commissioner,

111 F.2d 987, 989 (6th Cir. 1940), affg. 38 B.T.A. 16 (1938): "It is a fair

inference that a man who will embezzle funds in his charge will not hesitate

to understate his income with intent to defraud the Government."

A system of fraudulent bookkeeping entries by the owners of a business

combined with substantial understatements of income is evidence of fraud. 

Chesbro v. Commissioner, 21 T.C. 123, 130 (1953), affd. 225 F.2d 674 (2d Cir.

1955). Mr. Burke instructed Ms. Romano to transfer funds from the MPC premium

account to the Burke Insurance Agencies' expense accounts and to draw checks

payable to herself, John J. Burke, various other employees, or "cash". The

checks would be cashed, and the funds delivered to Mr. Burke. Pursuant to Mr.

Burke's instructions, Ms. Romano recorded these withdrawals from the expense

accounts as premium refunds and expenses.

A taxpayer's excessive dealings in large amounts of cash is further

indication of fraud. Estate of Mazzoni v. Commissioner, 451 F.2d 197, 202 (3d

Cir. 1971), affg. T.C. Memo. 1970-37. Mr. Burke diverted insurance premiums

by having his employees cash checks and deliver the proceeds to him. In order

to conceal his receipt of cash, Mr. Burke instructed Ms. Romano to write

checks for amounts less than $10,000 in order to avoid generating a currency

transaction report. 

We conclude that the record contains clear and convincing evidence of

Mr. Burke's fraudulent intent to evade income taxes for the taxable years in

issue. Accordingly, we find that respondent has discharged her burden, and we

sustain her determination that Mr. Burke is liable for an addition to tax for

fraud. 

Respondent computed the addition to tax for fraud on only a portion of

the underpayment for each year.15 However, with respect to the addition for

1986, respondent's answer asserts an increased addition to tax for fraud by
alleging that the tax on an additional understatement of income in the amount

of $22,448 is also due to fraud. This additional understatement of income is

based on evidence establishing that it was part and parcel of the overall

diversion of funds to Mr. Burke. As such, it is part of the overall fraud. 

We therefore sustain the increased addition to tax resulting from the

increased deficiency for 1986.

Alleged Joint Returns

The next issue for decision is whether Mrs. Burke is jointly liable for

the deficiencies in tax. This initially depends upon whether Mrs. Burke

tacitly consented to the filing of joint Federal income tax returns for the

years in issue. If we find that she did, then section 6013(d)(3), which

establishes that spouses who file a joint tax return are jointly and severally

liable for any tax that is due on the return, is applicable. 

Mrs. Burke did not personally sign the alleged joint returns at issue. 

However, this Court has recognized that a joint return is not necessarily

invalid because one spouse did not sign the return. Estate of Campbell v.

Commissioner, 56 T.C. 1, 12 (1971); Federbush v. Commissioner, 34 T.C. 740,

757 (1960), affd. per curiam 325 F.2d 1 (2d Cir. 1963); Heim v. Commissioner,

27 T.C. 270, 273 (1956), affd. 251 F.2d 44 (8th Cir. 1958). The issue turns

on whether the spouse "intended to file and be bound by the particular return

in question." Shea v. Commissioner, 780 F.2d 561, 567 (6th Cir. 1986), affg.

in part, revg. in part, and remanding T.C. Memo. 1984-310; accord Januschke v.

Commissioner, 48 T.C. 496, 500 (1967); Helfrich v. Commissioner, 25 T.C. 404,

407 (1955). Once it is established that one spouse did not sign the joint

return, the burden shifts to respondent to produce additional evidence of that

spouse's intent. O'Connor v. Commissioner, 412 F.2d 304, 309 (2d Cir. 1969),

affg. in part and revg. in part T.C. Memo. 1967-174; Estate of Krock v.

Commissioner, T.C. Memo. 1983-551.
Respondent relies primarily on petitioners' long history of joint filing

and Mrs. Burke's reliance on her husband to handle the couple's financial

affairs. Cf. Estate of Campbell v. Commissioner, supra at 13; Federbush v.

Commissioner, supra at 756-757. Indeed, Mrs. Burke concedes on brief that

[Mr.] Burke was responsible for the preparation of any necessary

tax returns, and that Vivian was not involved in the preparation

process; that Vivian signed and consented to the filing of the

Prior Year Returns; and that Vivian signed and consented to the

filing of Subsequent Year Returns. [Fn. ref. omitted.]

However, Mrs. Burke contends, and we agree, that a pattern of joint return

filing is only one factor to consider in reaching a decision concerning her

intent. Lomanno v. Commissioner, T.C. Memo. 1994-426. 

Mrs. Burke argues that the outcome in this case is controlled by our

decision in Helfrich v. Commissioner, supra. In Helfrich v. Commissioner, 25

T.C. at 407, we held that the taxpayer did not have the requisite intent to

file a joint return with her spouse because 

The signature * * * on the return is not hers. Furthermore, she

did not authorize anyone to sign her name to the return; she did

not know the return had been filed; she did not participate in its

preparation; and the first time she saw it was in the collector's

office * * * 

Mrs. Burke was not aware that her husband filed returns for the years in

issue on March 29, 1991, and had she been asked to sign these returns or

consent to joint filing status, she would have refused. Numerous reasons

existed for Mrs. Burke not to consent to the filing of joint returns. Mrs.

Burke was not personally required to file any returns for the years at issue. 

The years at issue were turbulent ones for petitioners. Mr. Burke was a heavy

gambler, and he was abusing cocaine. Mrs. Burke knew that Mr. Burke had been

indicted for embezzlement during 1987, that he had pleaded guilty to Grand

Larceny 4, a felony in New York, and that U.S. Life had obtained a default

judgment against him for the premiums he diverted. The returns in question
were filed long after their due dates, at which time the Burkes were

experiencing severe marital problems. 

Respondent relies on Estate of Campbell v. Commissioner, supra, in

support of her contention that Mrs. Burke tacitly consented to the filing of

the returns for the taxable years in issue. In that case, this Court

determined that the taxpayer, whose signature did not appear on the return in

question, nevertheless intended her return to be a joint return. Estate of

Campbell v. Commissioner, 56 T.C. at 12. We based our conclusion on the fact

that the taxpayers "customarily" filed joint returns, and Mrs. Campbell did

not examine her husband's preparation of the returns. Rather, she simply

signed the returns after he completed them. Id. at 12-13. Since her

signature on prior and subsequent tax returns appeared to have been little

more than a "formal ritual", we concluded that the absence of Mrs. Campbell's

signature was not of "overriding importance". Id. at 13. Moreover, the Court

noted:

Here, it has not even been suggested that * * * [the taxpayer]

refused to sign the 1964 return. Indeed, * * * [the taxpayer] has

offered no evidence whatever of a reason of any kind for not

filing a joint return in 1964. Far from suggesting marital

difficulties, the record indicates that after 1964 the spouses

continued to live together, filing joint returns and enjoying the

benefits of their economic community until Mr. Campbell's death in

1967. [Id. at 13-14; citations omitted].

We find Estate of Campbell v. Commissioner, supra, to be clearly

distinguishable from the case at hand. Mrs. Campbell was fully aware that the

tax return at issue had been filed as a joint return. She was also involved

in the audit process. Thus, she had the opportunity to raise an objection to

the joint filing of the return, but chose not to. Id. at 14. Consequently,

the Court considered her subsequent effort to discredit the return to be

merely an "afterthought". Id. By contrast, Mrs. Burke was not involved in

the audit process leading up to the issuance of the notice of deficiency. She

was unaware that the IRS was seeking to hold her liable for any taxes relating

to the years at issue until she and Mr. Burke met with attorney Michael N.
 

16Since we have determined that Mrs. Burke did not tacitly consent to the

filing of joint Federal income tax returns, we need not consider whether she

satisfies the requirements for protection under the innocent spouse provision

in sec. 6013(e).

Balsamo in the summer of 1993. Prior to this time, Mrs. Burke was unaware

that purported joint Federal income tax returns had been filed.

We conclude that Mrs. Burke did not tacitly consent to the filing of

joint Federal income tax returns for the years in issue, and, therefore, she

is not jointly and severally liable for the tax16 in issue. It follows that

Mr. Burke's Federal income tax liability for 1985, 1986, and 1987 must now be

computed under the filing status of "married filing separate".

Addition to Tax for Failure to File a Timely Return

Mr. Burke filed a delinquent return for the taxable year 1986, and

respondent determined that he is liable under section 6651(a)(1) for an

addition to tax on the portion of the underpayment that is not due to fraud. 

See sec. 6653(d). 

Mr. Burke bears the burden of proof on this issue; however, he did not

address this issue on brief, and there is no evidence that would lead us to

conclude that he had a reasonable excuse for not filing his 1986 return until

March 29, 1991. We sustain respondent's determination. 

Additions to Tax for Substantial Understatement of Income Tax

Respondent determined that Mr. Burke is liable for additions to tax for

1985, 1986, and 1987 under section 6661. Respondent also alleged in her

answer that this addition to tax applies to the understatement of tax

attributable to the additional income of $22,448 that we have found that Mr.

Burke received in 1986. Section 6661(a) provides for an addition to tax equal

to 25 percent of the amount of any underpayment attributable to a substantial

understatement of income tax. Pallottini v. Commissioner, 90 T.C. 498, 503

(1988). An understatement is substantial if it exceeds the greater of $5,000
or 10 percent of the tax required to be shown on the return. Sec.

6661(b)(1)(A). An amount may be reduced, however, if the taxpayer shows that

there was substantial authority for such treatment of the item, or that the

relevant facts affecting the tax treatment of the item are adequately

disclosed on the return or in a separate statement attached to the return. 

Sec. 6661(b)(2)(B). Respondent's determinations are presumed correct, and Mr.

Burke bears the burden of proving otherwise. Rule 142(a); Hall v.

Commissioner, 729 F.2d 632, 635 (9th Cir. 1984), affg. T.C. Memo. 1982-337;

Bixby v. Commissioner, 58 T.C. 757, 791-792 (1972); Kerr v. Commissioner, T.C.

Memo. 1990-155. 

Mr. Burke did not address this issue on brief. We sustain the additions

to tax pursuant to section 6661 as determined in the notice of deficiency and

hold that Mr. Burke is also liable for this addition to tax with respect to

the understatement of tax attributable to additional income of $22,448, which

we have found for 1986.

Decision will be entered

under Rule 155. 
APPENDIX

1. Marine Midland Bank account no. 921-13312-0 (John J. Burke & Associates MPC

Premium Account)

 1986

 Checks payable to cash

 Date Check no. Amount Endorsement

 01/30/86 1002 $5,000 Joann Romano (Romano) 

 02/06/86 1004 5,000 Lisa Whelan (Whelan) 

 02/19/86 1007 6,000 Whelan

 Total $16,000

 Checks payable to Lisa Tobin

 03/27/86 1022 $6,000 Lisa Tobin (Tobin) 

 Total $6,000

 Checks payable to Jury's of Setauket

 07/14/86 1059 $10,400 Jury's of Setauket (Jury's)

 08/18/86 1074 1,900 Jury's

 Total $12,300

 Checks payable to John J. Burke (cashed)

 03/12/86 1016 $6,500 John Burke (Burke) & Whelan

 04/04/86 1026 1,000 Burke 

 Total $7,500

 TOTAL 8612 $41,800 

 1987

 Checks payable to Don Balsamo

 02/12/87 1149 $4,000.51 Don Balsamo (Balsamo)

 Total $4,000.51

 TOTAL 8712 $4,000.51
2. Marine Midland Bank account no. 921-69297-8 (John J. Burke & Associates

C.H.I.E. Account)

 Cash Withdrawals

 1985

 Date Amount Withdrawal Signature

 06/24/85 $5,000 Burke

 07/10/85 5,000 Burke

 08/01/85 7,000 Burke

 09/16/85 9,500 Burke

 09/23/85 5,000 Burke

 09/30/85 15,000 Burke

 10/03/85 7,000 Burke

 Total $53,500

 1986

 04/16/86 $9,000 Burke

 04/17/86 20,000 Burke

 04/23/86 9,000 Burke

 04/25/86 8,000 Burke

 05/21/86 4,500 Burke

 Total $50,500

 1987

 01/09/87 $9,900 Burke

 01/23/87 4,000 Burke

 01/27/87 1,000 Burke

 01/29/87 5,000 Burke

 03/03/87 2,000 Burke

 04/28/87 3,500 Burke

 04/30/87 6,000 Burke

 Total $31,400

3. Marine Midland Bank account no. 921-11974-7 (John J. Burke & Associates)

 1985

 Checks payable to John J. Burke

 Date Check no. Amount Endorsement

 11/27/85 1220 $1,000 Burke & Whelan

 12/06/85 1234 10,000 Burke

 12/20/85 1255 6,000 Burke

 Total $17,000
 Checks payable to cash

 12/16/85 1247 $5,000 Whelan

 12/18/85 1250 500 Whelan

 Total $5,500

 Checks payable to Jury's of Setauket

 10/30/85 1191 $1,158.95 Jury's

 Total $1,158.95

 TOTAL 8512 $23,658.95

 1986

 Checks payable to John J. Burke

 02/27/86 1308 $6,500 Burke & Romano

 02/28/86 1309 6,500 Burke & Romano

 03/14/86 1360 1,000 Burke & Alvin Koenigberg

 (Koenigberg)

 03/26/86 1369 9,000 Burke & Whelan

 04/02/86 1373 6,000 Burke

 04/03/86 1374 5,000 Burke & Romano

 04/09/86 1383 9,000 Burke & Whelan

 04/10/86 1411 9,000 Burke

 04/10/86 1412 9,000 Burke 

 04/10/86 1413 3,000 Burke

 04/21/86 1418 1,000 Burke & Romano

 06/04/86 1474 8,000 Burke

 06/06/86 1475 9,000 Burke & Whelan

 06/06/86 1478 4,500 Burke & Whelan

 06/11/86 1489 8,000 Burke & Romano

 06/11/86 1491 8,000 Burke & Evelyn Coleman

 (Coleman)

 06/24/86 093 5,700 Burke

 07/01/86 094 1,190 Burke & Romano

 07/03/86 1506 9,000 Burke & Coleman

 07/07/86 1511 9,000 Burke & Whelan

 07/16/86 1518 6,000 Burke & Whelan

 07/18/86 1522 9,000 Burke

 07/25/86 1529 4,000 Burke & Coleman

 08/08/86 1557 9,900 Burke

 08/22/86 1582 9,000 Burke

 09/05/86 1605 5,000 Burke

 09/10/86 1616 2,000 Burke & Coleman

 09/18/86 1641 1,500 Burke & Coleman

 09/19/86 1644 21,000 Burke

 09/24/86 1649 1,000 *illegible*

 09/26/86 1654 8,500 Burke & Coleman

 10/10/86 1657 1,000 Burke

 10/03/86 1661 1,000 Burke & Coleman

 10/14/86 1691 1,000 Burke & Gena Cohen (Cohen)

 10/15/86 1692 6,000 Burke & Coleman

 10/16/86 1696 500 Burke

 10/21/86 1701 1,000 Burke & Romano

 10/30/86 1712 9,000 Burke & Romano

 11/20/86 1743 9,000 Burke & Lynda Aquilina

 (Aquilina)

 11/25/86 1745 1,600 Burke & Aquilina

 11/26/86 1746 3,000 John Burke for Deposit to

 Ard Rhei

 11/26/86 1748 500 Burke & Aquilina

 12/11/86 1764 7,000 Burke & Aquilina

 12/18/86 1771 9,400 Burke
 12/19/86 1765 2,000 Burke

 12/19/86 1773 3,000 Deposit to Ard Rhei

 12/19/86 1774 2,000 Burke & Coleman

 12/22/86 1777 2,000 Burke & Coleman

 12/23/86 1778 700 Burke

 Total $263,990

 Checks payable to cash 

 07/02/86 1501 $1,500 Whelan

 07/03/86 1502 1,500 Whelan

 Total $3,000

 Checks payable to Jury's/Ard Rhei, Inc.

 06/02/86 1472 $5,000 Ard Rhei/Jury's

 07/09/86 1510 1,000 ---

 07/16/86 1516 2,000 Jury's

 07/21/86 1525 5,000 "For Deposit Only"

 07/28/86 1545 5,000 "For Deposit Only"

 08/04/86 1561 2,000 "For Deposit Only"

 08/11/86 1567 2,800 Jury's

 08/26/86 1587 2,200 Jury's

 09/03/86 1598 1,300 Jury's

 09/26/86 1653 5,600 "For Deposit Only"

 10/01/86 1656 1,500 ---

 10/08/86 1665 9,700 ---

 10/21/86 1702 2,000 Jury's

 10/28/86 1710 2,300 Jury's

 11/04/86 1714 4,000 Jury's

 11/06/86 1717 1,000 Jury's

 11/06/86 1718 70,000 Jury's

 11/07/86 1722 1,500 Jury's

 11/12/86 1724 3,700 Jury's

 11/14/86 1737 1,000 Jury's

 11/18/86 1739 2,500 Ard Rhei

 11/19/86 1742 2,500 Ard Rhei

 12/01/86 1750 1,548 Ard Rhei

 12/03/86 1753 3,200 "For Deposit Only"

 12/11/86 1761 4,300 Ard Rhei

 12/16/86 1770 2,200 Ard Rhei

 12/23/86 1781 1,200 Ard Rhei

 

 Total $146,048

 TOTAL 8612 4$413,038

 

4This figure includes the increased deficiency asserted by respondent in her

answer.
 1987

 Checks payable to John J. Burke

 Date Check no. Amount Endorsement

 01/05/87 1783 $7,000 Burke & Aquilina

 01/22/87 1811 1,000 Burke & Aquilina

 02/05/87 1825 2,000 Burke & Aquilina

 02/09/87 1829 2,000 Burke

 02/13/87 1836 1,000 Burke

 02/19/87 1881 1,000 Burke & Aquilina

 02/20/87 1886 1,200 Burke & Coleman

 02/27/87 1892 1,000 Burke & Howard Kornahins

 (Kornahins)

 03/06/87 1899 2,000 Burke & Aquilina

 03/11/87 1902 1,000 Burke

 07/06/87 1987 500 Burke & Cohen

 Total $19,700 

 Checks payable to cash 

 07/13/87 1990 $840 Burke & Aquilina

 Total $840 

 TOTAL 8712 $20,540

4. Bank of Smithtown account no. 01-3-401414-1 (John J. Burke & Associates Expense

Account)

 1985

 Checks payable to cash

 Date Check no. Amount Endorsement

 08/05/85 1427 $1,000 Whelan

 Total $1,000

 Checks payable to Phyllis Cox

 04/09/85 1360 $500 Phyllis Cox (Cox)

 Total $500

 Checks payable to John J. Burke

 06/07/85 1384 $1,000 Burke & Karen Vitteritti

 (Vitteritti)

 Total $1,000 

 Checks payable to Joann Romano

 02/25/85 1298 $5,000

 Total $5,000

 TOTAL 8512 $7,500
5. Bank of Smithtown account no. 01-6-400247-9 (John J. Burke or Vivian Burke

 1985

 Checks payable to cash

 Date Check no. Amount Endorsement

 01/08/85 1129 $1,700 Burke

 01/15/85 1134 6,000 Burke

 02/07/85 1144 4,500 Burke & Anna M. Vogel (Vogel)

 02/27/85 1148 700 Burke & Vogel

 03/22/85 1157 1,000 Burke & Cox

 Total $13,900 

 Checks payable to John J. Burke

 02/15/85 1145 $18,000 Burke & Romano

 Total $18,000 

 Checks payable to Ard Rhei, Inc.

 01/28/85 1139 $35,000 ---

 

 Total $35,000

 TOTAL 8512 $66,900

6. Marine Midland Bank account no. 921-11976-3 (John J. Burke & Vivian Burke)

 1985

 Deposits

 Date Amount Cash/Non-cash

 01/15/85 $3,000 

 02/07/85 8,000

 03/25/85 4,000

 04/12/85 4,000

 04/30/85 2,000

 05/10/85 3,000 $2,650 cash

 05/14/85 2,000

 06/04/85 3,000

 06/20/85 400 400 cash

 06/25/85 5,000

 07/03/85 500

 07/15/85 5,500

 07/16/85 7,000

 07/19/85 5,000

 08/09/85 4,500

 08/22/85 20,000

 08/23/85 5,000 5,000 cash

 08/29/85 1,500

 09/16/85 3,500 3,500 cash

 09/18/85 3,700

 09/23/85 3,000 3,000 cash

 10/09/85 5,000

 11/07/85 15,000

 11/22/85 1,000
 12/03/85 12,000

 12/09/85 5,000 5,000 cash

 TOTAL DEPOSITS $131,600

 TOTAL CASH DEPOSITS $19,550

 NET DEPOSITS 8512 $112,050

 1986

 Deposits

 01/08/86 $4,000 $4,000 cash

 01/15/86 7,500 4,500 cash

 01/22/86 2,390 2,390 cash

 01/24/86 3,500 3,500 cash

 02/19/86 5,000

 03/12/86 5,000

 04/15/86 5,000

 05/05/86 1,800 1,800 cash

 05/08/86 4,000 4,000 cash

 05/13/86 3,400 3,100 cash

 05/20/86 8,000 8,000 cash

 05/21/86 2,000

 06/06/86 7,500 7,500 cash

 06/24/86 5,700

 06/27/86 600 600 cash

 07/17/86 4,500

 07/24/86 6,500

 07/30/86 200

 08/12/86 15,000

 08/14/86 3,000

 09/02/86 10,000

 10/01/86 784

 10/08/86 8,000

 11/07/86 6,500

 11/26/86 1,300

 12/01/86 200

 12/04/86 6,000 

 TOTAL DEPOSITS $127,374

 TOTAL CASH DEPOSITS $39,390

 NET DEPOSITS $87,984

 1987

 Deposits

 01/07/86 $6,700.00 

 02/06/87 5,000.00

 03/02/87 300.00

 03/03/87 5,000.00

 03/25/87 500.00

 04/08/87 5,000.00

 04/15/87 1,600.00

 05/19/87 5,000.00 $5,000.00 cash

 06/12/87 10,606.07

 07/08/87 2,740.71 2,740.71 cash

 07/24/87 1,500.00 1,500.00 cash

 TOTAL DEPOSITS $43,946.78

 TOTAL CASH DEPOSITS $9,240.71

 NET DEPOSITS 8712 $34,706.07