t c memo united_states tax_court sandy good petitioner v commissioner of internal revenue respondent docket no filed date sandy good pro_se horace crump for respondent memorandum findings_of_fact and opinion marvel judge respondent determined deficiencies in petitioner’s federal_income_tax and additions to tax under sec_6651 and f and a as follows 1unless otherwise indicated section references are to the internal revenue continued year deficiency dollar_figure big_number big_number big_number big_number sec_6651 sec_6651 f sec_6654 additions to tax dollar_figure big_number big_number to be determined2 big_number big_number to be determined2 big_number dollar_figure big_number big_number dollar_figure big_number 1alternatively respondent determined that petitioner is liable for additions to tax under sec_6651 if we conclude that he is not liable for the additions to tax under sec_6651 2the sec_6651 addition_to_tax is of the amount of tax_shown_on_the_return with an additional per month during which the failure to pay continues up to a maximum of in the notice_of_deficiency respondent did not calculate the amounts of the sec_6651 additions to tax for because the period necessary to support the assertion of the maximum penalty amount under sec_6651 had not yet been attained the issues for decision are whether and if so to what extent petitioner had unreported income for the years in issue whether petitioner is liable for self- employment_tax under sec_1401 for the years in issue whether petitioner was required to file federal_income_tax returns for the years in issue whether petitioner is liable for additions to tax under sec_6651 for fraudulent_failure_to_file federal_income_tax returns for the years in issue whether petitioner is liable for additions to tax under sec_6651 and sec_6654 for the years in continued code code in effect for the years in issue and rule references are to the tax_court rules_of_practice and procedure some monetary amounts have been rounded to the nearest dollar issue and whether we should impose a penalty under sec_6673 because petitioner maintains that as a minister of god he had no income we will first address whether petitioner operated a church and whether he was a minister findings_of_fact some of the facts have been deemed established for purposes of this case in accordance with rule f the deemed facts are incorporated herein by this reference petitioner resided in alabama when he filed his petition 2on date respondent filed a motion to show cause why proposed facts and evidence should not be accepted as established under rule f and attached a proposed stipulation of facts by order dated date this court ordered that petitioner file a response to respondent’s motion in accordance with rule f on or before date petitioner failed to file a response to respondent’s motion that complied with rule f by order dated date this court made the order to show cause under rule f absolute and deemed established the facts and evidence set forth in respondent’s proposed stipulation of facts on date petitioner electronically submitted a document titled response to respondent’s stipulation of facts by order dated date this court granted petitioner leave to file the response out of time because petitioner had attempted to respond timely by that same order this court vacated its order of date and ordered the clerk of the court to file petitioner’s response to respondent’s stipulation of facts as petitioner’s response to the court’s date order to show cause by order dated date this court made the order to show cause under rule f absolute and deemed established the facts and evidence set forth in respondent’s proposed stipulation of facts i background after serving in the u s air force in germany and receiving an honorable discharge in petitioner attended school and worked at various jobs until when he and his wife kathi good moved to florida sometime after moving to florida petitioner and mrs good built a house pincite0 bartel street for their family because of the influx of people moving into the pensacola area petitioner and mrs good decided to build a second house pincite8 bartel street petitioner and mrs good subsequently moved into the house pincite8 bartel street on a date not apparent from the record petitioner and mrs good also acquired property pincite0 county road petitioner initially titled all three properties in his name ii prepare the way ministries a background in petitioner founded prepare the way ministries he did not consult with a certified_public_accountant about the tax aspects of operating through prepare the way ministries petitioner however performed some research regarding federal taxation and also read a book by joseph n sweet3 regarding ministries and taxation in petitioner also established treasures in a field investments an unincorporated business_trust organization ubto he used treasures in a field investments to conduct transactions and to make conveyances petitioner acting through treasures in a field investments received and deposited funds into various trust accounts and used funds from trust accounts to pay his business and personal living_expenses 3mr sweet has been permanently enjoined from o rganizing promoting marketing or selling the tax_shelter plan or arrangement entitled ‘good news for form_1040 filers and from o rganizing promoting marketing or selling ‘unincorporated business_trust organizations’ a k a ‘ubtos’ or any other abusive_tax_shelter plan or arrangement that incites taxpayers to attempt to violate the internal revenue laws united_states v sweet a f t r 2d ria m d fla pursuant to fed r evid we take judicial_notice of the district court’s order with respect to mr sweet 4david marvin swanson d b a dynamic monetary strategies created the treasures in a field investments trust organization for petitioner on date the u s district_court for the middle district of florida tampa division permanently enjoined mr swanson from among other things s elling or organizing any type of trust limited_liability_company or similar arrangement as part of which swanson advocates for the noncompliance of the income_tax laws or tax_evasion misrepresents the tax savings realized by using the arrangement or conceals the receipt of income b property transactions in petitioner and mrs good transferred the properties pincite0 bartel street bartel street and county road to treasures in a field investments in treasures in a field investments granted to petitioner and his family an unrecorded life_estate with respect to the property pincite0 county road in treasures in a field investments sold the property pincite0 bartel street in treasures in a field investments sold the property pincite8 bartel street to samuel j fitts and iris k fitts for dollar_figure on a date not apparent from the record petitioner and mrs good began building a house at the county road property after the sale of the property pincite8 bartel street in they lived in the partially constructed 5with respect to at least one of the properties petitioner effectively transferred the property on date however neither petitioner nor any witness signed the instrument of transfer until date 6mrs good testified that the children of samuel j fitts and iris k fitts purchased the bartel street property the record contains a certificate of trust executed on date by shawn dornstadter petitioner’s son-in-law the accompanying papers show that treasures in a field investments transferred real_property to michael j fitts and doxie h fitts we infer from the record that michael j fitts and doxie h fitts purchased the bartel street property the record does not disclose the amount of the selling_price with respect to the sale house pincite0 county road while they continued its construction petitioner and mrs good used the proceeds from the sale of the property pincite8 bartel street to fund construction of the house pincite0 county road c development of the ministerial trust until petitioner operated prepare the way ministries through the treasures in a field investments ubto in using a plan promoted by glen stoll petitioner reorganized his alleged ministry into a ministerial trust mr stoll has since been enjoined from engaging in such promotions to accomplish the reorganization a resolution was prepared purportedly to show that the board_of 7in hurricane ivan struck the house pincite0 county road petitioner and mrs good continued to live in a portion of the house while repairing the remainder using the insurance proceeds they received although mrs good testified that she and petitioner deposited the insurance proceeds into one of the ministry bank accounts petitioner did not identify any deposits as deposits of insurance proceeds and the court could not identify any such deposits from information in the record 8during the years in issue petitioner engaged in business transactions with mr stoll in mr stoll acting as trustee of the work of his hands industries an unincorporated ministerial trust conveyed two parcels of land previously owned by petitioner and mrs good and conveyed to treasures in a field investments to andy and renee knott 9the parties stipulated that mr stoll had been enjoined from engaging in the promotion of ministerial trusts as a tax planning strategy pursuant to fed r evid we take judicial_notice of the injunction proceeding united_states v stoll wl w d wash trustees of treasures in a field investments took action to terminate the operation of treasures in a field investments as a ubto reorganize the entity as a church ministry trust and change the entity name to treasures in a field the resolution which the board allegedly adopted provided that the reorganized treasures in a field would be consistent with sec_508 and sec_501 during the years in issue petitioner held out prepare the way ministries as a sec_501 organization in mrs good executed a document allegedly certifying that prepare the way ministries had a non-taxable status however treasures in a field failed to submit a form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code instead petitioner on behalf of prepare the way ministries prepared a form_w-8ben certificate of foreign status of beneficial_owner for united_states tax withholdingdollar_figure petitioner materially altered the form_w-8ben by adding an additional box labeled church under the portion of the form requesting identification of the type of beneficial_owner petitioner used this form_w-8ben 10jason evans acting as steward for prepare the way ministries executed the form_w-8ben to hold prepare the way ministries out as a tax-exempt_entity for transactions requiring third-party reporting d bank accounts from date through date petitioner maintained an account ending in account in the name of prepare the way ministries at regions bank the signature card for account showed petitioner mrs good shane m good julie a good mr dornstadter and summer c dornstadter petitioner’s daughter as authorized signatoriesdollar_figure the employer_identification_number ein petitioner gave to regions bank was and was false petitioner used this false ein to satisfy region’s bank requirement for establishing an account from date through date petitioner maintained an account ending in account in the name of treasures in a field investments at amsouth bankdollar_figure only petitioner and mrs good were authorized 11the record does not identify the relationships among petitioner shane m good and julie a good but we infer from the record as a whole that shane m good and julia a good are members of petitioner’s family 12from date through date account was held under the name treasures in a field investments beginning in approximately date account was held under the name prepare the way ministries d b a treasures in a field investments signatories for account no ein was provided to amsouth bank we refer to account and account collectively as the ministry bank accountsdollar_figure iii petitioner’s activities and finances during the years in issue during the years in issue petitioner went on numerous trips including trips to europe which he testified at trial were missionary tripsdollar_figure petitioner admitted during his testimony that he also performed carpentry and landscaping work and trained horses and that he rented space in the and bartel street properties to families involved in his purported ministry petitioner did not maintain a personal bank account separate from the ministry bank accounts and he made no distinction between his personal finances and the finances of his alleged ministry petitioner deposited funds from his activities including income he received for performing various services into the ministry bank accounts over which he had total dominion and control the alleged ministry paid petitioner’s living_expenses including room and board as 13by collectively referring to the accounts as ministry bank accounts we are not concluding that petitioner operated an entity that qualified as a church under the code we refer to the accounts as ministry bank accounts simply for convenience 14he also testified that he conducted church meetings and other events at his home well as petitioner’s tax bills on the property pincite0 county road petitioner and mrs good used a check card tied to account at restaurants grocery stores a veterinarian’s office home improvement stores gas stations clothing stores wal-mart and amazon com during petitioner and mrs good used funds in account to pay their mortgage and their cellular telephone bills petitioner and mrs good also used funds in the ministry bank accounts to pay their american express credit card bills iv petitioner’s tax reporting and the notices of deficiency petitioner failed to file federal_income_tax returns for accordingly respondent prepared substitutes for returns sfrs for petitioner for pursuant to sec_6020 respondent subsequently mailed to petitioner letters so-called 30-day letters with attached documents including the sfrs relating to during respondent’s examination for petitioner respondent’s revenue_agent reconstructed petitioner’s income by analyzing deposits into the ministry bank accounts the revenue_agent determined that petitioner made total deposits as follows year account account total dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number big_number the revenue_agent determined that petitioner made taxable deposits as follows year account account total dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number big_number 15with respect to account the revenue_agent tabulated the total deposits eliminated nontaxable deposits allocated taxable deposits between gross_receipts from petitioner’s schedules c profit or loss from business and rental income from schedules e supplemental income or loss and tabulated the results for each year with respect to account the record contains a copy of the revenue agent’s spreadsheet showing the individual line items for the account although the revenue_agent identified certain deposits as nontaxable deposits schedule c gross_receipts and schedule e rental income respondent’s revenue_agent failed to tabulate the results accordingly for we have calculated petitioner’s total taxable deposits with respect to account by eliminating from petitioner’s total deposits those deposits the revenue_agent identified as nontaxable for however respondent’s agent did not eliminate any deposits from account as nontaxable deposits the revenue_agent treated the taxable deposits as income and allocated the income between petitioner’s schedules c and schedules e as follows schedule c year account account total dollar_figure big_number big_number big_number big_number -0- dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number big_number schedule e year account account total dollar_figure big_number -0- dollar_figure dollar_figure big_number on date respondent mailed to petitioner notices of deficiency for the years in issue respondent determined that petitioner had unreported income as follows 16respondent’s revenue_agent did not tabulate the total amount of schedule c gross_receipts for with respect to account on the basis of the spreadsheets we find that the revenue_agent determined that petitioner had unreported schedule c gross_receipts equal to the total amount of taxable deposits in account minus the schedule e rental income with respect to that account for each year 17the amounts of unreported income as finally determined in the notices of deficiency do not match in all respects the reconstruction_of_income prepared by the revenue_agent year schedule e schedule c total dollar_figure big_number -0- -0- dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number respondent also determined that petitioner had self-employment_income of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively and that petitioner had a short-term_capital_gain of dollar_figure for dollar_figure v petitioner’s tax_court proceedings after receiving the notices of deficiency petitioner filed a petition with this court contesting respondent’s determinations the court set this case for trial at the mobile alabama trial session following trial we held the record open to allow petitioner the opportunity to produce to respondent additional evidence which if appropriate could then be 18the short-term_capital_gain of dollar_figure was attributable to the sale of the bartel street property to samuel j fitts and iris k fitts on date prepare the way ministries agreed to sell the bartel street property to samuel j fitts and iris k fitts for dollar_figure respondent determined that petitioner incurred fees of dollar_figure and had cost s of dollar_figure with respect to the sale respondent also determined that petitioner had a basis of zero in the property accordingly respondent determined that petitioner realized gain of dollar_figure from sale of the property stipulated and submitted as part of the trial record the parties did not submit a supplemental stipulationdollar_figure consequently we decide this case on the trial record opinion i presumption of correctness and burden_of_proof with respect to tax deficiencies a presumption of correctness the commissioner’s deficiency determination ordinarily is entitled to a presumption of correctness see 324_f3d_1289 11th cir aff’g tcmemo_2001_43 however when a case involves unreported income the u s court_of_appeals for the eleventh circuit to which an appeal in this case would lie absent a stipulation to the contrary see sec_7482 has held that the commissioner’s determination of unreported income is entitled to a presumption of correctness only if the determination is supported by an evidentiary foundation linking the taxpayer to an income-producing activity see 994_f2d_1542 11th cir aff’g tcmemo_1991_636 a determination that is unsupported by any evidence is arbitrary and erroneous see weimerskirch v commissioner f 2d 19on date petitioner filed a document with attached exhibits titled petitioner’s status report 9th cir rev’g 67_tc_672 but the required showing is minimal see blohm v commissioner f 2d pincite citing 560_f2d_693 5th cir once the commissioner produces evidence linking the taxpayer to an income-producing activity the presumption of correctness applies and the burden of production shifts to the taxpayer to rebut that presumption by establishing that the commissioner’s determination is arbitrary or erroneous id respondent introduced evidence that petitioner directed the operations and financial affairs of prepare the way ministries treasures in a field investments and treasures in a field during the years in issue respondent also introduced evidence that in addition to his alleged ministry work petitioner engaged in other secular work in exchange for payment and deposited proceeds from all his activities into ministry bank accounts see 87_tc_74 holding that bank_deposits evidence receipt of income respondent introduced evidence that petitioner acting through prepare the way ministries and treasures in a field investments sold the bartel street property accordingly we conclude that respondent laid the requisite minimal evidentiary foundation for the contested unreported income adjustments and that respondent’s determinations are entitled to a presumption of correctness although his argument is not entirely clear petitioner appears to contend that respondent’s determinations are not entitled to the presumption of correctness because respondent acted arbitrarily in issuing the notices of deficiency petitioner contends that respondent’s determinations constitute a naked assessment because respondent has failed to link petitioner’s receipt of income to an income-generating activity the presumption of correctness does not apply when the commissioner fails to make a determination and issues a ‘naked’ assessment without any foundation whatsoever 428_us_433 as we stated above however respondent has introduced substantive evidence to establish that petitioner acting through prepare the way ministries treasures in a field investments and treasures in a field received payments made deposits into various ministry bank accounts engaged in income-producing activities during the years in issue and sold real_property in that evidence is more than sufficient to support respondent’s determinations in the notices of deficiency accordingly we find that the notices of deficiency are not naked assessments b burden_of_proof generally the taxpayer bears the burden of proving that the commissioner’s determinations in a notice_of_deficiency are erroneous see rule a 290_us_111 if however a taxpayer produces credible evidence20 with respect to any factual issue relevant to ascertaining the taxpayer’s tax_liability and satisfies the requirements of sec_7491 the burden_of_proof on any such issue shifts to the commissioner sec_7491 sec_7491 requires a taxpayer to demonstrate that he or she complied with the substantiation requirements maintained all records required under the code and cooperated with reasonable requests by the secretary21 for witnesses information documents meetings and interviews see also 116_tc_438 the taxpayer bears the burden of proving that all of the sec_7491 requirements have been satisfied 135_tc_471 aff’d 668_f3d_888 7th cir petitioner does not contend that sec_7491 applies and the record establishes that he did not satisfy the sec_7491 requirements 20credible evidence is evidence the court would find sufficient upon which to base a decision on the issue in the taxpayer’s favor absent any contrary evidence see 116_tc_438 21the term secretary means the secretary_of_the_treasury or_his_delegate sec_7701 and the term or_his_delegate means any officer employee or agency of the treasury_department duly authorized by the secretary_of_the_treasury directly or indirectly by one or more redelegations of authority to perform the function mentioned or described in the context sec_7701 consequently petitioner bears the burden_of_proof as to any disputed factual issue see rule a ii parties’ arguments respondent contends that petitioner a carpenter received taxable_income and deposited that income into the ministry bank accounts respondent contends that petitioner is liable for all taxable_income deposited into the ministry bank accounts because petitioner exercised dominion and control_over those accounts respondent also contends that petitioner is liable for self-employment_tax with respect to his unreported income relying on the determination of unreported income respondent further contends that petitioner had sufficient gross_income to require him to file federal tax returns for the years in issue and that he failed to file such returns respondent also contends that petitioner is liable for a civil penalty for fraudulently failing to file his tax returns and additions to tax for failing to pay his federal_income_tax and estimated_tax for the years in issue petitioner contends that he did not receive any taxable_income during the years in issue petitioner contends that he was a man of god engaged in the work of god during the years in issue and that everything he received or acquired belonged to god he further contends that he is exempt from federal taxation because his activities during the years in issue were religious he contends that any assets he acquired were for the purpose of his ministry and any disposition of those assets should not be taxed to him petitioner also contends that he had no obligation to file federal tax returns because he did not have sufficient income to require him to file such returns we construe petitioner’s argument at least in part to be that he was a minister entitled to exclude all income and gain he received and that he was entitled to all benefits under the code that generally accrue to ministers and church organizations accordingly we will consider whether petitioner’s alleged ministry constituted a church as that term is defined for federal tax purposes and whether petitioner was a minister_of_the_gospel as that term is defined for federal tax purposesdollar_figure a whether petitioner’s alleged ministry constituted a church sec_501 provides that certain organizations including churches shall be exempt from federal taxation see also sec_501 a church that qualifies as an exempt_organization for purposes of sec_501 is not required to file an application_for exemption from taxation sec_508 see also sec_1 a i a income_tax regs neither the code nor the regulations define the term church see found of human understanding v commissioner t c 22neither party specifically addressed these issues in their post-trial briefs however as we have stated although every church may be a religious_organization not every religious_organization is a church id pincite whether an entity is a church is a fact-specific inquiry see id in deciding whether an entity is a church this court primarily considers the entity’s religious purposes and the means by which its religious purposes are accomplished id ‘at a minimum a church includes a body of believers or communicants that assembles regularly in order to worship ’ id quoting am guidance found inc v united_states 490_fsupp_304 d d c the internal_revenue_service irs has articulated criteria that it uses to identify organizations that qualify for church status id pincite the criteria include the following a distinct legal existence a recognized creed and form of worship a definite and distinct ecclesiastical government a formal code of doctrine and discipline a distinct religious history a membership not associated with any other church or denomination an organization of ordained ministers ordained ministers selected after completing prescribed studies a literature of its own established places of worship regular congregations regular religious services sunday schools_for religious instruction of the young and schools_for the preparation of its ministers id quoting internal_revenue_manual exempt_organizations examination guidelines handbook date see also chambers v commissioner tcmemo_2011_114 slip op pincite while we have declined to adopt these criteria as a test we have found that the criteria are helpful in deciding whether an entity is a church see found of human understanding v commissioner t c pincite although mrs good testified that petitioner held ministry meetings at his home the record contains no evidence regarding the identities of those who attended the meetings and their relationship to petitioner or whether petitioner held these meetings regularly petitioner offered only minimal testimony regarding his purported ministry activities he did not call any of his alleged parishioners to testify furthermore the record shows that petitioner’s purported ministry did not have a distinct legal existence separate from petitioner see eg hughes v commissioner tcmemo_1994_139 petitioner failed to introduce any credible_evidence to support a finding that his purported ministry activity satisfied any of the other criteria outlined above petitioner had the burden of proving that his purported ministry activity qualified as a church and he failed to do sodollar_figure see eg spiritual outreach soc’y v commissioner tcmemo_1990_41 aff’d 927_f2d_335 8th cir b whether petitioner was a minister_of_the_gospel generally compensation_for services rendered is includable in gross_income see sec_61 however sec_107 provides that a minister_of_the_gospel may exclude from gross_income a rental value or rental allowance provided to him as part of his compensation see also sec_1_107-1 income_tax regs a minister is an individual authorized to administer the sacraments preach and conduct services of worship 46_tc_190 an individual is a 23even if we held that petitioner’s alleged ministry constituted a church under sec_501 petitioner would still have to include in income funds deposited into the ministry bank accounts because he exercised full control_over those accounts and used the funds to pay his personal expenses see eg chambers v commissioner tcmemo_2011_114 slip op pincite minister if acting pursuant to his or her authority as a minister he or she performs sacerdotal functions conducts religious worship participates in the maintenance of religious organizations and their integral agencies and performs teaching and administrative duties at theological seminars sec_1_107-1 income_tax regs see also brannon v commissioner tcmemo_1999_370 while petitioner testified as to his religious education and experience his testimony alone is insufficient to convince us that he was a minister within the meaning of sec_107 petitioner failed to introduce any credible_evidence to show that he was a minister or that he performed sacerdotal functions participated in the conduct or control of religious boards societies or other agencies related to his religious affiliation or performed any teaching or administrative duties at religiously affiliated institutions accordingly we find that petitioner has not established that he was a minister for federal tax purposes see eg weeks v commissioner tcmemo_1987_198 iii petitioner’s unreported income for the years in issue a bank deposit sec_1 in general gross_income includes all income from whatever source derived sec_61 a taxpayer must maintain books_and_records establishing the amount of his or her gross_income sec_6001 if a taxpayer fails to maintain and produce the required books_and_records the commissioner may determine the taxpayer’s income by any method that clearly reflects income see sec_446 92_tc_661 sec_1_446-1 income_tax regs the commissioner’s reconstruction_of_income need only be reasonable in light of all surrounding facts and circumstances petzoldt v commissioner t c pincite the bank_deposits method is a permissible method of reconstructing income see 102_tc_632 see also langille v commissioner tcmemo_2010_49 aff’d 447_fedappx_130 11th cir bank_deposits constitute prima facie evidence of income see tokarski v commissioner t c pincite the commissioner need not show the likely source of a deposit treated as income but the commissioner must take into account any nontaxable source or deductible expense of which he has knowledge in reconstructing income using the bank_deposits method see clayton v commissioner t c pincite however the commissioner need not follow any leads suggesting that a taxpayer has deductible expenses 96_tc_858 aff’d 959_f2d_16 2d cir after the commissioner reconstructs a taxpayer’s income and determines a deficiency the taxpayer bears the burden of proving that the commissioner’s use of the bank_deposits method is unfair or inaccurate see clayton v commissioner t c pincite the taxpayer must prove that the reconstruction is in error and may do so in whole or in part by proving that a deposit is not taxable see id respondent introduced credible_evidence that petitioner did not maintain adequate books_and_records with respect to his incomedollar_figure therefore we find that it was reasonable for respondent to use an indirect method ie the bank_deposits method to reconstruct petitioner’s income accordingly petitioner bears the burden of proving that respondent’s determinations are arbitrary or erroneous petitioner’s sole argument is that the deposits into the ministry bank accounts do 24although not entirely clear petitioner’s contention appears to be that the irs cannot require him to maintain or produce financial records because the irs may not regulate religious activities and because such records are privileged sec_6001 requires that e very person liable for any_tax maintain records petitioner has offered no support for his contention that he personally is exempt from the recordkeeping requirement of sec_6001 while exempt_organizations are relieved of some recordkeeping requirements the commissioner never recognized prepare the way ministries as an exempt_organization under sec_501 see 83_tc_381 aff’d 823_f2d_1310 9th cir additionally while the irs must comply with specific procedures set forth in sec_7611 before it can obtain church_records petitioner has not proven that he operated a church or that the records sought by respondent qualified as church_records see also chambers v commissioner slip op pincite accordingly we reject petitioner’s argument not constitute taxable_income to him because the deposits are attributable to his ministry and as religious funds are not subject_to taxation whether petitioner’s bank_deposits constituted taxable_income sec_61 defines gross_income as all income from whatever source derived including but not limited to the following items compensation_for services including fees commissions fringe_benefits and similar items gross_income derived from business gains derived from dealings in property interest rents the definition is construed broadly and extends to all accessions to wealth clearly realized over which the taxpayer has complete control see 348_us_426 as the supreme court explained a gain constitutes taxable_income when its recipient has such control_over it that as a practical matter he derives readily realizable economic value from it 343_us_130 when the commissioner reconstructs a taxpayer’s income using the bank_deposits method the commissioner may include in gross_income deposits into all accounts over which the taxpayer has dominion and control not just deposits into the taxpayer’s personal bank accounts chambers v commissioner slip op pincite see also 330_f2d_30 3d cir 226_f2d_331 6th cir price v commissioner tcmemo_2004_103 slip op pincite cohen v commissioner tcmemo_2003_42 slip op pincite woods v commissioner tcmemo_1989_611 aff’d without published opinion 929_f2d_702 6th cir a taxpayer has dominion and control when the taxpayer is free to use the funds at will rutkin u s pincite use of funds for personal purposes indicates dominion and control woods v commissioner tcmemo_1989_611 the court has extended this general principle to situations where a taxpayer has dominion and control_over an account titled in the name of a church or other religious_organization for example in woods this court held that a mounts deposited into bank accounts in the name of the church constituted income of petitioners because they exercised total dominion and control_over those funds and expended them for their personal living_expenses and other personal purposes see also whittington v commissioner tcmemo_2000_296 slip op pincite similarly in chambers v commissioner slip op pincite this court held that all deposits into church bank accounts properly were includable in the taxpayers’ gross_income because the taxpayers fully controlled the church accounts used money in those accounts at will including to pay personal expenses and were not accountable to anyone in their congregation for their use of the church funds while the taxpayers in chambers v commissioner slip op pincite testified that they used the money for mission trips and ministry expenses this court held that the church bank account funds were includable in the taxpayers’ gross_income because they failed to supply any receipts records or other evidence to substantiate the nature and use of the funds petitioner testified that his primary occupation is minister_of_the_gospel he further testified that he performed all of his secular work as a volunteer and that any payment he received as a result of such work constituted a contribution to the ministry with respect to the purported rental income petitioner testified that he made living space in the bartel street properties available to families in his ministry that the families contributed to prepare the way ministries in exchange for use of the space and that he suggested the amount of the monthly contribution petitioner testified that he relied on direct donations from people and other ministries as well as the funds in the ministry bank accounts to support himself during the years in issue he testified that he received no salary and instead received only housing and food in exchange for his services he further testified that the money that came into the ministry was distributed to other people he also testified that he and mrs good used the money in the ministry bank accounts to pay for ministry-related expenses we do not find this testimony convincing or credible respondent introduced the signature cards for the ministry bank accounts showing that only petitioner and his family members had signatory authority over the accounts respondent also introduced bank statements for the ministry bank accounts which show that petitioner and mrs good regularly used the ministry bank accounts to pay their personal expenses finally petitioner testified that he deposited payments he received for services rendered into the ministry bank accounts and that he used the funds in the ministry bank accounts to pay his personal expenses petitioner had unfettered access to the funds in the ministry bank accounts he used the money in the ministry bank accounts at will including to pay his personal expenses and those of his family members petitioner did not maintain a separate personal bank account or attempt to separate his personal income and expenses from the income and expenses of his alleged ministry instead petitioner used the ministry bank accounts as his own bank accounts and used the funds therein to pay his personal living_expenses mortgage property taxes and home construction costs because petitioner exercised dominion and control_over the ministry bank accounts all taxable deposits into those accounts are includable in petitioner’s gross_income see chambers v commissioner tcmemo_2011_114 see also 929_f2d_110 2d cir holding that rental income the taxpayer deposited into a church account constituted taxable_income to the taxpayer upon receipt aff’g in part vacating in part and remanding tcmemo_1989_671 reconstructing petitioner’s income using the bank_deposits method under the bank_deposits method the commissioner may assume that all money deposited into the taxpayer’s account is taxable_income dileo v commissioner t c pincite however as noted supra the commissioner must take into account any nontaxable source_of_income or deductible expense of which he has knowledge id the commissioner’s use of the bank_deposits method is not invalidated simply because some of the calculations are in error see id having decided that respondent acted reasonably in using an indirect method to reconstruct petitioner’s income and having rejected petitioner’s sole argument regarding whether such income constituted taxable_income we now review respondent’s calculations of petitioner’s taxable_income for the years in issue to show the calculation of petitioner’s taxable_income respondent introduced only the revenue agent’s workpapers however with respect to and in the notice_of_deficiency respondent determined that petitioner had taxable_income in excess of taxable deposits for those years as determined by the revenue_agent respondent has introduced no evidence to show the calculation of petitioner’s taxable_income as set forth in the notice_of_deficiency accordingly we will evaluate respondent’s determination of petitioner’s taxable_income using the revenue agent’s workpapers for the years in issue with respect to respondent’s revenue_agent determined that petitioner made taxable deposits into the ministry bank account of dollar_figure the revenue_agent determined that the taxable deposits for consisted of schedule c gross_receipts of dollar_figure and schedule e rental income of dollar_figure however in the notice_of_deficiency respondent determined that petitioner had schedule c gross_receipts of dollar_figure and schedule e rental income of dollar_figure respondent has not introduced any evidence to explain the difference between the revenue agent’s calculation of schedule c gross_receipts totaling dollar_figure and the dollar_figure gross_receipts figure in the notice_of_deficiency furthermore an analysis of the ministry bank account statements for reveals that the revenue_agent properly reconstructed petitioner’s schedule c gross_receipts for an analysis of the revenue agent’s spreadsheet with respect to petitioner’s schedule e rental income shows that the revenue_agent erroneously included in petitioner’s income a number of checks that were drawn on rather than deposited into the ministry bank accounts the revenue_agent erroneously included dollar_figure in petitioner’s schedule e rental income accordingly we find that petitioner had schedule c gross_receipts of dollar_figure and schedule e rental income of dollar_figure for with respect to respondent’s revenue_agent determined that petitioner made taxable deposits into the ministry bank accounts of dollar_figure the revenue_agent determined that the taxable deposits for consisted of schedule c gross_receipts of dollar_figure and schedule e rental income of dollar_figure however in the notice_of_deficiency respondent determined that petitioner had schedule c gross_receipts of dollar_figure and schedule e rental income of dollar_figure respondent has not introduced any evidence to explain the difference between the revenue agent’s calculation of schedule c gross_receipts totaling dollar_figure and the dollar_figure gross_receipts figure in the notice_of_deficiency furthermore an analysis of the ministry bank account statements for reveals that the revenue_agent generally reconstructed petitioner’s schedule c gross_receipts for properly with the following exception we find that the revenue_agent included the same check for dollar_figure in petitioner’s schedule e rental income for and in his schedule c gross_receipts for because we consider the dollar_figure check as schedule e rental income for we will eliminate dollar_figure from the revenue agent’s calculation of petitioner’s schedule c gross_receipts for we also find that the revenue_agent erroneously tabulated petitioner’s schedule e rental income the revenue_agent determined that petitioner deposited into the ministry bank accounts nine checks that constituted schedule e rental income the spreadsheet shows that the revenue_agent included in his calculation of petitioner’s schedule e rental income three checks twicedollar_figure we will eliminate the duplications from the calculation of petitioner’s schedule e rental income accordingly we find that petitioner had schedule c gross_receipts of dollar_figure and schedule e rental income of dollar_figure for 25the revenue agent’s spreadsheet shows the erroneous double inclusion of the following checks check no for dollar_figure check no for dollar_figure and check no for dollar_figure with respect to respondent determined that petitioner had schedule e rental income of dollar_figure for respondent included in petitioner’s rental income a check for dollar_figure from samuel j fitts and iris k fitts this check constituted earnest money for the purchase of the real_property pincite8 bartel street respondent properly included the earnest money as part of the selling_price of the property therefore the dollar_figure check should be excluded from petitioner’s schedule e rental income accordingly we find that petitioner had rental income of dollar_figure for with respect to respondent’s revenue_agent determined that petitioner made total taxable deposits into the ministry bank accounts of dollar_figure the 26with respect to respondent’s revenue_agent determined that petitioner had schedule c gross_receipts of dollar_figure the revenue_agent included in petitioner’s income a check for dollar_figure that was deposited into account although the bank statement for account shows that the check was returned for insufficient funds respondent’s revenue_agent failed to exclude the dollar_figure check from petitioner’s taxable_income despite the revenue agent’s error we will refrain from adjusting petitioner’s schedule c gross_receipts respondent determined in the notice_of_deficiency that petitioner had schedule c gross_receipts of dollar_figure an amount that is dollar_figure lower than the figure calculated by the revenue_agent the record supports an inference that respondent subtracted from petitioner’s totaled schedule c deposits amounts that constituted nontaxable income because the amount subtracted dollar_figure exceeds the amount of the check at issue we find that petitioner is not entitled to an additional reduction in his schedule c gross_receipts for the value of the check accordingly we will sustain respondent’s determination with respect to petitioner’s schedule c gross_receipts revenue_agent determined that the taxable deposits for consisted of schedule c gross_receipts of dollar_figure however in the notice_of_deficiency respondent determined that petitioner had schedule c gross_receipts of dollar_figure respondent has not introduced any evidence to explain the difference between the revenue agent’s calculation of schedule c gross_receipts totaling dollar_figure and the dollar_figure gross_receipts figure in the notice_of_deficiency furthermore our analysis of the ministry bank account statements for confirms that the revenue_agent properly reconstructed petitioner’s schedule c gross_receipts for accordingly we find that petitioner had schedule c gross_receipts of dollar_figure for in summary we find that petitioner had schedule c gross_receipts of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively we sustain respondent’s determinations regarding petitioner’s gross_receipts for we also find that petitioner had schedule e rental income of dollar_figure dollar_figure and dollar_figure for and respectively b capital_gain a taxpayer must recognize gain from the sale_or_exchange of property unless the code provides otherwisedollar_figure sec_1001 sec_1001 defines gain from the sale_or_other_disposition of property as the excess of the amount_realized on the sale of property over the adjusted_basis of the property sold or exchanged see also sec_1_61-6 income_tax regs sec_1011 generally provides that a taxpayer’s adjusted_basis for determining the gain from the sale_or_other_disposition of property shall be its cost adjusted to the extent provided by sec_1016 if the taxpayer constructed his own house the taxpayer’s basis is equal to the cost of building the house including the amount_paid for the lot litterio v commissioner tcmemo_1992_524 aff’d 21_f3d_423 4th cir granger v commissioner tcmemo_1970_155 the taxpayer has the burden of proving sec_121 allows a taxpayer to exclude from income gain on the sale_or_exchange of property if the taxpayer has owned and used such property as his principal_residence for at least two of the five years immediately preceding the sale petitioner sold the bartel street property in mrs good testified that she and petitioner lived at the bartel street property before the sale however until petitioner owned another home pincite0 bartel street the record does not show whether petitioner and mrs good moved to the bartel street property before petitioner sold the bartel street property ie before or immediately after the sale of the property in accordingly we are unable to determine whether petitioner used the bartel street property as his principal_residence for at least two of the five years preceding the sale of the property in petitioner has not established that he is entitled to exclude any gain from the sale of the property pursuant to sec_121 the basis_of_property for purposes of determining the amount of gain the taxpayer must recognize 271_f2d_44 9th cir aff’g tcmemo_1957_193 see also kynell v commissioner tcmemo_1954_174 the capital_gain relates to the sale by treasures in a field investments of the real_property pincite8 bartel street petitioner does not dispute that he originally owned the bartel street property in his own name that he transferred the property to treasures in a field investments and that treasures in a field investments sold the property to samuel j fitts and iris k fitts in for dollar_figure although not entirely clear petitioner’s only dispute appears to be whether the proceeds from the sale of the property constitute taxable_income to him petitioner testified that all of the buildings including the house pincite8 bartel street were church buildings where church activities occurred mrs good testified that she and petitioner resided in the house pincite8 bartel street she also testified that the ministry sold the house she further testified that she and petitioner used the proceeds from the sale of the house pincite8 bartel street to fund construction of their new house pincite0 county road respondent introduced a copy of a resolution in which the elder board_of prepare the way ministries agreed to sell the bartel street property to samuel j fitts and iris k fitts respondent also introduced a copy of a purchase agreement dated date showing the seller of the property as treasures in a field and the purchase_price as dollar_figure with a provision for dollar_figure in earnest money the record shows that petitioner deposited into account a dollar_figure check from samuel j fitts and iris k fitts dated date the evidence shows that petitioner used treasures in a field investments to conduct his business and sales transactions while petitioner testified that he conducted some ministry activities from the house pincite8 bartel street he also used the property as his personal_residence we find that treasures in a field investments held title to and sold the bartel street property as petitioner’s nomineedollar_figure accordingly petitioner must include in gross_income gain from the sale of the bartel street property a nominee is an entity or individual who holds bare_legal_title to assets owned by another entity or individual lain v commissioner tcmemo_2012_99 slip op pincite see also 211_f3d_280 5th cir in calculating the gain on the sale of the bartel street property respondent used the stated sale price of dollar_figure and an adjusted_basis of zero petitioner failed to introduce any evidence regarding his acquisition and construction costs if any for the bartel street property while it is likely that petitioner incurred costs in acquiring the lot and building the house on the bartel street property petitioner did not introduce any credible_evidence regarding his cost_basis or adjusted_basis in the property the record adequately supports respondent’s determination that treasures in a field investments acting as nominee for petitioner sold the property to samuel j fitts and iris k fitts for dollar_figure neither petitioner nor respondent addressed the issue of whether petitioner’s gain should be characterized as long-term or short-term_capital_gain in the notice_of_deficiency respondent characterized petitioner’s capital_gain as short term however the record contains sufficient evidence for us to decide whether the gain should be characterized as long-term or short-term gain accordingly we consider this issue tried by consent of the parties see rule b sec_1222 provides that long-term_capital_gain is gain from the sale_or_exchange of a capital_asset held for more than year if and to the extent such gain is taken into account in computing gross_income while the record does not show when petitioner acquired the bartel street property the record does show that in petitioner transferred the bartel street property to treasures in a field investments we infer that petitioner owned the bartel street property at the time of the transfer accordingly we find that petitioner’s gain from the sale of the bartel street property should be characterized as long-term_capital_gain we sustain respondent’s determination as to the amount of petitioner’s capital_gain but we do not sustain respondent’s determination that the capital_gain was short-term gain iv self-employment_tax a taxpayer’s self-employment_income is subject_to self-employment_tax sec_1401 and b self-employment_tax is assessed and collected as part of the income_tax must be included in computing any income_tax deficiency or overpayment for the applicable tax period and must be taken into account for estimated_tax purposes sec_1401 see also sec_1_1401-1 income_tax regs self-employment_income is generally defined as the net_earnings from self- employment derived by an individual sec_1402 the term ‘net earnings from self-employment’ means the gross_income derived by an individual from any trade_or_business carried on by such individual less the deductions attributable to such trade_or_business sec_1402 sec_1402 provides that the term trade_or_business does not include the performance of service by a duly ordained commissioned or licensed minister of a church in the exercise of his ministry if an exemption under sec_1402 is effective for the minister see also 89_tc_922 if the minister does not file the application_for exemption within the prescribed time the minister is subject_to self-employment_tax sec_1402 see also wingo v commissioner t c pincite petitioner contends that he is not liable for self-employment_tax because he is a minister petitioner however did not introduce any credible_evidence to prove that he was a minister of a church see supra p or that the schedule c gross_receipts determined by respondent were for the performance of services as a minister moreover the record contains no credible_evidence that petitioner submitted a form_4361 application_for exemption from self-employment_tax for use by ministers members of religious orders and christian science practitioners for the years in issue that was approved by the irs accordingly petitioner has failed to prove that he was exempt from self-employment_tax during the years in issue we find that petitioner had self-employment_income equal to the amounts of his schedule c gross_receipts for as found in this opinion and we hold that petitioner is liable for self-employment_tax with respect to these amounts we sustain respondent’s determination of self-employment_tax for v obligation to file a return petitioner contends that he was not obligated to file returns for the years in issue because he did not have sufficient income see sec_6012 under sec_6012 an individual who is entitled to make a joint_return and whose gross_income when combined with the gross_income of his spouse exceeds the sum of twice the exemption_amount and the standard_deduction applicable to a joint_return must file a federal_income_tax return as discussed in part iii see supra pp we find that petitioner had unreported income of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively petitioner’s income for the years in issue exceeded the described threshold and consequently petitioner had an obligation to file federal_income_tax returns for those years vi fraudulent_failure_to_file returns sec_6651 imposes an addition_to_tax of up to of the amount of tax required to be shown on the return in the case of a taxpayer’s fraudulent_failure_to_file a tax_return to prove that a taxpayer is liable for the penalty the commissioner must prove by clear_and_convincing evidence that an underpayment_of_tax exists and some part of the underpayment is due to fraud sec_7454 rule b clayton v commissioner t c pincite if the commissioner proves that any part of an underpayment is attributable to fraud then the entire underpayment shall be treated as attributable to fraud unless the taxpayer shows by a preponderance_of_the_evidence that a part was not so attributable see eg sec_6663 a underpayment_of_tax the commissioner cannot rely upon the taxpayer’s failure to meet the burden_of_proof on the issue of the existence of a deficiency to sustain the burden of proving the existence of an underpayment by clear_and_convincing evidence see 94_tc_654 53_tc_96 however the commissioner need only show that there is some underpayment for each of the years in issue see langworthy v commissioner tcmemo_1998_218 furthermore when allegations of fraud are intertwined with unreported and indirectly reconstructed income the commissioner may prove the existence of an underpayment by proving a likely source_of_income or disproving nontaxable sources alleged by the taxpayer see parks v commissioner t c pincite as noted supra pp petitioner failed to report income of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively and failed to report a capital_gain of dollar_figure for in proving the existence of petitioner’s underpayments respondent does not rely solely on petitioner’s failure to meet his burden_of_proof respondent appropriately reconstructed petitioner’s taxable_income using the bank_deposits method and the reconstruction demonstrates clearly and convincingly that petitioner had an underpayment_of_tax for each of the years in issue furthermore respondent has proven a likely source of petitioner’s unreported income namely petitioner’s construction carpentry and rental activities accordingly respondent has proven by clear_and_convincing evidence that petitioner underpaid his federal_income_tax for each of the years in issue b fraudulent intent introduction if fraud is determined for multiple taxable years the commissioner’s burden applies separately for each of the years temple v commissioner t c memo slip op pincite aff’d 62_fedappx_605 6th cir the commissioner satisfies this burden by showing that the taxpayer intended to evade taxes known to be owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes dileo v commissioner t c pincite fraud does not include negligence carelessness misunderstanding or unintentional understatement of income 236_f2d_844 3d cir the existence of fraud is a question of fact to be resolved upon consideration of the entire record see dileo v commissioner t c pincite fraud is never presumed and must be established by independent evidence of fraudulent intent see 251_f2d_311 9th cir aff’g tcmemo_1956_112 fraud may be shown by circumstantial evidence because direct evidence of the taxpayer’s fraudulent intent is seldom available see petzoldt v commissioner t c pincite 67_tc_181 aff’d without published opinion 578_f2d_1383 8th cir the taxpayer’s entire course of conduct may establish the requisite fraudulent intent see 56_tc_213 any conduct likely to mislead or conceal may constitute an affirmative act of evasion see 317_us_492 and an intent to mislead may be inferred from a pattern of such conduct see 394_f2d_366 5th cir aff’g tcmemo_1966_81 however fraud is not proven when a court is left with only a suspicion of fraud and even a strong suspicion is not sufficient to establish a taxpayer’s liability for the fraud_penalty see 234_f2d_823 5th cir aff’g in part rev’g in part on another ground tcmemo_1955_9 184_f2d_86 10th cir 66_tc_538 badges_of_fraud because it is difficult to prove fraudulent intent by direct evidence the commissioner may establish fraud by circumstantial evidence which includes various badges_of_fraud hereinafter factors on which the courts often rely see 796_f2d_303 9th cir aff’g tcmemo_1984_601 dileo v commissioner t c pincite these factors focus on whether the taxpayer engaged in certain conduct that is indicative of fraudulent intent such as understating income failing to maintain adequate_records offering implausible or inconsistent explanations concealing income or assets failing to cooperate with tax authorities engaging in illegal activities providing incomplete or misleading information to the taxpayer’s tax return preparer offering false or incredible testimony filing false documents including filing false income_tax returns failing to file tax returns and engaging in extensive dealings in cashdollar_figure see bradford v commissioner f 2d pincite 94_tc_654 91_tc_874 21_tc_917 aff’d 220_f2d_871 4th cir see also morse v commissioner tcmemo_2003_332 slip op pincite aff’d 419_f3d_829 8th cir the existence of any one factor is not dispositive but the existence of several factors is persuasive circumstantial evidence of fraud see 99_tc_202 petzoldt v commissioner t c pincite respondent contends and our review of the record shows that the following factors are present in this case petitioner underreported his income for the years in issue petitioner concealed income and assets during the years in issue petitioner failed to cooperate with tax authorities regarding the years in issue petitioner filed false documents and petitioner failed to file tax returns for the years in issue respondent also contends that petitioner’s reliance 29these factors are nonexclusive see 99_tc_202 on frivolous arguments during these proceedings demonstrates his fraudulent intent we analyze each factor below a understating income a pattern of substantially underreporting income for several years is strong evidence of fraud particularly if the reason for the understatements is not satisfactorily explained or is not due to innocent mistake see 348_us_121 spies u s pincite webb v commissioner f 2d pincite see also green v commissioner tcmemo_2010_109 finding that a satisfactory explanation may weigh against a finding of fraud the u s court_of_appeals for the eleventh circuit has stated that a ‘ c onsistent and substantial_understatement of income is by itself strong evidence of fraud ’ 781_f2d_1566 11th cir quoting 301_f2d_484 5th cir aff’g t c memo aff’g tcmemo_1985_63 petitioner failed to file federal_income_tax returns for the five years in issue he thus failed to report income of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively and a capital_gain of dollar_figure for although not entirely clear petitioner’s contention appears to be that he underreported his income because he believed all of his income was attributable to his alleged ministry in the light of the other evidence in the record we are not prepared to find that petitioner simply was mistaken regarding his personal obligation to file income_tax returns and report income furthermore as this court has stated a taxpayer’s mistaken contention indicates little about whether the taxpayer had fraudulent intent chambers v commissioner slip op pincite petitioner did not report any income for the years in issue given the substantial amounts of petitioner’s unreported income his pattern of underreporting his income and his lack of a satisfactory explanation for the understatements we conclude that petitioner’s understatements are persuasive evidence of fraudulent intent see eg morse v commissioner f 3d pincite see also lain v commissioner tcmemo_2012_99 slip op pincite b concealing assets or income an intent to evade tax may be inferred by concealment of assets or covering up sources of income spies u s pincite 449_f2d_311 9th cir aff’g tcmemo_1969_48 a taxpayer’s use of a complex series of financial transactions and nominees is a badge of fraud plotkin v commissioner tcmemo_2011_260 slip op pincite this court has previously held that a taxpayer’s use of a ubto to conceal income supports a finding of fraud simmons v commissioner tcmemo_2009_283 slip op pincite- the mere existence of a paper trail documenting a taxpayer’s income or expenses does not negate a finding of fraudulent intent see evans v commissioner tcmemo_2010_199 slip op pincite petitioner concealed his assets through a series of transactions designed to transfer his assets to various organizations including treasures in a field investments a ubto petitioner later transferred his assets from treasures in a field investments to a ministerial trust treasures in a field despite these transfers petitioner continued to control the use and disposition of his assets furthermore petitioner deposited all of his income into accounts titled in the name of prepare the way ministries and treasures in a field investments petitioner appears to contend that he did not conceal assets because he deposited all proceeds into ministry bank accounts and recorded all properties that the ministry owned first this court notes that the mere existence of a paper trail documenting the transfer of assets does not negate a finding of fraud second petitioner’s contention is refuted by the evidence showing that petitioner engaged in a series of transactions the purpose of which was tax_avoidance accordingly this factor supports a finding of fraud c failing to cooperate with tax authorities failure to cooperate with revenue agents during an investigation is a badge of fraud see korecky v commissioner f 2d pincite 525_f2d_741 9th cir aff’g in part rev’g in part 60_tc_199 75_tc_1 this failure is persuasive evidence of a taxpayer’s guilty knowledge see 79_tc_888 a taxpayer’s failure to cooperate with the commissioner and the court during the pretrial and trial proceedings also supports a finding of fraud see 91_tc_1049 aff’d 926_f2d_1470 6th cir rice v commissioner tcmemo_2003_208 slip op pincite petitioner failed to cooperate with respondent’s revenue_agent during respondent’s investigation of petitioner accordingly respondent was forced to subpoena petitioner’s ministry bank account records to reconstruct petitioner’s income petitioner also failed to respond to a summons issued by respondent in addition petitioner failed to cooperate with respondent’s counsel and with the court in preparing this case for trial petitioner failed to cooperate with respondent’s counsel in preparing a stipulation of facts as required by our standing_pretrial_order he failed to respond properly to respondent’s requests for admissions at trial petitioner failed to respond to the questions posed by respondent’s counsel continuing to assert an unidentified privilege accordingly we find that petitioner failed to cooperate with tax authorities and this finding supports a finding of fraud d filing false documents fraudulent intent may be inferred when a taxpayer files a document intending to conceal mislead or prevent the collection of tax see spies u s pincite filing false documents with the irs constitutes an ‘affirmative act’ of misrepresentation sufficient to justify the fraud_penalty 763_f2d_1139 10th cir aff’g tcmemo_1984_152 see also ernle v commissioner tcmemo_2010_237 slip op pincite a taxpayer’s creation of false documents see fairey v commissioner tcmemo_2005_129 slip op pincite and or use of a false ein see chambers v commissioner slip op pincite supports a finding of fraud see also vetrano v commissioner tcmemo_2000_128 petitioner used a false ein when he opened account at regions bank he also prepared a materially altered and false form_w-8ben petitioner stipulated that he used the materially altered and false form_w-8ben to hold out his purported ministry as a tax-exempt_entity we find that he engaged in this practice of creating and using false documents to evade the payment of federal tax consequently this factor supports a finding of fraud e failing to file tax returns a taxpayer’s failure_to_file tax returns is a badge of fraud see petzoldt v commissioner t c pincite while a failure_to_file returns even over an extended period does not establish fraud per se see grosshandler v commissioner t c pincite an extended pattern of failing to file returns may be persuasive circumstantial evidence of fraud see 544_f2d_883 5th cir aff’g tcmemo_1975_368 petitioner failed to file returns for petitioner’s extended pattern of failing to file returns constitutes persuasive circumstantial evidence of fraud f asserting frivolous arguments a taxpayer’s assertion of frivolous arguments may provide evidence supporting a finding of fraud see 86_tc_1253 worsham v commissioner tcmemo_2012_219 slip op pincite lain v commissioner slip op pincite devries v commissioner tcmemo_2011_ slip op pincite during the course of these proceedings petitioner repeatedly raised frivolous and groundless arguments the u s court_of_appeals for the eleventh circuit has held similar arguments to be frivolous and without merit see 419_fedappx_958 11th cir taxpayers’ argument that they were not involved in a trade_or_business was frivolous 532_f3d_1130 11th cir taxpayer’s assertion that the irs had no power over the taxpayer was meritless we repeatedly cautioned petitioner against asserting frivolous and groundless arguments despite these admonishments petitioner continued to assert such arguments accordingly this factor supports a finding of fraud c conclusion respondent has proven by clear_and_convincing evidence that petitioner underpaid his tax_liabilities for and that some part of petitioner’s underpayment for each year was due to fraud petitioner has not argued or introduced any credible_evidence to prove that any portion of his underpayments was not attributable to fraud he has not introduced any credible_evidence to show that he acted without fraudulent intent accordingly we hold that petitioner is liable for the sec_6651 fraudulent_failure_to_file additions to taxdollar_figure vii sec_6651 and sec_6654 additions to tax if the taxpayer assigns error to the commissioner’s determination that a taxpayer is liable for an addition_to_tax the commissioner has the burden under sec_7491 of producing evidence with respect to the liability of the taxpayer for the addition_to_tax see higbee v commissioner t c pincite to meet his burden of production the commissioner must come forward with sufficient evidence that it is appropriate to impose the addition_to_tax id once the commissioner meets his burden the taxpayer must come forward with evidence sufficient to persuade this court that the determination is incorrect id respondent determined that petitioner is liable under sec_6651 for additions to tax for failure to timely pay tax shown on a return sec_6651 imposes an addition_to_tax for failure to pay the amount of tax shown on a taxpayer’s federal_income_tax return on or before the payment due_date unless such failure is due to reasonable_cause and is not due to willful neglect the sec_6651 addition_to_tax applies only when an amount of tax is shown on 30the amounts of the sec_6651 additions to tax for must be adjusted to reflect the adjustments to gross_receipts calculated in this opinion a return filed by the taxpayer or prepared by the secretary sec_6651 g 120_tc_163 when a taxpayer has not filed a return the sec_6651 addition_to_tax may not be imposed unless the secretary has prepared an sfr that satisfies the requirements of sec_6020 see 127_tc_200 aff’d 521_f3d_1289 10th cir respondent satisfied his burden of production by introducing into evidence sfrs for the years in issue that satisfy the requirements of sec_6020 consequently petitioner had the burden of introducing evidence to show that his failure to pay was due to reasonable_cause he did not do so petitioner did not advance any argument regarding the sec_6651 additions to tax and introduced no credible_evidence to show reasonable_cause for his failure_to_pay_tax shown on the returns accordingly we sustain respondent’s determination with respect to petitioner’s liability for the additions to tax under sec_6651 for the years in issuedollar_figure respondent also determined that petitioner is liable for additions to tax for failure to pay estimated_tax under sec_6654 sec_6654 imposes an addition 31the amounts of the sec_6651 additions to tax for must be adjusted to reflect the adjustments to gross_receipts calculated in this opinion to tax on an individual who underpays his estimated taxdollar_figure the addition_to_tax is calculated with reference to four required_installment payments of the taxpayer’s estimated_tax liability sec_6654 and d each required_installment of estimated_tax is equal to of the required_annual_payment sec_6654 in general the required_annual_payment is equal to the lesser_of of the tax shown on the individual’s return for that year or if no return is filed of his tax for such year or if the individual filed a return for the immediately preceding_taxable_year of the tax shown on that return sec_6654 b and c a taxpayer has an obligation to pay estimated_tax only if he has a required_annual_payment wheeler v commissioner t c pincite see also 121_tc_308 petitioner did not make any estimated_tax payments for the years in issue respondent introduced deemed stipulations that petitioner failed to file returns for on the basis of this information and the evidence with respect to petitioner’s income for the years in issue we are able to conclude that petitioner had required annual payments for however we are unable to conclude 32unless a statutory exception applies the sec_6654 addition_to_tax is mandatory see sec_6654 e 91_tc_874 that petitioner had a required_annual_payment for because respondent failed to introduce any evidence as to whether petitioner filed a return for see wheeler v commissioner t c pincite accordingly we reject respondent’s determination as to the sec_6654 addition_to_tax for and sustain respondent’s determinations as to petitioner’s liability for the sec_6654 additions to tax for 2003-dollar_figure viii sec_6673 penalty sec_6673 provides that this court may require the taxpayer to pay a penalty not in excess of dollar_figure whenever it appears to this court that the proceedings were instituted or maintained by the taxpayer primarily for delay the taxpayer’s position is frivolous or groundless or the taxpayer unreasonably failed to pursue available administrative remedies a taxpayer’s position is frivolous or groundless if it is ‘contrary to established law and unsupported by a reasoned colorable argument for change in the law ’ 114_tc_136 quoting 791_f2d_68 7th cir 33the amounts of the sec_6654 additions to tax for must be adjusted to reflect the adjustments to gross_receipts calculated in this opinion during the pretrial proceedings this court warned petitioner that if he continued to assert frivolous or groundless positions this court would consider imposing a penalty under sec_6673 this court issued the warning to petitioner in three different orders before trial at trial this court again warned petitioner that if he continued to assert frivolous or groundless positions this court would consider imposing a penalty under sec_6673 despite this warning petitioner asserted the same arguments in his posttrial brief respondent did not request that we impose a penalty pursuant to sec_6673 and in the exercise of our discretion we will not impose a sec_6673 penalty on petitioner however we warn petitioner that if in the future he maintains groundless positions in this court he runs the risk that he will be sanctioned in accordance with sec_6673 we have considered the parties’ remaining arguments and to the extent not discussed above conclude those arguments are irrelevant moot or without merit to reflect the foregoing decision will be entered under rule


department of the treasury employer_identification_number contact person - id number contact telephone number uil internal_revenue_service p o box cincinnati oh number date release date date legend we ethnic x location y ethic z location dear you asked for advance approval of your educational grant procedures under internal_revenue_code sec_4945 this approval is required because you are a private_foundation that is exempt from federal_income_tax our determination we approved your procedures for awarding educational grants based on the information you submitted and assuming you will conduct your program as proposed we determined that your procedures for awarding educational grants meet the requirements of code sec_4945 as a result expenditures you make under these procedures won't be taxable description of your request your letter indicates that you will operate an educational grant program your exempt_purpose is to promote and advance w cross-cultural experiences via sponsorship of educational travel opportunities travelling art exhibits and exchanges and other related events each aimed at increasing the knowledge of the public as to the cultural affairs in x and vice versa the purpose of your grant program is to assist interested individuals to pursue their study of y artistic literary and cultural matters as a supplement to formal academic education programs in the united_states the grants will provide students faculty and other qualified interested individuals the opportunity to further their study of and interests in y culture through travel to z you will advertise the grant program to the undergraduate and graduate faculty within universities with strong departments in y literature and in renaissance and medieval studies you will seek the recommendations and nominations of appropriate candidates from the faculty at such institutions the nominators will be selected on the basis of professional stature and geographic diversity you will send the application to the nominated individuals each applicant will be required to submit a resume describing his or her background and the scope of his or her continuing studies a description of the purpose to which he or she would use the grant funds and an estimate of his or her budget applications would be required to be submitted by a stated date determined by you the applications will be reviewed by a panel of jurors the selection panel who will select finalists and make recommendations to your board the panel will be composed of at least three individuals selected by you on the basis of their knowledge of y culture and their familiarity with cultural exchanges panel members will change periodically no individual will be permitted to serve as a nominator and panelist in the same year the panel will consider the following in making its recommendations e o n the strength of the applicant's academic record and credentials if the applicant is a student the scope of his or her continuing studies the educational significance and rigor of the applicant’s proposed purpose for seeking the grant and the use to which the applicant would put the grant funds to use to achieve that purpose the applicant's prior history as a grant-recipient both as to frequency and recentness the likelihood that the applicant’s proposed course of travel will add appreciably and meaningfully to the applicant’s knowledge and understanding of y culture the demographics of the year’s applicant pool and any other aspect of an applicant’s background or proposal which the panel finds to be compelling justification for their serious consideration of his or her application once your board determines the amount of available funds by annually reviewing your available financial resources to determine the amount of funds available for grants to individuals it will review the resumes of the finalists and the recommendations made by the selection panel the same criteria used by the selection panel will be considered by your board your board will also weigh the amount requested by the applicant the relation of the grant request to your purposes in providing the grants to individuals and any other factors that your board shall deem relevant to select deserving recipients from that year’s finalist group your board will make decisions as to the number of grantees if any and the selection of those grantees an effort will be made to divide the grants among undergraduate students graduate students and other academics letter catalog number 58222y you reserve the right to accept any all or none of the proposed grantees and to determine the amounts to be awarded to each grantee grants will be awarded on an objective and nondiscriminatory basis neither the nominators nor jurors of the panel will be eligible to receive any grant from the program for a period of two years after their service in either capacity as a nominator or juror nor will they otherwise be in a position to derive a private benefit directly or indirectly no grant recipient may be nominated or receive a grant in a subsequent year but may serve as a nominator or juror in subsequent years no member of your board_of directors or any officer_or_employee of yours is eligible to receive any grants from the program as a condition of receiving a grant each recipient will be required to agree in writing to use the grant funds for the stated purpose of the grant you will require each grant recipient to provide at the conclusion of the one-year grant period upon completion of the undertaking for which the grant was made a report describing the grantee’s accomplishments with respect to the grant and accounting for the funds received if the grantee fails to submit the final report within a reasonable_time after its due_date or if you receive any information for the submitted report or otherwise that indicates that all or any part of the grant was not used for the stated purpose of the grant you will initiate an investigation ‘ if you determine that any part of the grant has been used for improper purposes you will secure the grantee’s assurance that all granted funds will be rebated by the application of those funds to the purposes of the grant and that future diversions will not occur require that funds which cannot be applied to the purposes of the grant be returned to you and require the grantee to take extraordinary precautions to prevent future diversions from occurring you will maintain records pertaining to all grants awarded the records will include information secured to evaluate the qualifications of potential grantees identification of grantees including any relationship of any grantee to you sufficient to make such grantee a disqualified_person of your foundation within the meaning of sec_4946 of the internal_revenue_code specification of the amount and purpose of each grant and the follow-up information required basis for our determination the law imposes certain excise_taxes on the taxable_expenditures of private_foundations code sec_4945 a taxable_expenditure is any amount a private_foundation pays as a grant to an individual for travel study or other similar purposes however a grant that meets all of the following requirements of code sec_4945 is not a taxable_expenditure letter catalog number 58222y the foundation awards the grant on an objective and nondiscriminatory basis the irs approves in advance the procedure for awarding the grant the grant is - - - ascholarship or fellowship subject_to sec_117 and is to be used for study at an educational_organization described in sec_170 or a prize or award subject_to the provisions of sec_74 if the recipient of the prize or award is selected from the general_public or to achieve a specific objective produce a report or similar product or improve or enhance a literary artistic musical scientific teaching or other similar skill or talent of the recipient to receive approval of its educational grant procedures sec_53_4945-4 requires that a private_foundation show the grant procedure includes an objective and nondiscriminatory selection process the grant procedure results in the recipients performing the activities the grants were intended to finance the foundation plans to obtain reports to determine whether the recipients have performed the activities that the grants were intended to finance other conditions that apply to this determination this determination covers only the grant program described above this approval will apply to succeeding grant programs only if their standards and procedures don't differ significantly from those described in your original request this determination applies only to you it may not be cited as precedent you cannot rely on the conclusions in this letter if the facts you provided have changed substantially you must report any significant changes in your program to the cincinnati office of exempt_organizations at internal_revenue_service exempt_organizations determinations p o box cincinnati oh you cannot make grants to your creators officers directors trustees foundation managers or members of selection committees or their relatives all funds distributed to individuals must be made on a charitable basis and must further the purposes of your organization you cannot award grants for a purpose that is inconsistent with code sec_170 letter catalog number 58222y e you should keep adequate_records and case histories so that you can substantiate your grant distributions with the irs if necessary we've sent a copy of this letter to your representative as indicated in your power_of_attorney please keep a copy of this letter in your records if you have any questions please contact the person listed at the top of this letter sincerely jeffrey cooper director exempt_organizations rulings and agreements letter catalog number 58222y


bryan s alterman trust u a d may bryan s alterman trustee transferee petitioner v commissioner of internal revenue respondent docket no filed date in alterman tr v commissioner tcmemo_2015_231 we held that r failed to meet his burden_of_proof to establish that p was liable under sec_6901 as a transferee for alterman corp ’s income_tax_liability p a_trust whose case was consolidated with other cases for purposes of that opinion has moved for an award of administrative and litiga- tion costs under sec_7430 generally individual tax- payers seeking costs must have a net_worth of dollar_figure million or less at the time the civil_action was filed as required by u s c sec d b sec_7430 for a_trust that limit applies as of the last day of the taxable_year involved in the proceeding sec_7430 for this transferee_liability case p argues that its net_worth should be determined in either or as of the date r issued the notice of liability or the date it filed its petition respectively the notice of liability states that the taxable_year involved in the proceeding ended date p con- cedes that its net_worth exceeded dollar_figure million as of the close of held when applying the net_worth requirement of u s c sec d b sec_7430 modi- fies the general_rule and requires that a trust’s net_worth shall be determined as of the last day of the taxable_year involved in the proceeding held further the last day of the taxable_year involved in the proceeding is date as stated in the notice of liability held further because p’s net_worth exceeded dollar_figure million as of date it has not met the requirements under sec_7430 and its motion for an award of administrative and litigation costs will be denied jenny l johnson and guinevere m moore for petitioner david b flassing and angela b reynolds for respondent opinion buch judge petitioner has moved for an award of administrative and litigation costs claiming it is entitled to alterman tr v commissioner this award because it was the prevailing_party under sec_7430 because petitioner does not meet the special net_worth requirement for a_trust it is not entitled to recover costs background for a_trust on date we issued alterman tr v commis- sioner tcmemo_2015_231 and held that petitioner was not liable as a transferee of alterman corp for alterman corp ’s income_tax_liability petitioner filed a motion for award of reasonable administrative and litigation fees and costs on date pursuant to sec_7430 because petitioner did not address the special rule for the net_worth requirement found at sec_7430 we ordered it to supplement or withdraw its motion that rule provides that the net_worth of a_trust is determined as of the last day of the taxable_year involved in the proceeding for the purpose of determining whether the trust meets the net_worth limits to be eligible for fees and costs petitioner filed a supplement to its motion arguing that there is no taxable_year involved in this transferee_liability case the court ordered the commissioner to respond to petitioner’s motion as supplemented which he did petitioner filed a reply stating among other things petitioner has subsequently determined that in the year its net_worth was greater than dollar_figure million discussion the sole issue we must decide is whether petitioner is enti- tled to administrative and litigation costs under sec_7430 i sec_7430 generally to recover administrative and litigation costs under sec_7430 a taxpayer must establish that it is the pre- vailing party has exhausted the available administrative remedies has not unreasonably protracted the pro- ceedings and has claimed reasonable costs sec_7430 b c the commissioner concedes that peti- unless otherwise indicated all section references are to the internal_revenue_code code in effect for the relevant times united_states tax_court reports tioner has satisfied the second and third requirements but contends that it was not the prevailing_party and that the costs are not reasonable ii failure to satisfy the net_worth requirement taxpayers can prove that they are the prevailing_party in two ways by establishing that they substantially pre- vailed or by establishing that they made a qualified_offer and that the court’s judgment was equal to or less than that offer sec_7430 e g 117_tc_48 aff ’d 55_fedappx_476 9th cir in either situation however they must establish that they meet the applicable net_worth requirements a taxpayer who does not meet the net_worth requirements cannot be considered a prevailing_party for purposes of sec_7430 sec_7430 generally taxpayers seeking costs and fees under sec_7430 must meet the net_worth requirements found in u s c sec d b as of the appropriate date individ- uals for example must have a net_worth not in excess of dollar_figure million at the time the petition is filed id the code has a special rule for applying this net_worth limit to trusts sec- tion c d i ii modifies the general_rule and pro- vides that the trust’s net_worth shall be determined as of the last day of the taxable_year involved in the proceeding see estate of kunze v commissioner tcmemo_1999_344 slip op pincite interpreting the special rule for applying the net_worth limit found in sec_7430 for estates and explaining that the legislative_history reveals that sec_7430 was always intended to modify sec_7430 aff ’d 233_f3d_948 7th cir congress enacted this special rule to provide clear guidance on the net_worth limits for trusts_and_estates sec_7430 was enacted as part of the taxpayer_relief_act_of_1997 pub_l_no sec stat pincite h_r rept no pincite 1997_4_cb_319 explained the reason for the addition of sec_7430 although the net_worth re- quirements are explicit for individuals corporations and partnerships it is not clear which net_worth requirement is to apply to other potential liti- gants the bill provides that the net_worth limitations currently ap- plicable to individuals also apply to estates and trusts alterman tr v commissioner petitioner argues without support that its net_worth should be determined as of one of three possible dates the date the petition was filed date the administrative_proceeding date when the commissioner issued the notice of liability date or the last day of the taxable_year when the commissioner issued petitioner the notice of liability date peti- tioner first argues that there was no taxable_year involved in this proceeding and concludes that the valuation_date should be date the date it filed its petition petitioner explains that b ecause there is no taxable_year involved in this proceeding the ‘special rules’ in sec_7430 do not apply and the general_rule of sec_7430 applies alternatively petitioner’s second and third related argu- ments posit that if there is in fact a taxable_year involved the only taxable_year involved is petitioner explains that is the taxable_year because that was when the commissioner asserted that petitioner was liable as a trans- feree and issued the notice of liability on date accordingly petitioner argues either the notice date date or the last day of is the proper valuation_date each of these arguments fails because there is a taxable_year involved in this proceeding and it is the statute is clear and it requires the net_worth of the trust shall be determined as of the last day of the taxable_year involved in the proceeding sec_7430 the notice of liability and identify date as the end of the taxable_year involved in the proceeding the notice of liability is explicit that the liability is for the taxable_year ended date the accompanying waiver of restrictions on assessment identifies the tax_year ended as date the notice of liability statement states that it is for the tax_liability for the taxable_year ended date the its accompanying documents all one can easily posit a rationale for this rule oftentimes a trust’s as- sets can easily be depleted thus enabling a_trust to manipulate whether it meets the net_worth requirements by the time a notice is issued at the end of a protracted proceeding by looking retrospectively to the taxable_year involved in the proceeding the statute limits or eliminates games- manship that might be used to fit within the net_worth requirements there is no evidence of any such gamesmanship in this case united_states tax_court reports statute requires that we look to the net_worth of the trust as of the last day of the taxable_year involved in the pro- ceeding and there is no support for the argument that there is no taxable_year involved in the proceeding petitioner concedes that its net_worth as of the close of the taxable_year involved in the proceeding exceeded dollar_figure million the statutory limit to be eligible for fees and costs accordingly it has not satisfied this requirement under sec_7430 this basis alone is enough for us to deny peti- tioner’s motion conclusion petitioner cannot recover its costs because it failed to establish that it met the applicable net_worth requirement because petitioner is not entitled to relief for this reason alone we do not address the parties’ other arguments to reflect the foregoing an appropriate order will be issued denying petitioner’s motion and decision will be entered for petitioner f