T.C. Memo. 2002-306

UNITED STATES TAX COURT

GEORGE J. MANTAKOUNIS AND SOPHIA MANTAKOUNIS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5888-01. Filed December 17, 2002.

Ronald D. Ashby, for petitioners.

Jack T. Anagnostis, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, Judge: Respondent determined a deficiency of $34,106

in petitioners’ Federal income tax for 1991. Respondent also

determined an addition to tax of $10,024 under section 6651(a)(1)

and a penalty of $6,821 under section 6662(a). The issues for

decision are: (1) Whether petitioners failed to report $105,000

in income, (2) whether petitioners are liable for an addition to
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tax under section 6651(a), and (3) whether petitioners are liable

for an accuracy-related penalty under section 6662(a).

Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue, and

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

Procedure.

FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioners resided in Springfield, Pennsylvania, at the

time they filed their petition. Petitioners had been married for

45 years at the time of trial. John T. Mantakounis

(J. Mantakounis), father of George J. Mantakounis (petitioner),

resided in an apartment house in Philadelphia, Pennsylvania,

owned by petitioner’s sister. J. Mantakounis spent his time in

Philadelphia and in Greece. J. Mantakounis died in Icaria,

Greece, on January 16, 2000.

In 1991, petitioners traveled to Holiday, Florida, to

purchase a home. Settlement of the purchase transaction occurred

on March 6, 1991. The purchase price was $160,000, with

$143,746.10 due at closing. In connection with this purchase,

petitioners engaged in a $105,000 cash transaction. On March 4,

1991, petitioners bought a cashier’s check in the amount of 
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$102,876.50 from the Barnett Bank of Pasco County, Florida, and

used the remaining funds to obtain a certificate of deposit.

Petitioners filed a joint Federal income tax return for 1991

reporting taxable income of $42,130. Petitioners received an

extension for filing of their 1991 return until October 15, 1992,

and filed their return on January 21, 1993.

Respondent commenced an examination of petitioners’ 1991

joint return in December 1995. A Form 4789, Currency Transaction

Report (CTR), filed by Barnett Bank had shown petitioners’

$105,000 cash transaction, which was not included in petitioners’

gross income for 1991.

On April 10, 1996, Revenue Agent Helen Moore (Moore)

interviewed petitioner in his accountant’s office. Petitioner

told Moore that, in 1990, he found a box of cash in his father’s

house in Philadelphia. Petitioner then told Moore that he took

the money to Florida to purchase the Florida home.

On December 27, 1996, petitioners sold a house they owned in

Springfield, Pennsylvania, to their son for $261,500, receiving a

check from the title company for $261,536.38. On January 14,

1997, petitioner wrote a check to J. Mantakounis for $154,000

from petitioners’ joint bank account.

Moore issued her report on January 16, 1997, proposing an

adjustment to income of $105,000. After petitioners retained

their current counsel, counsel for petitioners told Moore that
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the $105,000 was a loan from J. Mantakounis to petitioners, and

not cash that petitioner found in a box. On July 25, 1997,

petitioners’ attorney produced to Moore a “note”, the $154,000

check to J. Mantakounis, and the settlement sheet for the

Springfield property as evidence of the loan.

On April 15, 1999, petitioner met with Appeals Officer

Walter Lyons (Lyons). At this meeting, petitioner denied that he

ever mentioned finding the money in a box in his father’s house. 

Petitioner stated that J. Mantakounis sold property in Greece and

that funds from that sale were loaned to petitioner. Petitioner

first told Lyons that J. Mantakounis loaned him the money in

Philadelphia. He later claimed that his father gave the cash to

petitioner in Florida.

On January 24, 2001, respondent sent to petitioners a notice

of deficiency for 1991. Respondent determined that the $105,000

was unreported income, increasing petitioners’ taxable income

accordingly.

OPINION

Unreported Income

Generally, the taxpayer bears the burden of disproving the

Commissioner’s determination. Rule 142(a); see Welch v.

Helvering, 290 U.S. 111, 115 (1933); Clayton v. Commissioner, 102

T.C. 632, 645 (1994). Petitioners, however, argue that here the

burden shifted to respondent under section 7491 because
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petitioners introduced credible evidence that the cash

transaction was a loan. Section 7491 applies only to court

proceedings arising in connection with examinations commencing

after July 22, 1998 and thus does not apply to this case. 

Internal Revenue Service Restructuring and Reform Act of 1998,

Pub. L. 105-206, sec. 3001(c), 112 Stat. 726, 727. In any event,

as set forth below, we do not accept petitioner’s testimony as

credible. Petitioners further argue that respondent must put

forth evidence that the cash transaction was not a loan and must

show some link between the transaction and petitioner’s business.

A bank deposit is prima facie evidence of income. Tokarski

v. Commissioner, 87 T.C. 74, 77 (1986); see Clayton v.

Commissioner, supra at 645; DiLeo v. Commissioner, 96 T.C. 858,

868 (1991), affd. 959 F.2d 16 (2d Cir. 1992). The bank deposits

method of reconstruction assumes that all money deposited to a

taxpayer’s account is taxable income, unless the taxpayer can

show a nontaxable source for the income. See DiLeo v.

Commissioner, supra at 868. Respondent need not show a likely

source of the income. Tokarski v. Commissioner, supra at 77.

Here, there is no requirement that respondent produce

evidence linking petitioners to an income-producing activity

because, as in Tokarski v. Commissioner, supra at 76, there is no

question that petitioners actually received the money. Although

petitioners applied part of the funds to the purchase of the
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cashier’s check and deposited the balance into an account, this

distinction is irrelevant to our analysis. It is undisputed that

petitioners engaged in the transaction and had use of the money. 

Although petitioners were notified by the Court at trial that

Tokarski was directly on point and would be the basis of our

analysis, petitioners’ brief failed to address the case or

otherwise negate its persuasiveness. (Petitioners’ brief failed

to comply with the requirements of Rule 151(e) by neglecting to

discuss any applicable legal authority and failing to include

proposed findings of fact.)

Petitioner offered inconsistent information during

examinations and conflicting testimony at trial regarding the

1991 transaction. Moore and Lyons both gave credible testimony,

and both took contemporaneous notes of their interviews with

petitioner. Petitioners were unable directly to contradict

Moore’s and Lyons’s testimony about the examinations because

petitioner repeatedly stated that he did not remember his

conversations with them. We have no reason to doubt their

credibility and have found as fact their versions of what

occurred.

During trial, petitioner testified in response to questions

from his counsel:

Q In 1991, how old was your dad?

A In his eighties somewhere.
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Q Okay. Now, do you take him to Florida to

see the property you’re about to purchase?

A Well, we talked about it before, and he

said I’d like to see it. I said wonderful.

He came down with us, knowing full well that--we

had talked before. Knowing full well that he was going

to loan me a sum of money to purchase this property,

and I would put in the additional sum.

Q The discussion about the loan, did that

occur here in Philadelphia?

A Yes.

Q And your father was going to Florida to

what?

A Just look at the house with us.

Q Was it your understanding that if he

approved of the house he would then give you the money

for the loan?

A Yes.

Q If he didn’t approve of the house, he

wouldn’t give you the money?

A That’s true.

Q How long did it take you and your

81-year-old dad and your wife to go to Florida?

A Two days.

Q So you leave somewhere right around the end

of February?

* * * * * * *

Q Mr. Mantakounis, after your father viewed

the property, what, if anything, did he do?

A He liked the property, and he said buy it. 

Here’s the money. Go make settlement.
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It is improbable that J. Mantakounis would personally carry

$105,000 cash to Florida. Although petitioner claims to have

been aware that his father was carrying the cash, no security

precautions were taken. In addition, Mrs. Mantakounis did not

testify regarding the transaction and the trip that

J. Mantakounis took to Florida, even though she was present at

the time and at trial.

Petitioner’s testimony concerning the “note” was replete

with factual inconsistencies. The note was not in the form of a

promissory note. The note refers to three different amounts: 

$95,000 payable on demand, $50,000 payable on demand, and $9,000. 

Petitioner was vague in answering respondent’s questions at trial

concerning whether J. Mantakounis gave him $105,000 in cash or

the $95,000 referred to in the note. Petitioner was also

inconsistent in describing exactly what the other two amounts in

the note were.

Although petitioner testified that he had the note when he

first met with Moore in 1995, he did not show it to her at that

time. The alleged “loan” was “repaid” during the time that the

examination was nearing conclusion, after a transaction with

petitioners’ son. It was not until after petitioners had

retained their current counsel, in 1997, that the note was

produced. Overall, petitioner’s direct testimony was in response
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to leading questions by his counsel, and his testimony on crossexamination was vague and evasive.

Petitioners argue that a different result in this case would

have followed if respondent had interviewed J. Mantakounis prior

to his death regarding the loan. Presumably, petitioners believe

that J. Mantakounis’s testimony would have proved the existence

of the loan. We are not required, however, to accept selfserving, unverified, and uncorroborated statements of petitioner

or of his parent. Tokarski v. Commissioner, 87 T.C. at 77; see

Cluck v. Commissioner, 105 T.C. 324, 338 (1995). Considering the

belated and inconsistent explanations provided by petitioner

before and during trial, we do not accept his testimony. We

uphold respondent’s determination that the $105,000 was

unreported income.

Addition to Tax and Penalty

Respondent determined an addition to tax for failure to 

file timely under section 6651(a)(1) and an accuracy-related

penalty for substantial understatement under section 6662(a). 

Petitioners have presented neither evidence nor argument

regarding the addition to tax and penalty.

Respondent determined the addition to tax for late filing

because, although petitioners were granted an extension to file

until October 15, 1992, they did not file until January 21, 1993. 

To escape the addition to tax for filing late returns,
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petitioners have the burden of proving that the failure to file

did not result from willful neglect and that the failure was due

to reasonable cause. See United States v. Boyle, 469 U.S. 241,

245 (1985). Because petitioners failed to present any

explanation of their late filing, they remain liable under

section 6651.

Section 6662 imposes a penalty for substantial

understatement of tax liability if the understatement exceeds the

greater of 10 percent of the correct tax or $5,000. See sec.

6662(d)(1)(A) and (B). The term "understatement" is defined as

the excess of the amount of tax required to be shown on the

return for the taxable year over the amount of tax shown on the

return for the taxable year. Sec. 6662(d)(2)(A). In view of our

determination that petitioners underreported their income by

$105,000, a prima facie case exists for imposition of the

penalty. Because petitioners failed to present any evidence or

argument that the penalty was incorrectly imposed, we uphold

respondent’s determination.

To reflect the foregoing,

Decision will be entered

for respondent.