T.C. Memo. 1998-68

UNITED STATES TAX COURT

WALTER RAYMOND WILKERSON AND SUSAN GEE WILKERSON, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13797-95. Filed February 19, 1998. 

Walter Raymond Wilkerson, pro se.

William Henck, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GERBER, Judge: Respondent determined income tax

deficiencies, additions to tax, and a penalty in petitioners'

1988 and 1989 Federal income tax as follows:

 Additions to Tax Penalty

 Sec. Sec. Sec. Sec. 

Year Deficiency 6651(a)(1) 6653(a)(1) 6661 6662(a)

1988 $12,230 $3,014 $927 $3,058 ---

1989 9,276 1,559 --- --- $1,855
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1

 Respondent determined that petitioners are liable for an

addition to tax under sec. 6661 for 1988. At the trial,

petitioners did not mention this part of the determination. In

addition, the parties were required to file briefs in a seriatim

pattern, with respondent filing the opening brief. Petitioners

failed to file a brief in response to respondent's opening brief,

filed Sept. 23, 1997. Due to their failure to mention the sec.

6661 issue at trial and failure to provide argument and/or

explanation regarding it on brief, we consider this issue

abandoned, and respondent's sec. 6661 determination for 1988 is

sustained.

2 The parties' stipulation of facts and exhibits are

incorporated by this reference. 

Section references are to the Internal Revenue Code for the years

under consideration, and Rule references are to the Tax Court

Rules of Practice and Procedure. After concessions1 by the

parties, the issues remaining for our consideration are: 

(1) Whether petitioners are liable for delinquency and/or

negligence penalties for 1988 and/or 1989; and (2) whether

petitioners have shown their entitlement to depreciation of

cattle claimed on their Schedule F for 1988 and 1989.

FINDINGS OF FACT2

At the time their petition was filed, petitioners, who at

all pertinent times were married, had their legal residence at

Richmond, Virginia. Petitioners' 1988 joint Federal income tax

return was received by respondent on April 3, 1990, and had an

extended due date of August 15, 1989. Petitioners' 1989 joint

Federal income tax return was received by respondent on
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November 2, 1992, and had an extended due date of October 15,

1990. Petitioners did not file income tax returns with the

Commonwealth of Virginia for their 1988 or 1989 tax years. On

May 27, 1992, petitioners provided an unsigned Form 1040 for the

1989 taxable year to respondent's revenue agent, who was

examining petitioners' 1988 and 1989 taxable years. The

information on the unsigned May 27, 1992, and the signed

November 2, 1992, returns was the same.

Walter R. Wilkerson (petitioner) had been a certified public

accountant since 1978, and he practiced, including the

preparation of tax returns, during the years before the Court. 

During February 1992, petitioner was indicted on 15 counts of

scheming to defraud by forgery on U.S. Treasury checks in

violation of 18 U.S.C. sections 2 and 510 and 11 counts of mail

fraud in violation of 18 U.S.C. sections 2 and 1341. Petitioner

pleaded guilty to one count of scheming to defraud by forgery on

a U.S. Treasury check in violation of 18 U.S.C. sections 2 and

510 and on September 30, 1992, was sentenced to serve 15 months

in a Federal penitentiary.

Petitioner deposited, into a bank account over which he had

control, a client's Federal tax refund checks in the amounts of

$27,617.17 and $22,759.07 during 1988 and 1989, respectively. 

Petitioners reported $17,823.47 and $19,817.87, respectively, of

the diverted client's refund checks, as though it represented
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farming income, on Schedules F of their 1988 and 1989 Federal

income tax returns. Petitioners failed to report $9,793.70 and

$2,941.20 of the diverted refund checks on petitioners' 1988 and

1989 income tax returns, respectively. Respondent correctly

disallowed $13,367.60 of cost of goods sold claimed by

petitioners on Schedule F attached to their 1988 Federal income

tax return. Petitioners, for 1989, failed to report taxable fee

income from clients totaling $16,322. Petitioners did not fail

to report $750 in fee income from D & D Supply for 1989, as

determined by respondent.

OPINION

We first consider whether petitioners are liable for the

additions to tax under section 6651(a)(1) for their failure to

file Federal income tax returns for 1988 and 1989. Section

6651(a)(1) imposes an addition to tax for a taxpayer's failure to

file a timely return unless the taxpayer can establish that such

failure "is due to reasonable cause and not due to willful

neglect". The addition to tax is 5 percent of the amount

required to be shown on the return for each month beyond the

return's due date, not to exceed 25 percent. Sec. 6651(a)(1).

Petitioners must show that their failure to timely file

Federal income tax returns for 1988 and 1989 was due to

reasonable cause and not due to willful neglect. Rule 142(a);

United States v. Boyle, 469 U.S. 241, 245 (1985). The parties
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here have stipulated that petitioners' 1988 and 1989 joint

Federal income tax returns were not received by respondent until

more than 5 months after their due dates, as extended. 

Petitioners, both of whom are experienced tax return preparers,

testified that they had also timely mailed returns to respondent,

and the returns that were received by respondent had been sent in

response to notices from respondent. Respondent had no record of

receiving any returns from petitioners for 1988 or 1989, other

than the ones that were untimely received and the unsigned

version that was received by respondent's agent. The unsigned

return received by respondent's agent would have also been more

than 5 months delinquent on the date received.

We do not accept petitioners' uncorroborated testimony that

they had timely mailed returns to respondent. They did not

provide any details concerning the preparation and mailing of the

returns and, because they also failed to file State returns,

cannot corroborate the existence of a Federal return's having

been attached to timely State returns for the same taxable

periods. Petitioners' suggestion that respondent did not receive

their allegedly timely filed returns 2 years in a row is

uncorroborated and not credible. Accordingly, we hold that

petitioners are liable for 25-percent additions under section

6651 for failing to timely file their 1988 and 1989 joint Federal

income tax returns.
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Next, we consider whether petitioners are liable for a

negligence addition under section 6653(a)(1) for 1988 and/or a

penalty under section 6662(a) for 1989. For 1988, the addition

amounts to 5 percent of any underpayment, and for 1989 the

penalty amounts to 20 percent of the portion of the underpayment

attributable to negligence. In that regard, respondent

determined that the entire underpayment is due to negligence. 

Negligence has been defined as the failure to do what a

reasonable and ordinarily prudent person would do under the

circumstances. Neely v. Commissioner, 85 T.C. 934, 947 (1985).

Petitioners, one of whom is a certified public accountant

and both of whom have experience in tax return preparation,

failed to report fee income and income from other sources. In

addition, for each year, petitioners reported a portion of

diverted refund checks of a client as though it were income from

farming, from which, in 1 year, they claimed a cost of goods sold

that they now concede. Their actions belie any possibility of

reasonableness in this setting. Accordingly, we hold that

petitioners are liable for negligence for 1988 and with respect

to the entire underpayment redetermined for 1989.

Finally, petitioners claimed at trial that they are entitled

to depreciation on cattle for 1988 and 1989. In support of their

claim, petitioners produced a check and a note, each in the

amount of $12,950 and dated June 17, 1989. On the memo portion
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of the check is written the explanation "Deposit for 37 cows". 

Although petitioners alleged ownership of depreciable livestock,

they have not shown such livestock was acquired. In addition,

petitioner, who is an accountant, did not provide any

depreciation schedule or other records which would show the cost,

depreciation claimed, and basis remaining of the assets. 

Petitioners have also failed to show that the animals were held

for breeding or dairy purposes so as to be eligible for

depreciation. See, e.g., Rudolph Inv. Corp. v. Commissioner,

T.C. Memo. 1972-129. We accordingly hold that petitioners have

not shown their entitlement to depreciation of cattle for 1988 or

1989. 

To reflect the foregoing and concessions of the parties,

Decision will be entered under

Rule 155.