T.C. Memo. 1996-218

UNITED STATES TAX COURT

M.S. FOOD STORES, INC., Petitioner v.

 COMMISSIONER OF INTERNAL REVENUE, Respondent

FREDERICK MALCOLM SUTTON AND CAROLYN P. SUTTON, Petitioners v.

 COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 11631-93, 11632-93. Filed May 6, 1996.

A. Rexford Willis III, for petitioners.

James R. Rich, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

PARKER, Judge: Respondent determined deficiencies in

Federal corporate income taxes, additions to tax, and a penalty

for petitioner M.S. Food Stores, Inc., as follows:
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Taxable Year Additions to Tax Under Section Penalty

 Ending Deficiency 6653(b)(1) 6653(b)(2) 6653(b)(1)(A) 6653(b)(1)(B) 6663 

Sept. 30, 1986 $3,022 $1,511 * --- --- ---

Sept. 30, 1987 7,542 --- --- $5,657 * ---

Sept. 30, 1988 61,367 --- --- 46,025 * ---

Sept. 30, 1989 1,284 963 --- --- --- ---

Sept. 30, 1990 22,029 --- --- --- --- $16,522

*Plus an addition of 50 percent of the interest due on the deficiency.

In the alternative, respondent determined additions to tax

and a penalty as follows:

Taxable Year Additions to Tax Under Section Penalty

 Ending 6651(a)(1) 6653(a)(1)(A) 6653(a)(1)(B) 6653(a)(1) 6653(a)(2) 6661 6662(a)

Sept. 30, 1986 --- --- --- $151 * --- ---

Sept. 30, 1987 $1,506 $377 * --- --- --- ---

Sept. 30, 1988 5,985 3,068 * --- --- $15,342

 ---

Sept. 30, 1989 --- --- --- 64 --- --- ---

Sept. 30, 1990 --- --- --- --- --- --- $4,406

*Plus an addition of 50 percent of the interest due on the deficiency.

Respondent determined deficiencies in Federal income taxes,

additions to tax, and penalties for petitioners Frederick Malcolm

Sutton and Carolyn P. Sutton as follows:

 Additions to Tax Under Section 

Year Deficiency 6651(a)(1) 6653(a)(1)(A) 6653(a)(1)(B) 6653(a)(1)

1986 $25,141 --- $8 

1 ---

1987 48,241 $1,182 496 

2 ---

1988 31,139 841 --- --- $368

1989 24,860 6,354 --- --- ---

1990 23,716 5,947 --- --- ---

 Additions to Tax Under Section Penalty

Year 6653(b)(1)(A) 6653(b)(1)(B) 6653(b)(1) 6661 6663 

1986 $18,742 

3 --- --- ---

1987 29,787 

4 --- $3,597 ---

1988 --- --- $18,590 2,651 ---

1989 --- --- --- --- $15,905

1990 --- --- --- --- 17,787

1 Plus an addition of 50 percent of the interest due on $103.

2 Plus an addition of 50 percent of the interest due on $5,309.

3 Plus an addition of 50 percent of the interest due on $24,989.

4 Plus an addition of 50 percent of the interest due on $38,317.

In the alternative, respondent determined additions to tax

and penalties as follows:
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1 On brief respondent has conceded the fraud additions to

tax and penalties for all years before the Court. Respondent has

also conceded that petitioner Carolyn P. Sutton is an innocent

spouse as to the unexplained bank deposits and disputed rebate

and coupon checks diverted from the corporate petitioner (grossly

erroneous items). Respondent further conceded that petitioner

Carolyn P. Sutton is an innocent spouse as to any additions to

tax predicated upon those income adjustments, provided that the

Court determines that the substantial understatements are in

amounts sufficient to satisfy the statutory requirements of sec.

6013(e)(1) through (4). The parties have made various other

concessions which are set out in their stipulations of fact and

which will be discussed in the text below.

 Additions to Tax Under Section Penalty

Year 6651(a)(1) 6653(a)(1)(A) 6653(a)(1)(B) 6653(a)(1) 6661 6662(a)

1986 --- $1,257 * --- $6,285 ---

1987 $11,111 2,482 * --- 12,060 ---

1988 7,038 --- --- $1,607 7,785 ---

1989 6,354 --- --- --- --- $4,972

1990 5,947 --- --- --- --- 4,743

*Plus an addition of 50 percent of the interest due on the deficiency.

Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the taxable years before

the Court, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

After concessions,1 the issues remaining for decision are:

(1) Whether petitioner M.S. Food Stores, Inc. (the corporate

petitioner), had unreported income from rebates and coupons in

its taxable years ending September 30, 1987, 1988, 1989, and

1990;

(2) whether the corporate petitioner had unreported gross

receipts in its taxable years ending September 30, 1987, 1988,

1989, and 1990;

(3) whether the corporate petitioner is liable for additions
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to tax under section 6651(a)(1) for its taxable years ending

September 30, 1987, and 1988;

(4) whether the corporate petitioner is liable for additions

to tax for negligence for its taxable year ending September 30,

1986, under section 6653(a)(1) and (2); for its taxable years

ending September 30, 1987, and 1988, under section 6653(a)(1)(A)

and (B); and for its taxable year ending September 30, 1989,

under section 6653(a)(1); and for an accuracy-related penalty for

negligence for its taxable year ending September 30, 1990, under

section 6662(a);

(5) whether the corporate petitioner is liable for an

addition to tax under section 6661 for its taxable year ending

September 30, 1988;

(6) whether petitioners Frederick Malcolm Sutton and Carolyn

P. Sutton (the Suttons) had unreported income, in the taxable

years 1986, 1987, 1988, and 1990, from rebate and coupon checks

diverted from the corporate petitioner;

(7) whether the Suttons had additional unreported income, in

the taxable years 1986 through 1990, from diverted corporate

funds (unexplained bank deposits);

(8) whether the Suttons are liable for additions to tax

under section 6651(a)(1) for the taxable years 1987 through 1990;

(9) whether the Suttons are liable for additions to tax for

negligence for the taxable years 1986 and 1987 under section

6653(a)(1)(A) and (B); and for the taxable year 1988 under
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section 6653(a)(1); and for accuracy-related penalties for

negligence for the taxable years 1989 and 1990 under section

6662(a); and

(10) whether the Suttons are liable for additions to tax for

the taxable years 1986, 1987, and 1988 under section 6661.

FINDINGS OF FACT

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

The stipulation of facts, the supplemental stipulation of facts,

and the exhibits attached thereto are incorporated herein by this

reference.

The corporate petitioner had its principal place of business

in Kinston, North Carolina, at the time it filed its petition.

The Suttons resided in Kinston, North Carolina, at the time they

filed their petition. The cases have been consolidated for

trial, briefing, and opinion.

The corporate petitioner operated a retail grocery store in

Kinston, North Carolina, during the years at issue. Petitioner

Frederick Malcolm Sutton (Mr. Sutton) owned 100 percent of the

stock of the corporate petitioner. Previously, his father,

Frederick Sutton (Fred Sutton), had owned and operated the

grocery business. Mr. Sutton began working with his father at

the store when he was approximately 11 years old.

Mr. Sutton is a high school graduate and took some community

college courses in grocery management and butchering and meat

cutting. Mr. Sutton has no education or training in accounting,
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tax, or financial matters.

During the years 1986 through 1989, Mr. Sutton maintained a

personal checking account at NCNB National Bank (NCNB). During

the years 1989 and 1990, the Suttons maintained a personal

checking account at First Citizens Bank & Trust Company (FCB).

The corporate petitioner had both checking and savings accounts

at FCB during its taxable years ended September 30, 1987 through

1990. The bank statements covering the periods at issue for all

of the above checking accounts show numerous charges for checks

returned for insufficient funds.

Rebates and Coupons

The corporate petitioner received rebate checks from various

wholesalers or vendors. Fred Sutton had initiated an accounting

procedure for the rebate checks whereby the amounts of such

rebate checks were to be recorded on the corporate petitioner's

sales summaries (known, and hereinafter referred to, as the green

sheets) in a column entitled "Rebates". The corporate

petitioner's accountant reduced cost of sales by a credit

adjustment to purchase expenses; i.e., deducting the amount of

the rebates from the purchase expenses.

The corporate petitioner accepted coupons from its

customers. The total cost of a grocery item was initially rung

up on the cash register, and then the coupon amount was rung up

on the cash register as a deduction from the customer's bill,

with the customer paying the balance. The coupon amount was
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deducted on the cash register tape, but the coupons themselves

were never added up by the corporate petitioner. Periodically,

after the corporate petitioner accumulated enough coupons to fill

a large grocery bag about two-thirds full, it sent such coupons

to its wholesaler or vendor who would issue a check to the

corporate petitioner for the amount of the coupons. The

corporate petitioner did not record the receipt of these coupon

checks on its books. Judy Stroud of the accounting firm of

Woolard & Hale, the corporate petitioner's accountant, could not

recall ever discussing the accounting treatment of coupons and

did not appear to have any knowledge about the corporate

petitioner's treatment of the coupons or the coupon checks.

The corporate petitioner received checks for rebates from

five wholesalers or vendors during its taxable years ended

September 30, 1987 through 1990: Quinn Wholesale Company, Inc.

(Quinn), Eastern Coca Cola Bottling Company (Coke), Carolina

Dairies Corporation (Carolina Dairies), Philip Morris, and Nash

Finch Company (Nash Finch). Quinn and Nash Finch issued checks

for both rebates and coupons. Mr. Sutton indicated that the only

way he could distinguish the rebate checks from the coupon checks

was by the wholesaler's or vendor's name. Only half of the

rebate checks were recorded on the corporate petitioner's books. 

In a few instances, rebate checks had been credited toward the

corporate petitioner's purchase account with the vendor. 

Approximately one-third of the coupon checks were recorded on the
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corporate petitioner's books as rebates.

Many of these coupon and rebate checks were deposited into

the corporate petitioner's bank account. A coupon check issued

by Quinn on August 26, 1988, in the amount of $502.44, was

deposited in the corporate petitioner's bank account on August

30, 1988, along with $500 in currency; change of $2.44 was

returned. That amount of $502.44 was not included in the notice

of deficiency as part of the corporate petitioner's unreported

rebate amounts because it had been reported on the corporate

petitioner's tax return. However, respondent included this

$502.44 as part of an unexplained corporate bank deposit made on

August 30, 1988.

The following chart sets out the source, amounts, and

disposition of the various rebate and coupon checks included in

the deficiency notice to the corporate petitioner:

Rebate/Coupon Checks: the Corporate Petitioner

 Amount Credited Amount Deposited

 Amount in on Vendor's Account in Corporate Bank Amount

 TYE Vendor Deficiency Notice (Conceded by Respondent) Account Cashed 

9-30-87 Quinn $11,420.62 -0- $4,316.44 $7,104.18

Coke 4,138.00 $2,988.00 1,150.00 -0-

Carolina Dairies 447.72 -0- 132.48 315.24

 Total: $16,006.34 $2,988.00 $5,598.92 $7,419.42

9-30-88 Quinn $10,647.07 -0- $4,413.88 $6,233.19

Coke 11,083.75 $1,625.00 9,458.75 -0-

Carolina Dairies 1,757.86 -0- 1,757.86 -0-

Philip Morris 819.00 -0- 819.00 -0- 

 Total: $24,307.68 $1,625.00 $16,449.49 $6,233.19

9-30-89 Quinn $2,195.21 $1,338.69 $502.39 $354.13

Coke 5,190.00 1,625.00 3,565.00 -0-

Carolina Dairies 298.92 -0- 298.92 -0-

Philip Morris 372.00 -0- 372.00 -0- 

 Total: $8,056.13 $2,963.69 $4,738.31 $354.13

9-30-90 Coke $10,392.50 $5,045.00 $5,347.50 -0-

Philip Morris 1,080.00 -0- 1,080.00 -0-

Nash Finch 9,088.75 4.92 8,334.64 $749.19

 Total: $20,561.25 $5,049.92 $14,762.14 $749.19
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The record does not disclose what happened to the proceeds of the

above rebate/coupon checks that were cashed. The record does not

disclose whether the above rebate/coupon checks that were

deposited in the corporate bank account were part of the store

deposits or part of the unexplained bank deposits.

The following chart sets out the source, amounts,

concessions by respondent, and disputed amounts of rebate/coupon

checks included in the deficiency notice issued to the Suttons:

Rebate/Coupon Checks: the Suttons

 Amount in Amount Conceded Amount Still

Year Vendor Deficiency Notice by Respondent in Dispute 

1986 Quinn $6,279.00 $1,473.79 $3,833.81

 971.40

Coke 2,088.00 1,875.50 212.50

Carolina Dairies 244.00 244.00 -0- 

 $8,611.00 $3,593.29 $5,017.71

1987 Quinn $13,699.30 $2,636.85 $11,062.45

Coke 3,326.00 3,326.00 -0-

Carolina Dairies 448.00 132.76 315.24

Philip Morris 273.00 273.00 -0- 

 $17,746.30* $6,368.61 $11,377.69

1988 Quinn $8,288.00 $5,658.95 $2,629.05

Coke 12,709.00 12,709.00 -0-

Carolina Dairies 2,021.00 2,021.00 -0-

Philip Morris 546.00 546.00 -0- 

 $23,564.00 $20,934.95 $2,629.05

1989 Quinn $1,841.00 $1,841.00 -0-

Coke 5,348.00 5,348.00 -0-

Carolina Dairies 36.00 36.00 -0-

Philip Morris 372.00 372.00 -0- 

 $7,597.00 $7,597.00 -0-

1990 Coke $8,610.00 $8,610.00 -0-

Philip Morris 1,080.00 1,080.00 -0-

Nash Finch 9,113.00 8,363.81 $749.19

 $18,803.00 $18,053.81 $749.19

*The rebate amount in the deficiency notice is $16,516 for 1987, the amount from

Quinn that year being erroneously listed as $12,469 rather than the $13,699.30.

The amounts still in dispute represent checks made out to the

corporate petitioner that were cashed by Mr. Sutton.

The following rebate or coupon checks made out to the

corporate petitioner were cashed by Mr. Sutton:
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2 Amounts are rounded to the nearest whole dollar.

Date of

Issuer Check Amount Disposition 

Quinn 01-22-86 $3,833.81 $833.81 deposited in Mr. Sutton's personal NCNB account, $3,000 in

cash withheld by Mr. Sutton

 - -86 971.40 $900 deposited into Mr. Sutton's personal NCNB account, $71.40 in 

cash withheld by Mr. Sutton

01-01-87 1,354.35 $1,000 deposited in Mr. Sutton's personal NCNB account, $354.35 in

cash withheld by Mr. Sutton

01-26-87 1,363.41 Cashed by Mr. Sutton

03-16-87 1,451.04 Cashed by Mr. Sutton

04-23-87 1,032.40* Cashed by Mr. Sutton

08-14-87 1,047.67 Cashed by Mr. Sutton

09-18-87 1,355.31 Cashed by Mr. Sutton

10-16-87 868.41 Cashed by Mr. Sutton

12-11-87 3,089.86 Cashed by Mr. Sutton

01-22-88 1,379.27 Cashed by Mr. Sutton

04-01-88 895.65 Cashed by Mr. Sutton

11-15-88 354.13 Cashed by Mr. Sutton

Coke 05- -86 212.50 Cashed by Mr. Sutton

Carolina Dairies 08-05-87 315.24 Cashed by Mr. Sutton

Nash Finch 03-16-90 749.19 Cashed by Mr. Sutton

*$500 of this amount was reported on the corporate return and only $532.40 was taxed to the Suttons.

The record does not show what happened to the proceeds of these

rebate and coupon checks. The Suttons did not report any of

these amounts on their individual tax returns.

Checks to or on Behalf of the Corporate Petitioner

During the calendar years 1986 through 1990, Mr. Sutton

wrote personal checks to, or for the benefit of, the corporate

petitioner as summarized below.2

Deposited in Corporate Written to Disposition Total 

Year Bank Account Cashed Vendor Unknown Amount 

1986 $84,400 $2,900 --- $17,500 $104,800

1987 113,500 21,000 $2,000 --- 136,500

1988 51,832 --- --- --- 51,832

1989 45,651 --- 2,606 1,000 49,257

1990 39,625 2,000 900 1,500 44,025

A few of these checks were written to third parties; the majority

were payable to "Sutton Food Stores" and were deposited in the

corporate petitioner's bank account. Many of the checks
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3 We have not included those checks where it is clear that

respondent either did not include the related deposits in the

unexplained deposits or has conceded them.

deposited in the corporate petitioner's bank account were part of

the store deposits; i.e., those deposits into the corporate

petitioner's checking acount that were recorded as deposits on

the green sheets. Accordingly, those amounts are not part of the

unexplained bank deposits of the corporate petitioner. Among the

checks included above, those checks relating to deposits other

than the store deposits include the following:3

 Date Check Number Amount

05-19-89 0109 $3,000

11-24-89 0195 3,000

12-01-89 0203 4,000

12-21-89 10,000

12-29-89 20,000

As to his personal checks to the corporate petitioner that were

cashed, Mr. Sutton did not know the specific disposition of the

proceeds of those personal checks.

Fred Sutton also wrote checks to the corporate petitioner

which, during the years before the Court, included the following.

 Date Amount 

08-19-88 $10,000

04-21-90 500

09-20-90 11,000

On August 19, 1988, the corporate petitioner made a deposit of

$10,000 to its bank account in addition to the store deposit for

that date. We cannot determine that the other two checks from
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4 Mr. Sutton testified that Mr. Palmer recorded the

payments on the back of the check. Mr. Palmer testified that he

never wrote anything, and that Mr. Sutton kept the checks and

made the payment notations. The Court did not believe the

testimony of either Mr. Palmer or Mr. Sutton in regard to these

alleged loans. Mr. Palmer testified that he kept up to $100,000

in a metal box and that he lent out money from that box over and

over again without any interest. The Court found his testimony

to be inherently incredible.

Fred Sutton were deposited into the corporate account other than

as part of the store deposits.

Personal Resources

Mr. Sutton claimed that he obtained personal loans from

Charles W. Palmer, an elderly man who has known Mr. Sutton for

the latter's entire life. Mr. Palmer did not charge Mr. Sutton

interest on these alleged loans, although Mr. Palmer did charge

interest to others to whom he made loans. These loans were

allegedly made in cash by Mr. Palmer and repaid in cash by Mr.

Sutton.

Mr. Sutton testified that he would write a check to Mr.

Palmer for the amount of the loan, that Mr. Palmer would hold

that check until the loan was repaid, that on the back of that

check, the dates and amounts of Mr. Sutton's payments would be

recorded,4 and that, usually, the payments were weekly and in

amounts of $500, but sometimes they would be $1,000. Neither Mr.

Palmer nor Mr. Sutton had any contemporaneous records of these

alleged loans. Once a loan was repaid, Mr. Palmer allegedly

would return the check to Mr. Sutton, and Mr. Sutton would tear
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it up. In two instances, Mr. Sutton wrote checks to Mr. Palmer,

both dated January 15, 1988, and both in the amount of $5,000,

which Mr. Palmer negotiated in March and June of 1988.

Mr. Sutton wrote the following checks from the Suttons'

personal checking accounts which were endorsed by Mr. Palmer:

 Date Payee Amount Negotiated 

01-15-88 Charlie Palmer $5,000 03-10-88

01-15-88 Charlie Palmer 5,000 06-02-88

11-24-89 Cash 500 On or before 11-27-89

12-15-89 Cash 500 On or before 12-18-89

12-22-89 Cash 500 On or before 12-22-89

12-29-89 Cash 500 12-29-89

01-05-90 Cash 500 On or before 01-08-90

01-11-90 Cash 500 On or before 01-12-90

The Court is not persuaded that Mr. Palmer made any loans to Mr.

Sutton. See supra note 4.

Mrs. Sutton's father died on January 1, 1987. Mrs. Sutton

was the sole beneficiary of his estate (the estate) which had a

net value of $408,093.34. Mr. Sutton was the executor of the

estate.

Mrs. Sutton received four distributions from the estate's

checking account totaling $100,000 that she loaned to the

corporate petitioner. Of this amount, $90,000 was deposited in

the corporate petitioner's bank account during January of 1987. 

Whether or when the remaining $10,000 was deposited is not shown

by the record. Mrs. Sutton received another $2,500 distribution

from the estate on March 31, 1987, which was deposited in the

corporate petitioner's checking account. Other distributions

from the estate were as follows; the date of distribution and
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disposition are stated where known:

 Date Amount Disposition 

01-18-87 $11,690.38 Paid to FCB

02-17-87 3,000.00 Cashed

03-24-87 5,000.00 Cashed

04-14-87 7,780.00 Paid to Gay Construction Company

05-18-87 1,040.00 Paid for rental property repairs

 1,144.22

 3,806.19 Deposited in Mr. Sutton's NCNB account

 14,610.66 Nationwide Money Market

 8,746.74 Nationwide Credit Union

 8,560.38 Deposited in Mr. Sutton's NCNB account

 10,021.27 Deposited in Mr. Sutton's NCNB account

 15,134.11 Deposited in Mr. Sutton's NCNB account

 12,540.54

 16,383.00

 9,114.63 Deposited in Mr. Sutton's NCNB account

 614.37 Cashed

During the years before the Court, the Suttons paid the

following expenses by check or cash:

 Payee or Item Amount 

1986 Parrott Academy $4,665.87

Gay Construction 2,200.00

American Express 1,682.50

Walnut Creek Country Club 808.08

City of Kinston (taxes) 883.47

Lenoir County (taxes) 1,045.39

1987 1987 Chevy $10,515.00

22 ft. boat 22,000.00

Ford T-bird 4,284.00

Home improvements 10,502.06

Jewelry 4,206.21

Church sign 7,030.00

American Express 8,334.29

Parrott Academy 5,738.33

1988 Ford Truck $11,400.00

Items for boat 4,816.59.

In 1988, the Suttons traded in the boat they had purchased in

1987 for one costing $12,688.08; they also received $9,603.10 in

that trade.

Corporate Accounting and Financial Statements

The handwritten green sheets prepared by Mr. Sutton were the
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5 There is no explanation in the record as to the last

column heading.

 

6 The full price of the grocery item was rung up on the

cash register, but then the coupon amount was deducted on the

cash register tape. Without the cash register tapes or the cash

register reconciliations, it is not possible to verify whether

the total sales or gross receipts figures listed on the green

sheets included or excluded coupon amounts. Since the Court did

not find Mr. Sutton to be a credible witness, the Court is

unwilling to accord much weight to his self-serving and wholly

unsupported testimony. With a retail grocery business involving

a lot of cash receipts and with Mr. Sutton's practice of dealing

in cash and failing to distinguish between his pockets and those

of his corporation's business, the absence of the cash register

tapes is particularly troublesome.

sole record of income for the corporate petitioner. The totals

of sales for each month were totaled at the bottom of the green

sheets for that month. The following column headings appeared on

the green sheets: Date, Register, Food Stamps, Rebates, Cash,

Paid Outs, Balance, Cash on Hand, Tax, Deposit, Savings, and

Count.5 One row of information appeared for each business day of

that month. The green sheets were prepared using the daily cash

register reconciliations from one to four cash registers. 

However, no register tapes or cash register reconciliations were

provided to the accounting firm or submitted into evidence.

According to Mr. Sutton, the figures in the column entitled

"Register" represented total sales or gross receipts before

coupons were deducted.6 The entries under "Cash" represented the

sum of "Register" plus "Rebates". "Paid Outs" were subtracted

from "Cash" to arrive at "Balance". "Cash on Hand" represented

actual money, checks, and money equivalents such as vouchers and
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7 "Cash on hand" did not include coupon amounts or employee

I.O.U.'s for grocery charges that would be deducted from the

employee's paycheck.

food stamps; i.e., items that can be taken to the bank.7

"Deposit" was the deposit made to the corporate petitioner's

checking account; the deposit amounts were usually rounded

figures that did not correlate with the "cash on hand" figures. 

"Savings" was used to record taxes such as payroll and sales

taxes accumulated but not yet due to the particular government

agency. These tax amounts were not necessarily deposited in the

corporate petitioner's savings account on the dates indicated on

the green sheets; some were deposited as much as a month or

longer after the date of the entry on the green sheet. Examples

of these delayed deposits are:

 Amount Green Sheet Deposited

$3,473.23 06-25-88 07-27-88

 3,710.84 07-02-88 07-27-88

 3,582.41 07-07-88 07-27-88

 3,351.64 07-10-88 07-27-88

 3,097.63 10-01-88 03-16-89

 2,768.09 11-12-88 03-17-89

 2,866.69 12-03-88 03-31-89

Ms. Stroud prepared the corporate petitioner's monthly

financial statements based on the green sheets and the corporate

petitioner's bank statements. She did not have the cash register

tapes, cash register reconciliations, or the bank deposit slips. 

During the process of completing the monthly accounting for the

corporate petitioner, Ms. Stroud contacted Mr. Sutton if she had

any questions.
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Mr. Sutton did not document any funds that he contributed to

or that he withdrew from the corporate petitioner. There were no

promissory notes, repayments schedules, or other documentation of

any loans to or from him. Mr. Sutton did not tell Ms. Stroud

about any funds he contributed, other than to answer any specific

questions she asked him.

Ms. Stroud would post any deposits Mr. Sutton identified as

being from him, as well as any unexplained deposits, as a credit

to Account 135-Loan to Shareholder (Account 135). Nearly all of

the credits to Account 135 are marked as "deposits". Ms. Stroud

would also charge to Account 135 any personal items of the

Suttons paid by the corporate petitioner and any unexplained

shortages. The following yearend adjusting journal entries were

made charging Account 135 in order to reconcile cash on hand to

the actual cash balance:

 TYE Amount 

09-30-87 $89,930.05

09-30-88 49,872.72

09-30-89 3,730.00

09-30-90 18,717.41

The yearend adjustment for 1987 bears the notation "assumed went

to Malcolm Sutton since it did not go to Savings Acct."

The corporate petitioner's unaudited financial statements

for October 1, 1985, through September 30, 1989, do not mention

any liabilities owed to Mr. Sutton. To the contrary, these

financial statements show the following:
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 Loans Receivable Loans Payable 

 TYE Stockholder Fred Sutton Mrs. Sutton Fred Sutton

09-30-86 $42,760.61 $1,000.00 ---

$ 1,536.17

09-30-87 136,158.90 2,536.17 $87,964.71 ---

09-30-88 148,637.57 2,536.17 60,505.01 12,000.00

09-30-89 128,877.95 2,536.17 59,908.40 57,000.00

The corporate petitioner reported liabilities to commercial

lenders on these financial statements.

The corporate petitioner's U.S. Corporation Income Tax

Returns show the following amounts at the end of the respective

taxable years:

 TYE Loans to Shareholder Loans from Shareholder*

09-30-86 $42,760.61 -0-

09-30-87 136,158.90 $87,964.71

09-30-88 148,637.57 60,505.01

09-30-89 128,877.95 59,908.40

09-30-90 110,262.77 59,908.40

*These were actually loans from Mrs. Sutton who was not a

shareholder.

The Suttons' North Carolina Intangible Personal Property Tax

Returns for the years 1987 through 1990 do not show any loans

from Mr. Sutton to the corporate petitioner, nor do they show any

loans from the corporate petitioner to Mr. Sutton. Those

intangibles returns do reflect a $90,000 loan from Mrs. Sutton to

the corporate petitioner; the value of that debt at the end of

each year was indicated as:

Year Value 

1987 $60,505.01

1988 60,505.01

1989 59,908.40
- 19 -

1990 59,908.40

Mr. Sutton signed a personal financial statement for FCB

dated April 10, 1986, stating the Suttons' net worth as $588,600. 

This statement indicates $18,000 in notes due from friends,

relatives, or affiliated companies. Mr. Sutton signed another

financial statement for FCB on May 23, 1987, stating the Suttons'

net worth as $844,000. This 1987 statement indicates $27,000 in

notes due from friends, relatives, or affiliated companies. 

Neither financial statement lists any liabilities other than

notes payable to banks.

Federal Income Tax Returns

The Woolard & Hale firm prepared the tax returns of the

corporate petitioner and the Suttons for the years at issue. The

corporate petitioner's Federal income tax returns for taxable

years ending September 30, 1987, and September 30, 1988, were

due, under extension, and filed on the following dates:

Taxable Year Ending Due Filed 

September 30, 1987 June 15, 1988 June 15, 1988

September 30, 1988 June 15, 1989 February 9, 1989

Respondent determined in the notice of deficiency to the

corporate petitioner that the extensions for those years were

invalid, since the balance due was materially understated.

The Suttons' Federal income tax returns for 1987 through

1990 were due, under extension, and filed on the following dates:
- 20 -

Year Due Filed 

1987 October 17, 1988 December 5, 1988

1988 October 15, 1989 November 13, 1989

1989 October 15, 1990 August 30, 1991

1990 August 15, 1991 August 15, 1991

Respondent determined in the notice of deficiency to the

individual petitioners additions to tax for delinquency computed

without regard to the extensions of time.

Petitioners relied almost entirely on their accountants for

purposes of taking care of the corporate petitioner's monthly and

yearly books and financial records, and corporate and personal

tax returns. For the corporate petitioner, Ms. Stroud relied

upon the green sheets prepared by Mr. Sutton and the corporate

bank statements. It is not clear what materials the individual

petitioners furnished to Ms. Stroud for the preparation of their

individual tax returns. However, Ms. Stroud did not have the

Suttons' personal bank statements when she prepared their

returns.

Respondent's Determinations

The Corporate Petitioner

Respondent reconstructed the corporate petitioner's income

for its taxable years ended September 30, 1987 through 1990,

based on the accounting and bank records that were available. 

Revenue Agent Joseph Board (Mr. Board) compiled a list of

specific unexplained bank deposits for the corporate petitioner's

taxable years ended September 30, 1987 through 1989. Those
- 21 -

unexplained deposits do not include the store deposits.

Respondent adjusted the corporate petitioner's income as

follows:

 Taxable Year Ending 

Item 9/30/86 9/30/87 9/30/88 9/30/89 9/30/90

Purchase Rebates $16,007 $24,308 $8,056 $20,561

Gross Receipts 41,039 180,913 41,220 73,608

Contributions (1,320) (1,247) (843) (728)

NOL Deduction $35,851 5,909

Respondent has since conceded the amounts of those rebate

checks that were credited to the corporate petitioner's accounts

payable at the respective vendors, where net costs were used in

calculating cost of sales, and has conceded some receipts. The

amounts of respondent's concessions are (rounded to the nearest

dollar):

 Taxable Year Ending 

 Item 09-30-87 09-30-88 09-30-89 09-30-90

Rebates and coupons $2,988 $1,625 $2,964 $5,050

Gross receipts -0- 46,413 5,987 -0-

The Suttons

Mr. Board examined the Suttons' bank records and compiled a

list of specific unexplained deposits which respondent included

in the Suttons' income. The yearly totals of these unexplained

deposits to the Suttons' personal bank accounts over the 5-year

period are:
- 22 -

Number of

Year Amount Deposits

1986 $63,008 51

1987 83,403 52+

1988 53,550 35+

1989 60,541 25

1990 62,650 57

Respondent also included the amounts of all rebate and coupon

checks issued to the corporate petitioner that were not accounted

for in the corporate petitioner's income. Respondent since has

conceded amounts representing such rebate/coupon checks that were

shown to have been deposited in the corporate petitioner's bank

account. Other adjustments are reflected in the concessions

listed below.

Respondent has conceded (rounded to the nearest dollar) the

following:

 Item 1986 1987 1988 1989 1990 

Rebate/coupons $3,593 $6,369 $20,935 $7,597 $18,054

Annuity 13,067*

IRA Distribution 14,337*

Interest Income 239*

Dividend Income 140*

Tax on IRA 1,434

Dependency Exemption 1,080 1,900 1,950

*Respondent concedes those items because the Suttons had

already conceded them during the audit, and those items should

not have been included in the notice of deficiency.

The Suttons have conceded that they failed to report on

their individual income tax returns the following:

 Item 1986 1987 1989

Dividend Income $180 $120 ---
- 23 -

 

8 Petitioners have speculated that some rebate checks may

have been rung up on the register, thereby being included in

income twice, once in cash register gross receipts and again as a

result of reducing cost of sales as a rebate. Petitioners have

not established any such instances.

Capital Gain 65 --- ---

Annuity Received by Mrs. Sutton --- 13,065 $13,068

Inherited IRA --- 23,579 ---

Interest Income --- 605 ---

OPINION

The Corporate Petitioner

Rebate and Coupon Checks

The corporate petitioner acknowledges that rebates are to be

considered in calculating its income. In some instances, the

corporate petitioner recorded rebates as a reduction to cost of

sales and in other instances, where rebates had been credited

against amounts owed to wholesalers, the corporate petitioner

reflected the net costs. Respondent agrees with that treatment. 

To the extent, however, that the proceeds of rebate checks were

not accounted for by either of those methods, we hold that the

corporate petitioner had unreported income from rebate checks.8

In other words, if the rebate checks did not in some way reduce

cost of sales, then the cost of sales was overstated, and the

gross income was correspondingly understated.

The parties also agree that the coupons result in income;

they disagree, however, as to the proper treatment of that

income. Respondent has determined that the corporate
- 24 -

petitioner's income should be increased by the amounts of those

coupon checks not previously recorded in the corporate

petitioner's books as rebates. The corporate petitioner argues

that the value of the coupons was included in income as a

component of gross receipts and, therefore, should not be

included again upon receipt of the coupon checks. The corporate

petitioner has failed to establish the factual predicate for its

argument. We cannot find that the coupon amounts were initially

included in the gross receipts ("register") figures on the green

sheets.

No cash register tapes or reconciliation records were

submitted. The amount of income received from coupons was not

accounted for as a separate item on the corporate petitioner's

green sheets or any other books or records. Accounting practices

were inconsistent, some coupon checks being recorded as rebates

on the green sheets. Ms. Stroud from the accounting firm knew

nothing of the accounting procedures for coupons or coupon

checks. The corporate petitioner has not met its burden of

showing respondent's determination to be incorrect. Therefore,

we sustain respondent's determination, as adjusted by

respondent's concessions, which are detailed in the Findings of

Fact above.

Unexplained Bank Deposits

Every person liable for tax is required to keep books and
- 25 -

records sufficient to establish the amount of such taxpayer's

income. Sec. 6001; DiLeo v. Commissioner, 96 T.C. 858, 867

(1991), affd. 959 F.2d 16 (2d Cir. 1992). Where a taxpayer fails

to maintain adequate books or records, the Commissioner may

determine the taxpayer's income by, among other methods, the bank

deposits method. Mallette Bros. Construction Co. v. United

States, 695 F.2d 145 (5th Cir. 1983); DiLeo v. Commissioner,

supra. Bank deposits are prima facie evidence of income. Mills

v. Commissioner, 399 F.2d 744, 749 (4th Cir. 1968), affg. T.C.

Memo. 1967-67; Clayton v. Commissioner, 102 T.C. 632, 645 (1994);

DiLeo v. Commissioner, supra at 868. The taxpayer has the burden

of proving that the Commissioner's determination is incorrect. 

Rule 142(a); Mills v. Commissioner, supra at 749; Clayton v.

Commissioner, supra at 645. 

The corporate petitioner argues that its unexplained bank

deposits consist entirely of funds advanced by Mr. Sutton to

provide the corporate petitioner with sufficient working capital. 

The corporate petitioner includes in these funds cash loans Mr.

Sutton allegedly received from Mr. Palmer. The Court is not

persuaded that Mr. Palmer made any loans to Mr. Sutton, let alone

that such "loans" account for the corporate petitioner's

unexplained bank deposits. The corporate petitioner asserts that

the proceeds of all of Mr. Sutton's personal checks to the

corporate petitioner that were cashed eventually ended up as
- 26 -

deposits. On the whole, that has not been established.

The totals of the personal checks Mr. Sutton wrote to or on

behalf of the corporate petitioner are summarized in the Findings

of Fact above. However, most of the personal checks that were

deposited were part of the store deposits and, thus, do not

reduce the corporate petitioner's unexplained bank deposits. 

Those checks that were deposited separately from the store

deposits and that do not constitute income to the corporate

petitioner are listed separately in the Findings of Fact above.

As for the proceeds of personal checks that were cashed, Mr.

Sutton could not remember their specific disposition and, thus,

could not correlate their proceeds to the unexplained bank

deposits. Checks written to third parties do not explain bank

deposits. There is no credible evidence of any cash

contributions from Mr. Sutton to the corporate petitioner, either

from any of his personal funds or from any funds deriving from

Mr. Palmer.

Both the corporate petitioner and the individual petitioners

allege that Mr. Sutton loaned small amounts to the corporate

petitioner regularly and withdrew small amounts regularly, in

essence, alleging that the same funds were loaned and repaid over

and over. They argue that respondent has distorted the corporate

petitioner's income by summing the amounts advanced without

subtracting the repayments. Petitioners point to Ms. Stroud's
- 27 -

reconciliations as reflecting the net effect to the corporate

petitioner and thus a more accurate picture.

On the contrary, Ms. Stroud's knowledge of these alleged

loan transactions was limited, restricted by Mr. Sutton himself. 

The failure to document these transactions must weigh against

petitioners. We have considered all deposits attributable to Mr.

Sutton to the extent made possible by the record before us. 

The parties have stipulated that Mrs. Sutton loaned a total

of $100,000 to the corporate petitioner during 1987; yet, we are

unable to ascertain whether the last $10,000 installment was ever

deposited in the corporate bank account. Similarly, Fred Sutton

provided funds to the corporate petitioner. However, the Fred

Sutton checks were included in the store deposits in part. The

remaining Fred Sutton funds (the August 19, 1988 check for

$10,000) were conceded by respondent. Therefore, the Fred Sutton

funds do not assist in reducing the remaining unexplained bank

deposits.

However, the delayed deposits to the corporate petitioner's

savings account for taxes, as described in the Findings of Fact

above, do serve to account for unexplained deposits on March 16,

17, and 31, 1989. Also, respondent listed an unexplained deposit

of $14,000 on July 27, 1988. For that date, the corporate

petitioner's bank statement shows a withdrawal of $14,000 and a

deposit in the amount of $14,118.12. The latter deposit
- 28 -

represents the total of four delayed savings deposits, also

detailed in the Findings of Fact above. The unexplained bank

deposits should be reduced by those amounts.

Both the corporate petitioner and the individual petitioners

argue that the proceeds of the rebate and coupon checks that were

cashed ended up in the corporate petitioner's bank deposits and

have been included by respondent in income twice. Other than

self-serving speculation, petitioners have not provided any

information as to the disposition of these cashed checks. Such

cash proceeds may have been part of the store deposits and

already excluded from the unexplained bank deposits. Since we

are unable to determine how much, if any, was deposited and

unable to distinguish such cash from the other items deposited,

we cannot find as fact that the proceeds of these cashed rebate

and coupon checks were included in the unexplained bank deposits. 

However, there is evidence of the August 30, 1988, deposit of the

$502.44 check from Quinn within an unexplained deposit of $1,000

on that day, and the corporate petitioner's income should be

adjusted accordingly.

Additions to Tax under Section 6651(a)(1) 

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

file a return on the date prescribed (determined with regard to

any extension of time for filing), unless it is shown that such

failure is due to reasonable cause and not due to willful
- 29 -

neglect. This addition to tax is 5 percent of the tax required

to be shown on the return per month of such failure, up to 25

percent. Sec. 6651(a)(1). Respondent has determined that the

corporate petitioner's extensions of time to file for taxable

years ending September 30, 1987 and 1988 were invalid and that

the corporate petitioner is liable under this section.

The corporate petitioner asserts that the extensions for

both years were valid, but offers no proof and no argument other

than that respondent did not prove the extensions to be invalid. 

The corporate petitioner has the burden of proof to show the

additions are improper. United States v. Boyle, 469 U.S. 241,

245 (1985); Funk v. Commissioner, 687 F.2d 264, 266 (8th Cir.

1982), affg. T.C. Memo. 1981-506. The Commissioner may void an

extension where the taxpayer's request for extension is invalid

because of a failure to properly estimate tax liability. Crocker

v. Commissioner, 92 T.C. 899, 911 (1989). The corporate

petitioner has not shown it made a bona fide and reasonable

estimate of its tax liability at the time the requests for

extension were made. We hold for respondent on this issue.

Additions to Tax and Penalties for Negligence 

Respondent has determined that all of the corporate

petitioner's underpayments for the years at issue were due to

negligence or disregard of rules or regulations and imposed an
- 30 -

 

9 The additions to tax and penalty are under the following

sections:

 TYE Sections 

 09-30-86 Sec. 6653(a)(1) and (2)

 09-30-87 Sec. 6653(a)(1)(A) and (B)

 09-30-88 Sec. 6653(a)(1)(A) and (B)

 09-30-89 Sec. 6653(a)(1)

 09-30-90 Sec. 6662(a)

addition to tax or penalty for each year.9 In contesting these

additions and penalty, the corporate petitioner relies primarily

on its position that no deficiency exists, but does argue that

any deficiency due to unreported rebates was due to Mr. Sutton's

lack of education and understanding of accounting practices. 

Negligence is the lack of due care or the failure to do what

a reasonable and prudent person would do under the circumstances. 

Neely v. Commissioner, 85 T.C. 934, 947 (1985). For purposes of

the accuracy-related penalty under section 6662, the term

"negligence" also includes any failure to make a reasonable

attempt to comply with the Internal Revenue Code, and the term

"disregard" includes any careless, reckless, or intentional

disregard. Sec. 6662(c). We find the corporate petitioner to be

negligent in its failure to maintain full and accurate records of

its financial transactions during the years at issue. Mr. Sutton

failed to disclose fully to Ms. Stroud the information she needed

to keep proper records and file accurate returns. Reliance on

her was not reasonable. Ma-Tran Corp. v. Commissioner, 70 T.C.
- 31 -

158, 173 (1978). We sustain respondent's determination that the

corporate petitioner was negligent with respect to its

underpayments.

Addition to Tax under Section 6661

Respondent has determined an addition to tax under section

6661 for substantial understatement of tax for the corporate

petitioner's taxable year ended September 30, 1988. This

addition applies when the understatement of income tax of a

corporate taxpayer exceeds the greater of (1) 10 percent of the

tax required to be shown on the return for the taxable year, or

(2) $10,000. Sec. 6661(b)(1). The understatement for purposes

of this addition shall be reduced where there is substantial

authority for the tax treatment of any item or if there was

adequate disclosure, in or attached to the return, of the

relevant facts affecting any item. Sec. 6661(b)(2)(B).

The corporate petitioner has presented no argument in

objection to this addition. Since the amount of the

understatement for the taxable year ended September 30, 1988, is

substantial, we sustain respondent's determination on this issue.

The Suttons

Rebate and Coupon Checks

Respondent contends that Mr. Sutton diverted the proceeds of

the cashed rebate and coupon checks from the corporate petitioner,

thereby receiving constructive dividends. Petitioners allege that
- 32 -

all of the proceeds were used by the corporate petitioner, but

argue that if any such proceeds are found to be used by the

Suttons, such funds should be characterized as repayments of loans

Mr. Sutton made to the corporate petitioner.

Some of the proceeds of these cashed checks were deposited

into the Suttons' personal bank account. It is not known what

happened to the remainder. On the record before us, we conclude

that Mr. Sutton retained these funds for his personal use. Rule

142(a). 

Sections 301 and 316 provide that a distribution of property

made by a corporation with respect to its stock is a taxable

dividend to the extent of its earnings and profits. When a

shareholder receives an economic benefit from the corporation

without an expectation that that benefit be repaid, the

shareholder has received a constructive dividend. Williams v.

Commissioner, 627 F.2d 1032, 1034 (10th Cir. 1980), affg. T.C.

Memo. 1978-306. However, where a shareholder has made a loan to

the corporation, the corporation's repayment of that loan would

not be taxable to the shareholder. Theodore v. Commissioner, 38

T.C. 1011, 1040-1041 (1962).

In order for any monies that Mr. Sutton may have retained

from these cashed rebate and coupon checks to be repayments from

the corporate petitioner to Mr. Sutton, there must have been a

bona fide loan from Mr. Sutton to the corporate petitioner. 
- 33 -

Donisi v. Commissioner, 405 F.2d 481 (6th Cir. 1968), affg. T.C.

Memo. 1967-62. Whether a transaction between a shareholder and

his closely held corporation represents a bona fide indebtedness

must be determined based on the facts and circumstances

surrounding the transaction. Electric & Neon, Inc. v.

Commissioner, 56 T.C. 1324, 1338-1339 (1971), affd. without

published opinion 496 F.2d 876 (5th Cir. 1974). The shareholder's

mere statement that he considered the distributions to be

repayments of loans is not sufficient to show that the intrinsic

economic nature of the transactions themselves is that of a debt

rather than a constructive dividend. Williams v. Commissioner,

supra; Alterman Foods, Inc. v. United States, 505 F.2d 873, 876-

877 (5th Cir. 1974); Cordes v. Commissioner, T.C. Memo. 1994-377. 

The only records of funds transferred between Mr. Sutton and

the corporate petitioner were the limited books of the corporate

petitioner; i.e., the financial statements and the corporate tax

returns. These records indicated that Mr. Sutton owed the

corporation for funds loaned to him, not vice versa. Ms. Stroud

recorded any bank deposits identified as advances from Mr. Sutton

as reductions in what Mr. Sutton owed the corporate petitioner,

not as loans from him. There were no promissory notes, repayment

schedules, interest charges, or other credible evidence of any

loans from Mr. Sutton to his corporation. It follows that the

cash proceeds of the rebate and coupon checks were constructive
- 34 -

 

10 Petitioners have not presented argument or proof that any

distributions would be nontaxable due to the limitations of the

corporate petitioner's earnings and profits.

dividends to Mr. Sutton. Donisi v. Commissioner, supra; Cordes v.

Commissioner, supra.

Unexplained Bank Deposits

Mr. Sutton argues that the unexplained bank deposits in his

personal bank account consist of repayments of his loans to the

corporate petitioner, the proceeds of checks cashed by the store,

loans from Mr. Palmer, and cash distributions from the estate, all

of which would be nontaxable sources. The factual predicate for

that argument has not been established.

We cannot find that Mr. Sutton made any loans to the

corporate petitioner. Thus, any payments out of the corporation

to him cannot be repayment of loans. Ms. Stroud's entries to

Account 135 support respondent's position, indicating that Mr.

Sutton withdrew greater amounts of money than any amounts he may

have contributed. Mr. Sutton has not argued that the funds he

withdrew from the corporate petitioner were intended to be loans

from the corporate petitioner. See Alterman Foods, Inc. v. United

States, supra at 877 n.7. We conclude that any funds that Mr.

Sutton withdrew from the corporate petitioner were constructive

dividends.10

We are unable to attribute any of the unexplained bank

deposits in the Suttons' bank accounts to the proceeds of personal
- 35 -

checks cashed by the corporate petitioner, since we cannot

distinguish checks that may have been handled in this fashion. We

cannot find that the Suttons received any funds from Mr. Palmer. 

We have found that the Suttons received funds from the estate;

yet, we are unable to trace such funds to the remaining

unexplained bank deposits in the Suttons' personal bank account. 

In summary, petitioners have failed to prove that any of the

Suttons' unexplained bank deposits derived from nontaxable

sources. 

The individual petitioners argue that they should not have to

include the proceeds of the cashed rebate and coupon checks in

addition to the unexplained bank deposits, as this would be double

counting. Since the disposition of the cash proceeds is unknown,

we cannot find that they were part of the unexplained bank

deposits.

Additions to Tax under Section 6651

Respondent has determined additions to tax for late filing

for the Suttons' taxable years 1987 through 1990. The Suttons

applied for extensions in each of these years and, for years 1987

through 1989, filed their returns after the respective due dates

as extended. They admit that the returns for 1987 through 1989

were filed after the due dates as extended, and if a deficiency

should be found for any of these years, that some addition would

apply for each of those years. However, they assert that the
- 36 -

 

11 The additions to tax and penalties are under the

following sections:

Year Sections 

1986 Sec. 6653(a)(1)(A) and (B)

1987 Sec. 6653(a)(1)(A) and (B)

1988 Sec. 6653(a)(1)

1989 Sec. 6662(a)

1990 Sec. 6662(a)

extensions for 1987 though 1990 were valid and argue that the

addition should only apply from the respective due dates as

extended. 

The Suttons have not shown they made a bona fide and

reasonable estimate of their tax liability at the time the

requests for extension were made. We hold for respondent on this

issue.

Additions to Tax and Penalties for Negligence

Respondent has determined that all of the Suttons'

understatements for the years at issue were due to negligence or

disregard of rules or regulations.11 The individual petitioners

have argued only that they correctly reported their income and

were not otherwise negligent. We disagree. They have presented

no specific evidence that they acted as would a reasonable and

ordinarily prudent person under the circumstances. We sustain

respondent on the negligence issue.

Addition to Tax under Section 6661

Respondent has determined additions to tax for substantial
- 37 -

underpayment for the Suttons' taxable years 1986 through 1988. An

understatement of tax by an individual taxpayer is substantial if

it exceeds the greater of 10 percent of the tax required to be

shown on the return or $5,000. Sec. 6661(b)(1)(A). 

The Suttons have presented no arguments on this issue other

than to deny the underlying deficiencies. We sustain respondent

as to the additions under section 6661.

In keeping with the above and the concessions of the parties,

Decisions will be entered

under Rule 155.