t c memo united_states tax_court ted w gleave petitioner v commissioner of internal revenue respondent kenmore ave inc petitioner v commissioner of internal revenue respondent docket nos filed date individual petitioner g owned corporate petitioner k g caused k to write checks drawn against k’s account to pay for investments and personal expenses of g or that were payable to cash or other k filed tax returns for and but g did not r used the bank_deposits method and an analysis of checks disbursed in determining deficiencies against k held g and k are liable for additions to tax for civil_fraud for and sec_6653 and sec_6653 i r c held further g and k are liable for additional additions to tax for based on the portion of the deficiencies attributable to fraud amounts redetermined sec_6653 i r c held further amounts of deficiencies redetermined donald l summer for petitioners jerome f warner and matthew i root for respondent memorandum findings_of_fact and opinion chabot judge respondent determined deficiencies in federal individual and corporate_income_tax and additions to tax under sec_6653 b fraud against petitioners as follows petitioner year1 deficiency2 b additions to tax sec sec_6653 b sec ted w gleave dkt no dollar_figure dollar_figure dollar_figure dollar_figure --- dollar_figure --- --- dollar_figure kenmore ave inc dkt no dollar_figure --- dollar_figure --- dollar_figure dollar_figure --- dollar_figure dollar_figure --- --- --- --- calendar years for the individual petitioner and fiscal years ending aug for the corporate petitioner of these amounts in docket no dollar_figure for dollar_figure for and dollar_figure for are self-employment taxes under ch the remainder are income taxes under ch percent of the interest due on the entire deficiency the substance of sec_6653 as in effect for and and sec_6653 as in effect for appears in sec_6651 and sec_6663 of present law unless indicated otherwise all section and chapter references are to sections and chapters of the internal_revenue_code of as in effect for the years in issue by answer to the petition of ted w gleave docket no respondent asserts as to each of the years in issue in the alternative to sec_6653 additions to tax under sec_6651 failure to timely file tax returns and a negligence etc see sec_6214 sec_6653 petitioner ted w gleave is hereinafter sometimes referred to as gleave petitioner kenmore ave inc is hereinafter sometimes referred to as kenmore the instant cases have been consolidated for trial briefing and opinion after concessions by both sides the issues for decision are as follows whether gleave is liable for civil_fraud additions to tax under sec_6653 for and and under sec_6653 and sec_6653 for and as to sec_6653 in what amount whether kenmore is liable for civil_fraud additions to tax under sec_6653 for its fiscal and and under sec_6653 and sec_6653 for gleave concedes that he did not file income_tax returns for any of the years in issue petitioners concede that certain of the checks that kenmore issued are for gleave’s personal expenses respondent concedes adjustments that respondent contends reduce gleave’s deficiencies to dollar_figure for dollar_figure for and dollar_figure for and reduce kenmore’s deficiencies to dollar_figure for its fiscal and dollar_figure for its fiscal respondent’s concessions as to gleave aggregate almost one-tenth of the amounts determined against gleave those as to kenmore aggregate more than one- quarter of the amounts determined against kenmore the additions to tax are reduced accordingly its fiscal and as to sec_6653 b in what amount what the amount is of gleave’s and kenmore’s unreported income findings of fact3 rule e provides that all briefs shall contain the following in the order indicated petitioners’ opening and answering briefs pp and pp respectively essentially ignore the first four of the six subparagraphs of the rules’ instructions our ability to understand petitioners’ contentions was handicapped by their failure to obey the rules’ instructions in many instances our ability to ascertain the basis for those of petitioners’ contentions that we do understand was defeated by petitioners’ failure to obey the instruction in rule e that-- in each such numbered statement proposed finding of fact there shall be inserted references to the pages of the transcript or the exhibits or other sources relied upon to support the statement in addition petitioners have ignored the instruction in rule e that-- in an answering or reply brief the party shall set forth any objections together with the reasons therefor to any proposed findings of any other party showing the numbers of the statements to which the objections are directed in addition the party may set forth alternative proposed findings_of_fact under the circumstances we have assumed that petitioners do not object to respondent’s proposed findings_of_fact except to the extent that petitioners’ statements on brief are clearly inconsistent therewith in which event we have resolved the inconsistencies based on our understanding of the record as a whole see 101_tc_412 n unless indicated otherwise all rule references are to the tax_court rules_of_practice and procedure some of the facts have been stipulated the stipulations and the stipulated exhibits are incorporated herein by this reference when the respective petitions were filed in the instant cases gleave resided in grand island new york and kenmore had its principal_place_of_business in kenmore new york a village adjacent to buffalo new york background gleave attended school through the tenth grade and he earned a g e d the equivalent of a high school diploma gleave began working when he was about for the next years or so he held several jobs including military service and construction work about gleave bought a nursery called ted’s nursery which he operated as a proprietorship gleave sold ted’s nursery about he took back a purchase-money mortgage of about dollar_figure which was paid at the rate of dollar_figure per month kenmore is a new york corporation organized about at all pertinent times gleave was kenmore’s president and sole owner when kenmore was organized it was a secondary_business to ted’s nursery during the years in issue kenmore operated a retail gasoline station an automobile repair shop and a dump truck and construction business and transported and sold- wholesale bulk fuel kenmore was not in business when its petition was filed in the instant cases kenmore’s principal business location was in kenmore pincite kenmore avenue hereinafter sometimes he referred to as the kenmore location the gasoline station business that kenmore operated at the kenmore location will hereinafter sometimes be referred to as the kenmore station gleave did not file federal_income_tax returns for any of the years in issue however gleave caused kenmore to file federal corporate_income_tax returns for its fiscal years ending august of and these tax returns were prepared by kenmore’s accountant norbert schechter c p a hereinafter sometimes referred to as schechter kenmore’s and tax returns were signed by gleave during the years in issue gleave did not have a checking account in his own name in any financial_institution in the united_states and it appears that gleave did not keep personal records during the years in issue kenmore had a checking account in its name at m t bank this account will hereinafter sometimes be referred to as kenmore’s account gleave used kenmore’s account for his personal banking many if not all of gleave’s personal expenses were paid out of kenmore’s account kenmore for each of the years in issue gleave’s tax status is married_filing_separately he is not entitled to a dependency_deduction for his wife and he is not entitled to the standard_deduction but must itemize his below-the-line deductions sec_63 kenmore began as a retail gasoline station about by june of kenmore had expanded into an automobile repair shop and a dump truck and construction business in late or early kenmore further expanded into the transporting and wholesaling of bulk fuel on date kenmore began to operate a second retail gasoline station pincite sheridan drive tonawanda new york hereinafter sometimes referred to as the sheridan location the gasoline station business that kenmore operated at the sheridan location will hereinafter sometimes be referred to as the sheridan station gleave bought the sheridan location from an unrelated party on date the sheridan location is within miles of the kenmore location gleave was often at the kenmore location around a m each day however gleave was usually away from this location during most of the day gleave often worked out on the road --for example driving and fixing kenmore’s trucks also at one point during the years in issue gleave spent some time in indiana helping a brother run a construction business joe heintz hereinafter sometimes referred to as heintz ran kenmore’s daily operations although heintz was not a bookkeeper he did some bookkeeping for kenmore shirley bohn hereinafter sometimes referred to as bohn assisted heintz with kenmore’s bookkeeping and secretarial work from date to date kenmore used the one-write system of bookkeeping a pegboard accounting system in which each check that was written on kenmore’s account was simultaneously recorded as a disbursement if desired notations could be made on the one- write record see the description in 696_fsupp_1041 e d pa in addition to disbursements deposits were recorded on kenmore’s one-write system during the years in issue bohn and heintz made all or substantially_all of the bookkeeping entries on kenmore’s one-write system each disbursement listed in kenmore’s one-write system had a corresponding notation in one of several columns which explained the purpose for which the disbursement was made one of these columns headed gleave account was used as a catch-all for all the disbursements that bohn and heintz did not know how to classify neither bohn nor heintz was trained in accounting bohn understood that when schechter received the one-write ledgers each month from kenmore then he would determine the purpose of and classify the items listed under the gleave account heading it is unclear what determinations and classifications schechter actually made about the gleave account items testimony from schechter might have been useful in clarifying the facts of this case despite schechter’s being available and living in the buffalo area where most of the trial continued at times heintz bohn gleave and clifford pixley hereinafter sometimes referred to as pixley all signed gleave’s name as maker on kenmore’s checks pixley is gleave’s half- brother pixley worked at the kenmore location for kenmore he also drove trucks for robert broskin hereinafter sometimes referred to as broskin kenmore’s expansion into the wholesale fuel business occurred together with the expansion of broskin’s trucking business into the wholesale fuel business broskin and gleave met in while both were working on a rapid-transit underground rail project in buffalo at that time both kenmore and broskin were operating dump trucks for this project a few months after they met gleave suggested to broskin that broskin park his trucks at the kenmore location and broskin did so at or around this time broskin began operating his business out of continued was conducted neither petitioners nor respondent chose to subpoena him as we indicated at trial we conclude that schechter was not peculiarly within one side’s power to produce and that schechter was equally available to both sides accordingly schechter’s absence from the trial does not give rise to any inference under 6_tc_1158 affd 162_f2d_513 10th cir see 862_f2d_1282 7th cir 469_f2d_1183 9th cir affg on this issue and revg on another issue 51_tc_337 respondent presented an expert witness to testify about the signatures on kenmore’s checks this witness’s testimony was unpersuasive and was not relied upon by the court see 101_tc_412 ndollar_figure kenmore’s office and broskin took over some of the responsibility of dispatching kenmore’s trucks after the sheridan station opened broskin parked his trucks at the sheridan location because there was more space until broskin moved his trucks to the sheridan location broskin spent to hours each day at the kenmore location thereafter broskin mostly worked out of the sheridan location and did not appear very often at the kenmore location during the years in issue although broskin had his own checking account at marine midland bank broskin sometimes used kenmore’s account when he needed kenmore’s lines of credit when heintz or bohn recognized that broskin used kenmore’s account these transactions were recorded under the gleave account heading on the one-write system broskin used kenmore’s lines of credit to buy fuel in order to resell it at wholesale kenmore had lines of credit at two on more refineries broskin charged the purchase_price of fuel at the refineries to kenmore’s account kenmore paid the refineries for this fuel and broskin paid kenmore also kenmore provided currency and bank drafts to broskin in order for broskin to buy tanker-loads of fuel broskin repaid kenmore for this currency and these bank drafts ordinarily within a few days there was usually a significant amount of money dollar_figure- dollar_figure in the safe at the kenmore location bohn heintz broskin gleave and pixley all handled this money each of them placed money in and took money out of this safe money belonging to either kenmore or broskin was put in the safe at the kenmore location although kenmore had some records of cash receipts and expenditures_for both the kenmore station and the sheridan station at least for there was not a system to keep track of whose money was in the safe at the kenmore location kenmore’s currency_transactions were not recorded on the one- write system and kenmore did not deposit all of its cash receipts into kenmore’s account overall about percent of the deposits into kenmore’s account in kenmore’s fiscal and fiscal consisted of currency with the rest consisting of checks the ratio for any one deposit was likely to vary substantially from the ratio for any other deposit at some point broskin began to participate in fuel prebuys every weeks or so most of broskin’s prebuys were with a1 fuels which was owned by broskin’s uncle a prebuy is an up-front payment to a refinery for a relatively large amount of fuel at a set price that is lower than the market price for single tanker-loads at the time of payment with the fuel to be picked up at the refinery over a period of time when kenmore participated in a broskin prebuy kenmore provided currency not checks to broskin the currency came from kenmore’s safe or from broskin’s repayment of some other debt to kenmore or a combination thereof at some point at bohn’s and heintz’s initiative kenmore began to charge a fee to broskin for the paperwork involved in kenmore’s dealings with broskin in general this fee amounted to percent of the amount_involved in the transaction when broskin used kenmore’s credit to buy gasoline broskin was required to pay the total amount promptly to kenmore while kenmore retained the 1-percent discount for prompt payment of the supplier’s gasoline bill records tax returns at the time of trial some of kenmore’s records were missing at some point the department of justice subpoenaed some of kenmore’s records a year or more later the department of justice returned the subpoenaed records thereafter on date many of kenmore’s records along with other records were stolen from the office of david knoll hereinafter sometimes referred to as knoll some of these records were recovered after the theft and some were never recovered on its tax returns for the indicated fiscal years kenmore reported gross_receipts purchases taxable_income and total_tax liability in the amounts shown in table table item gross_receipts dollar_figure dollar_figure dollar_figure purchases big_number big_number big_number taxable_income big_number big_number big_number total_tax liability big_number -0- on its tax_return for its fiscal kenmore showed a tentative investment_credit in the amount of dollar_figure an income_tax_liability before investment_credit in the amount of dollar_figure and application of the investment_credit to eliminate the income_tax_liability in the notice_of_deficiency respondent allowed dollar_figure investment_credit and dollar_figure new_jobs_credit for kenmore’s fiscal on date kenmore filed an application_for tentative refund of the dollar_figure fiscal tax_liability respondent refunded this amount to kenmore the fiscal deficiency that respondent determined results entirely from this refund on each of its tax returns for its fiscal and kenmore reported that it did not pay any compensation to gleave in the answer in the kenmore docket respondent states that the fiscal refund claim was based on a claimed fiscal net_operating_loss in the reply kenmore agrees on brief however respondent states that the claimed carryback was of an investment_credit neither side explains how kenmore could have had a net_operating_loss from its fiscal when it reported taxable_income of dollar_figure on its fiscal tax_return nor does either side explain the mechanics of either a net_operating_loss_carryback or an investment_credit carryback from kenmore’s fiscal to kenmore’s fiscal see sec_172 opening flush language b kenmore reported on schedule l of each of its tax returns for its fiscal and a balance on line loans from stockholders as shown in table table item beginning of year dollar_figure dollar_figure dollar_figure end of year big_number big_number big_number net increase or decrease big_number big_number big_number respondent received kenmore’s tax returns on the following dates kenmore’s fiscal tax_return on date kenmore’s fiscal tax_return on date and kenmore’s fiscal tax_return at some time after date the notice_of_deficiency in kenmore’s docket dated date was mailed on or about that date less than years after kenmore filed its tax returns for all the years in issue income in the notice_of_deficiency respondent determined kenmore’s taxable_income for its fiscal and its fiscal by using the bank_deposits method and an analysis of checks disbursed based on at least three sources of information as follows kenmore’s one-write system kenmore‘s bank deposit tickets and canceled checks and a box of receipts for cash payments which box kenmore gave to respondent table sec_3 fiscal and fiscal show as to the components of respondent’s calculations what respondent determined in the notice_of_deficiency what respondent contends on brief and what the court has redetermined table fiscal item respondent-- respondent-- def notice brief court’s finding sec_1 increase in gross_receipts dollar_figure dollar_figure dollar_figure less increase in purchase dollar_figure dollar_figure dollar_figure net dollar_figure dollar_figure dollar_figure legal fees disallowed2 dollar_figure dollar_figure dollar_figure taxable_income omitted dollar_figure dollar_figure dollar_figure these findings and those in table sec_4 and infra are amounts that respondent has shown by clear_and_convincing evidence as indicated infra in part ii a for purposes of determining the amounts of deficiencies without regard to fraud dollar_figure is to be added to the amounts shown in table sec_3 and as taxable_income omitted these disallowed legal fees consist of a check in the amount of dollar_figure which petitioners concede was for a personal obligation of gleave and a check in the amount of dollar_figure which was used to pay legal fees associated with the eggertsville inn a personal investment of gleave as discussed infra gleave income--clear and convincing table fiscal item increase in respondent-- respondent-- court’s def notice brief finding sec_1 gross_receipts dollar_figure dollar_figure dollar_figure less increase in purchases dollar_figure dollar_figure dollar_figure net dollar_figure dollar_figure dollar_figure less increased depreciation dollar_figure dollar_figure dollar_figure taxable_income omitted dollar_figure dollar_figure dollar_figure see supra table note table shows the components and amounts of our calculations of kenmore’s increase in gross_receipts table item fiscal fiscal total deposits to kenmore’s account dollar_figure dollar_figure less nontaxable deposit sec_1 dollar_figure dollar_figure total taxable deposits accounts receivable--end of year2 less accounts receivable--start of year2 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure gross operating receipts dollar_figure dollar_figure less gross_receipts reported dollar_figure dollar_figure increase in gross_receipts dollar_figure dollar_figure for fiscal this includes dollar_figure in proceeds from the sale of gleave’s mother’s house deposited into kenmore’s account on date in the form of a check in the amount of dollar_figure and another check in the amount of dollar_figure for each year this includes dollar_figure of purchase-money mortgage receipts that may have been deposited into kenmore’s account the accounts_receivable amounts are as reported on kenmore’s tax returns table shows the components and amounts of the calculations of kenmore’s increase in purchases item table kenmore’s total purchases dollar_figure dollar_figure purchase reported dollar_figure dollar_figure increase in purchases dollar_figure dollar_figure table shows kenmore’s total taxable_income the amount kenmore reported and the amount kenmore omitted to report see supra table note year table total taxable_income reported taxable_income dollar_figure dollar_figure dollar_figure dollar_figure taxable_income omitted dollar_figure dollar_figure 1980--gleave income--clear and convincing gleave during kenmore issued checks aggregating dollar_figure to make gleave’s mortgage payments on his house during kenmore issued four checks aggregating dollar_figure to make gleave’s payments on his life and disability insurance policies on date kenmore issued a check in the amount of dollar_figure to make gleave’s payment to an indiana attorney in connection with his divorce proceedings see supra table note on date kenmore issued a check to eastern airlines in the amount of dollar_figure to pay for gleave’s flight to florida to settle a relative’s estate on date kenmore paid dollar_figure to amherst delta inc for gleave to buy for himself an interest in eggertsville inn inc a tavern and paid dollar_figure to lotempio brown a law firm in connection with this purchase see supra table note kenmore did not own an interest in eggertsville inn inc kenmore deducted on its fiscal tax_return the dollar_figure lotempio brown payment this dollar_figure payment was not an expense of any trade_or_business of kenmore but was an expenditure for the benefit of gleave in connection with gleave’s buying the eggertsville inn on date kenmore issued a check to cash in the amount of dollar_figure gleave received the dollar_figure and used it to pay his personal expenses 1980--not income to gleave on date gleave deposited dollar_figure into kenmore’s account this money was from the sale of gleave’s mother’s house see supra table note on the same day kenmore issued a check in the amount of dollar_figure and on the next day a check in the amount of dollar_figure both of these kenmore checks were for gleave’s personal purposes but gleave’s deposit into kenmore’s account and kenmore’s checks were merely an accommodation by kenmore on date gleave borrowed dollar_figure from a bank and deposited it into kenmore’s account the same day kenmore issued a check to cash in the amount of dollar_figure gleave’s deposit into kenmore’s account and kenmore’s check to the extent of dollar_figure were merely an accommodation by kenmore a date kenmore check in the amount of dollar_figure to broskin is not a payment to or for the benefit of gleave kenmore’s checks to cash in the amounts of dollar_figure date dollar_figure date and dollar_figure date were cashed by heintz who gave the money to gleave who used the money to pay for fuel and repairs for kenmore vehicles 1980--other items--burden of proof kenmore’s date check to western-southern insurance co in the amount of dollar_figure was for key-man life_insurance on gleave’s life in addition to the items discussed supra during kenmore issued checks or otherwise made payments aggregating dollar_figure to cash or named payees the evidence of record as to the key-man life_insurance and these items does not enable us to conclude that any of these kenmore payments was--or was not-- income to gleave we refer to the latter category of items as resolved by burden_of_proof table summarizes respondent’s determinations as to gleave’s income subject_to tax and our redeterminations table respondent’s determinations redeterminations court’s income to gleave dollar_figure dollar_figure not income to gleave --- dollar_figure burden_of_proof --- dollar_figure totals dollar_figure dollar_figure dollar_figure of this amount results from respondent’s concessions in stipulations and dollar_figure results from respondent’s oral concession at trial the remaining dollar_figure results from the court’s evaluation of the evidence the parties’ stipulations show that five of the checks listed in the notice_of_deficiency as dollar_figure each should be dollar_figure each 1981--gleave income--clear and convincing during kenmore issued eight checks aggregating dollar_figure to make gleave’s mortgage payments on his house during kenmore issued eight checks aggregating dollar_figure to make gleave’s payments on his life and disability insurance policies on date kenmore paid dollar_figure to eggertsville inn which gleave owned this payment was not for any benefit to or purpose of kenmore but rather was for gleave’s benefit on date gleave bought a new 18-foot boat from zahno marine inc this boat is hereinafter sometimes referred to as the zahno boat gleave paid dollar_figure for the zahno boat after a trade-in credit of dollar_figure this transaction was not reflected in kenmore’s account but kenmore provided the money for gleave to buy the zahno boat on date gleave registered the zahno boat with the new york state department of motor vehicles on date david t young gleave’s cousin registered the zahno boat with this same agency see infra bankruptcies at some later date gleave traded the zahno boat in for a second boat at the time of the trial herein gleave still had the second boat although it was by then registered in the name of a relative 1981--not income to gleave checks numbered dollar_figure--date dollar_figure-- date and dollar_figure--date are not income to gleave on date kenmore issued a check to cash in the amount of dollar_figure the check or the proceeds was given to gleave in order to reimburse him for his expenditures_for gasoline and tolls while driving one of kenmore’s trucks on date kenmore issued a check to kenmore mercy hospital in the amount of dollar_figure this was in payment of a charge for the hospital’s emergency room treatment of a kenmore employee in date on two occasions kenmore issued checks to m t bank to wire funds to repair kenmore’s trucks that had broken down a long distance from buffalo the checks were in the amounts of dollar_figure and dollar_figure 1981--other items--burden of proof kenmore’s date check to western-southern life_insurance co in the amount of dollar_figure was for key-man life_insurance on gleave’s life in addition to the items discussed supra during kenmore issued checks or otherwise made payments aggregating dollar_figure to cash or named payees the evidence of record as to the key-man life_insurance and these items does not enable us to conclude that any of these kenmore payments was--or was not-- income to gleave table summarizes respondent’s determinations as to gleave’s income subject_to tax and our redeterminations table respondent’s determinations court’s redeterminations income to gleave dollar_figure dollar_figure not income to gleave --- dollar_figure burden_of_proof --- dollar_figure totals dollar_figure dollar_figure dollar_figure of this amount results from respondent’s concessions in stipulations the remaining dollar_figure results from the court’s evaluation of the evidence in the notice_of_deficiency checks numbered dollar_figure and dollar_figure are counted twice 1982--gleave income--clear and convincing on date kenmore issued a check to gleave in the amount of dollar_figure during kenmore issued two checks aggregating dollar_figure to make gleave’s mortgage payments on his house during kenmore issued checks and made seven electronic fund transfers aggregating dollar_figure to make gleave’s payments on his life and disability insurance policies in date kenmore issued two checks to grand island aggregating dollar_figure in payment of real_estate_taxes on residential property gleave was liable for these taxes during kenmore issued seven checks to the bank of new york aggregating dollar_figure in payment of rental or mortgage obligations of eggertsville inn on date kenmore issued a check to niagara mohawk in the amount of dollar_figure for electric power for the eggertsville inn on date kenmore issued a check to the eggertsville inn in the amount of dollar_figure gleave owned the eggertsville inn these payments were for gleave’s benefit and were not for any benefit to or purpose of kenmore on date kenmore issued a check to us air in the amount of dollar_figure for an airline ticket to enable gleave to visit his mother in florida on date kenmore issued checks to the city of st petersburg florida power and light and central telephone fla in the respective amounts of dollar_figure dollar_figure and dollar_figure in connection with gleave’s grandmother’s house 1982--not income to gleave on date kenmore issued a check to cash in the amount of dollar_figure this check or the proceeds was given to gleave in order to reimburse him for his expenditures_for gasoline and tolls while driving one of kenmore’s trucks 1982--other items--burden of proof kenmore’s date check to western-southern life_insurance co in the amount of dollar_figure was for key-man life_insurance on gleave’s life during kenmore issued four checks to blue cross aggregating dollar_figure to pay for health insurance for gleave and his family in addition to the items discussed supra during kenmore issued checks or otherwise made payments aggregating dollar_figure to cash or named payees the evidence of record as to the key-man life_insurance the blue cross and these items does not enable us to conclude that any of these kenmore payments was--or was not--income to gleave table summarizes respondent’s determinations as to gleave’s income subject_to tax and our redeterminations table respondent’s court’s determination redeterminations income to gleave 1dollar_figure dollar_figure not income to gleave --- dollar_figure burden_of_proof --- dollar_figure dollar_figure dollar_figure form_5278 of the notice_of_deficiency shows this amount as dollar_figure however the addition on that form and on form a is consistent with dollar_figure in the notice_of_deficiency checks numbered dollar_figure and dollar_figure are counted twice deductions in and gleave paid mortgage interest in the amounts of dollar_figure dollar_figure and dollar_figure respectively in gleave paid real_property_taxes in the amount of dollar_figure on property that gleave owned respondent agrees that gleave is entitled to deduct continued bankruptcies gleave and kenmore filed petitions for chapter reorganization in the united_states bankruptcy court for the western district of new york on august and respectively in their respective bankruptcy petitions gleave reported that he owned eggertsville inn the stock of which had a market_value of dollar_figure and kenmore reported that it did not own stock of any corporation gleave reported that he received annual income of dollar_figure from mortgages on two tonawanda new york properties in each of the years immediately before he filed his bankruptcy petition kenmore’s bankruptcy petition shows it as the holder of the mortgages on these two properties one of continued sales_tax in accordance with the appropriate sales_tax table petitioners have not contended that gleave is entitled to deduct any greater amount eg on account of the zahno boat purchase as a result of the foregoing including supra note gleave’s itemized_deductions exceed the zero_bracket_amount sec_1 for each of the years in issue the parties stipulated that kenmore filed its ch petition on date our finding is in accord with the stipulated copy of the ch petition which shows on its face the bankruptcy court’s stamp that the ch petition was filed on date and with knoll’s testimony that the ch petitions were filed with the bankruptcy court on consecutive days gleave was discharged from bankruptcy on date and kenmore was relieved of the automatic_stay provisions of u s c sec_362 on or about date for the purpose of filing a petition and proceeding in the tax_court these mortgages is on the property where ted’s nursery had been across the street from the kenmore location gleave’s bankruptcy petition indicates that he was paid dollar_figure per month dollar_figure per year on this mortgage kenmore’s bankruptcy petition indicates that this mortgage was worth about dollar_figure the other of these mortgages is identified by street address in both bankruptcy petitions this address is not the address of either the kenmore location or the sheridan location on kenmore’s bankruptcy petition kenmore reported that it did not make any payments on loans during the year before date and kenmore did not include gleave in the list of its creditors gleave did not include on his bankruptcy petition’s list of assets any debt from kenmore to him and he reported that he did not have any interest in a boat see supra 1981--gleave income--clear and convincing on their respective bankruptcy petitions both gleave and kenmore reported that kenmore had paid dollar_figure compensation to gleave during the past year on date gleave certified under penalty of perjury that the statements in his and kenmore’s bankruptcy petitions are true and correct to the best of his knowledge information and belief criminal activity on date gleave kenmore and joseph a matthews were indicted by a federal grand jury on counts for stealing gasoline from the tonawanda new york refinery and tank and storage_facility of ashland oil inc on date gleave pleaded guilty in united_states district_court for the western district of new york to two of these counts wire fraud and embezzlement and theft also on this date kenmore through gleave pleaded guilty to embezzlement and theft the theft of gasoline occurred on various occasions between date and date gleave stole the gasoline on at least different days loading kenmore’s tanker-trucks with the stolen gasoline three to four times on each of the days gleave then drove the trucks to the kenmore location or perhaps the sheridan location unloaded the gasoline and then sold the gasoline at retail in the normal course of kenmore’s business gleave or kenmore made a profit of about dollar_figure on this stolen gasoline the other counts of the indictments were dismissed gleave was sentenced for the crimes to which he pleaded guilty to years’ imprisonment and to pay fines totaling dollar_figure the record does not indicate what sentence was imposed on kenmore on date gleave was indicted by a federal grand jury on numerous counts including bankruptcy fraud on date gleave was found guilty in the united_states district_court for the western district of new york of bankruptcy fraud in that gleave knowingly and fraudulently concealed from the trustee and other officers of the court and from creditors money deposited in a bank account outside the united_states gleave was sentenced to federal custody for months years’ probation and months to be served in a half- way house and a fine of dollar_figure also on this date gleave was found guilty of another count of bankruptcy fraud however the conviction on this other count was reversed by the united_states court_of_appeals for the second circuit _______________________________ kenmore’s various business activities are collectively the source of its unreported income respondent has shown by clear_and_convincing evidence that none of kenmore’s suggested nontaxable sources other than the dollar_figure per year purchase-money mortgage payments explains kenmore’s unreported income the amounts shown supra in tables and as income to gleave and burden_of_proof in the columns headed court’s redeterminations were not kenmore’s repayments of loans from gleave for each of its fiscal and years kenmore had an underpayment of income_tax required to be shown on its tax_return some part of the underpayment for each of these years was due to kenmore‘s fraud for each of the years and gleave had an underpayment of income_tax required to be shown on his tax_return some part of the underpayment for each of these years was due to gleave’s fraud opinion respondent contends that petitioners underpaid their taxes for through and petitioners’ through underpayments are due to fraud and thus petitioners are liable for the fraud additions to tax under sec_6653 respondent also maintains that kenmore is not permitted to deduct any payments by kenmore to or for the benefit of gleave petitioners contend that they did not underpay their taxes for through and respondent has not met respondent’s burden_of_proof on the fraud issue petitioners maintain that a most of the checks drawn against kenmore’s account payable to cash are not income to gleave because they were used to buy tanker loads of fuel b the checks drawn against kenmore’s account used to pay for investments and personal expenses of gleave are not income to gleave because they were kenmore’s repayment of a loan owed to gleave c checks drawn against kenmore’s account to pay for investments made in gleave’s name were not income to gleave because the investments were not gleave’s but were kenmore’s and d much of the money deposited into kenmore’s account belonged to others we agree in general with respondentdollar_figure in the notice_of_deficiency to gleave respondent determined that gleave had income in the amounts that kenmore continued i fraud when respondent seeks to impose the addition_to_tax under sec_6653 respondent has the burden_of_proof to carry continued paid to gleave or for gleave’s benefit respondent also determined that gleave is liable for self-employment taxes for each of the years in issue on brief respondent refers to this income as being entirely dividend income petitioners’ contentions do not include any challenge to respondent’s implicit self-employment_income determinations in the notice_of_deficiency nor to issues such as kenmore’s earnings_and_profits that would be relevant to a dividend characterization see eg 958_f2d_684 6th cir affg and remanding tcmemo_1987_549 96_tc_858 affd 959_f2d_16 2d cir also the parties do not discuss whether any portion of these amounts should be treated as employee compensation_for gleave’s personal services which could affect both gleave’s and kenmore’s tax_liabilities in the circumstances of the instant cases we limit ourselves on this matter to what is disputed by the parties e g george r 82_tc_686 46_tc_214 n sec_6653 provides in pertinent part as follows sec_6653 failure_to_pay_tax b fraud -- in general --if any part of any underpayment as defined in subsection c of tax required to be shown on a return is due to fraud there shall be added to the tax an amount equal to percent of the underpayment additional_amount for portion attributable to fraud --there shall be added to the tax in addition to the amount determined under paragraph an amount equal to percent of the interest payable under section a with respect to the portion of the underpayment described in paragraph which is continued this burden for a year respondent must prove two elements as follows that petitioner has an underpayment_of_tax for that year and that some part of that underpayment is due to fraud sec_7454 rule b eg carter v campbell continued attributable to fraud and b for the period beginning on the last day prescribed by law for payment of such underpayment determined without regard to any extension and ending on the date of the assessment of the tax or if earlier the date of the payment of the tax for and the fraud addition_to_tax is provided for in sec_6653 the first sentence of which is the same as the above-quoted sec_6653 par was added by sec a of the tax equity and fiscal responsibility act of publaw_97_248 96_stat_324 and was effective for taxes the payment of which determined without regard to any extension is due after date in the instant case par is applicable to the additions to tax determined against petitioners for the later amendments of this provision by sec_1503 of the tax_reform_act_of_1986 tra 86--pub l 100_stat_2085 by sec_1015 of the technical_and_miscellaneous_revenue_act_of_1988 pub l 102_stat_3342 and by sec a of the omnibus budget reconciliation act of obra 89--pub l 103_stat_2106 do not affect the instant case as a result of obra the revised fraud addition_to_tax now appears in sec_6663 and sec_6651 sec_7454 burden_of_proof in fraud foundation_manager and transferee cases a fraud --in any proceeding involving the issue whether the petitioner has been guilty of fraud with intent to evade tax the burden_of_proof in respect of such issue continued 264_f2d_930 5th cir 56_tc_213 53_tc_96 each of these elements must be proven by clear_and_convincing evidence 96_tc_858 affd 959_f2d_16 2d cir 94_tc_654 81_tc_640 for this purpose respondent need not prove the precise amount of the underpayment resulting from fraud but only that there is some underpayment and that some part of it is attributable to fraud e g 466_f2d_11 5th cir 465_f2d_299 7th cir affg tcmemo_1970_274 in carrying this burden respondent may not rely on petitioners’ failure to meet their burden of proving error in respondent’s determinations as to the deficiencies e g 92_tc_661 78_tc_304 and cases cited therein where fraud is determined for each of several years respondent’s burden applies separately for each of the years 225_f2d_216 6th cir affg in part and revg in part a memorandum opinion of this court dated date estate of stein v commissioner continued shall be upon the secretary t c affd sub nom 250_f2d_798 2d cir a mere understatement of income does not establish fraud however a pattern of consistent under-reporting of income for a number of years is strong evidence of fraud 451_f2d_197 3d cir affg t c memos and 422_f2d_63 6th cir affg tcmemo_1968_100 otsuki v commissioner t c pincite the issue of fraud poses a factual question that is to be decided on an examination of all the evidence in the record plunkett v commissioner f 2d pincite 328_f2d_147 7th cir affg 37_tc_703 stone v commissioner t c pincite in order to establish fraud as to a petitioner respondent must show that petitioner intended to evade taxes which he or it knew or believed were owed by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes e g 394_f2d_366 5th cir affg tcmemo_1966_81 252_f2d_56 9th cir 73_tc_370 61_tc_249 affd 519_f2d_1121 5th cir this intent may be inferred from circumstantial evidence powell v granquist f 2d pincite 67_tc_181 affd without published opinion 578_f2d_1383 8th cir including the implausibility of petitioner’s explanations 796_f2d_303 9th cir and cases therein cited affg tcmemo_1984_601 204_f2d_205 5th cir affg a memorandum opinion of this court dated date underpayments of tax a kenmore respondent’s determination_of_a_deficiency against kenmore for its fiscal is based entirely on disallowance of a carryback from its fiscal supra note this disallowance in turn is based entirely on respondent’s determination that kenmore did not have any carryback from kenmore’s fiscal we consider first kenmore’s tax_liabilities for its fiscal and and then consider how our conclusions for these years affect its fiscal as shown supra in table sec_3 and respondent’s determinations as to kenmore’s income for its fiscal and fiscal are almost entirely on account of adjustments that increase kenmore’s gross_receipts and increase kenmore’s purchase expenses but by substantially lesser amounts a gross_receipts respondent used the bank_deposits method and an analysis of checks disbursed to determine kenmore’s income for its fiscal and fiscal it is well established that bank_deposits are evidence of income where the deposits were made by the party charged with the income or to an account controlled by the party charged with the income 87_tc_74 the premise underlying the bank_deposits method of income reconstruction is that absent some explanation a taxpayer’s bank_deposits represent income subject_to tax dileo v commissioner t c pincite the use of the bank_deposits method of income reconstruction has long been sanctioned by the courts id tokarski v commissioner t c pincite 64_tc_651 and cases therein cited affd 566_f2d_2 6th cir when this method is used respondent must take into account any nontaxable deposits or deductible expenses of which respondent has knowledge dileo v commissioner t c pincite we have held that where respondent has the burden_of_proof in a bank_deposits case eg where respondent has determined that a taxpayer has committed tax_fraud then-- respondent can satisfy the burden of proving the first prong of the fraud test ie an underpayment when the allegations of fraud are intertwined with unreported and indirectly reconstructed income in one of two ways parks v commissioner t c pincite respondent may prove an underpayment by proving a likely source of the unreported income 348_us_121 parks v commissioner supra pincite nicholas v commissioner t c alternatively where the taxpayer alleges a nontaxable source respondent may satisfy the burden by disproving the nontaxable source so alleged 355_us_595 parks v commissioner supra pincite dileo v commissioner t c pincite the parties have stipulated that total deposits to kenmore’s account amounted to dollar_figure in kenmore’s fiscal and dollar_figure in kenmore’s fiscal supra table they also have stipulated that of these amounts at least dollar_figure for fiscal and dollar_figure for fiscal are nontaxable deposits the accounts_receivable amounts used in calculating the increase in gross_receipts as shown supra in table are taken from kenmore’s tax returns and are not disputed by either side we conclude and we have found that kenmore’s various business activities are collectively the source of its unreported income as discussed infra we also conclude that none of the suggested nontaxable sources explains kenmore’s unreported income except for gleave’s apparent deposits of dollar_figure payments on a purchase-money mortgage from the sale of ted’s nursery kenmore contends that because broskin used kenmore’s lines of credit and charged fuel at the refineries to kenmore broskin’s money was just passing through kenmore’s account and thus the amounts deposited into kenmore’s account that came from broskin should not be included in kenmore’s gross_receipts because these amounts are income of broskin we have found that when broskin used kenmore’s lines of credit and charged fuel at the refineries to kenmore then kenmore paid the refineries for this fuel and broskin paid kenmore for this fuel so although payments by broskin deposited into kenmore’s account are included in the total deposits to kenmore’s account for its fiscal and its fiscal supra table payments by kenmore to the refineries for the fuel charged by broskin are included in kenmore’s purchases for its fiscal and fiscal supra table as a result amounts deposited into kenmore’s account that came from broskin are offset by payments from kenmore’s account to the refineries for fuel charged by broskin and thus the amounts deposited into kenmore’s account that came from broskin are properly includable in kenmore’s gross_receipts and do not explain kenmore’s unreported income this may be illustrated by a transaction to which bohn testified kenmore’s one-write records show that on date kenmore wrote a check to american refining group inc in the amount of dollar_figure evidently the original bill was in the amount of dollar_figure and kenmore took advantage of a one- percent discount dollar_figure for timely payment the one-write records show a date dollar_figure deposit to kenmore’s account evidently broskin paid dollar_figure to kenmore which amount was deposited into kenmore’s account although the bank_deposits method may arguably be said to overstate kenmore’s gross_receipts by dollar_figure this is offset by the kenmore payment to american refining group inc which under that line of reasoning overstates kenmore’s cost of purchases by dollar_figure under the bank_deposits method as applied in the instant cases see supra table sec_4 through only dollar_figure of taxable_income results from the above-described transaction that is the correct result on these facts thus although petitioners may or may not be technically correct in contending that the bank_deposits method overstates kenmore’s gross_receipts because of these broskin transactions this method does not cause kenmore’s taxable_income to be overstated petitioners suggest that the prebuys may have resulted in the bank_deposits method’s overstating kenmore’s gross_receipts only one prebuy is described in some detail in testimony by bohn and broskin and in a stipulated extract from kenmore’s books_and_records on or about date kenmore gave dollar_figure cash to broskin for him to buy big_number gallons of gasoline broskin delivered the gasoline in installments to kenmore over a 5-week period most of the deliveries were to the sheridan location broskin invoiced kenmore for the delivered gasoline at dollar_figure per gallon plus an amount for trucking kenmore’s books show the transaction as purchased in advance from broskin with each delivery resulting in a reduction of the amounts in both the bal gal and the bal dollar_figure columns the final delivery on date resulted in the bal gal column being reduced to zero and the bal dollar_figure column being reduced to negative dollar_figure this last amount is shown as having been paid on date with the balance in the bal dollar_figure column then shown as zero we are satisfied from the record in the instant cases that this transaction involved dollar_figure deductible expenditures dollar_figure for the gasoline plus dollar_figure for the trucking gross_receipts in the amount kenmore received from selling the big_number gallons of fuel and no double inclusion of gross_receipts for kenmore thus prebuys do not result in overstating kenmore’s gross_receipts nor in overstating kenmore’s taxable_income petitioners assert on brief that more than dollar_figure was placed in kenmore’s account by gleave at the time of the sale of the business and equipment of ted’s nursery gleave sold ted’s nursery about if gleave deposited the proceeds of this sale to kenmore’s account more or less contemporaneously with the sale then this deposit did not increase kenmore’s gross_receipts for fiscal or also kenmore reported on its fiscal tax_return that the loans from stockholders account showed an opening fiscal balance ie a balance as of date of only dollar_figure and a closing as of date balance of only dollar_figure supra table thus even if we were to credit petitioners’ contentions substantially_all the proceeds of the ted’s nursery sale had already worked through kenmore’s account before any of the years in issue in the instant cases we note a dollar_figure arithmetic error on kenmore’s ledger sheet in computing the balance after the last delivery the net to broskin should have been dollar_figure instead of dollar_figure a careful examination of the ledger sheet suggests that it originally did show dollar_figure but someone changed the to and changed the to we have not been given a reconciliation or other explanation this dollar_figure differential does not affect any of our conclusions gleave took a purchase-money mortgage on his sale of ted’s nursery this is consistent with part of gleave’s bankruptcy petition there also was testimony that gleave put into kenmore’s account the dollar_figure monthly payments on the purchase-money mortgage the record does not enable us to conclude by clear_and_convincing evidence that dollar_figure per year of the deposits into kenmore’s account did not come from payments on the purchase- money mortgage from the sale of ted’s nursery petitioners assert that approximately dollar_figure was placed in kenmore’s account reflecting the inheritance of gleave and his brother terrance it appears that on date the estate of gleave’s grandmother edith service distributed dollar_figure to gleave and the same amount to his brother terrance j gleave at various points in the trial gleave testified to the effect that he received his brother’s check as well as his own because his brother owed money to him both gleave’s and his brother’s checks were deposited into kenmore’s account as a loan by gleave to kenmore and as of the time of the trial kenmore had not yet repaid this loan from gleave however we have carefully examined the evidence as to deposits into kenmore’s account and the only deposits involving checks at least as great as dollar_figure in kenmore’s fiscal are checks of dollar_figure and dollar_figure on august and respectively deposited about 11½ months after the apparent estate distributions these facts are inconsistent with gleave’s testimony also gleave who is the sole source of the evidence that the inheritance was deposited as a loan into kenmore’s account and not repaid by kenmore certified under penalty of perjury in the bankruptcy petitions in effect that kenmore did not owe him any money in gleave’s certification is inconsistent with gleave’s testimony we note that dollar_figure of proceeds from the sale of gleave’s mother’s house was deposited into kenmore’s account on date just days after the apparent distributions from gleave’s grandmother’s estate this deposit has been excluded from kenmore’s income as a nontaxable deposit supra table note and kenmore’s checks to gleave shortly thereafter have been excluded from gleave’s income it is conceivable that gleave may have confused this transaction with the apparent inheritance we have already taken account of this transaction we conclude that the apparent inheritance is not a nontaxable source of gross_receipts to kenmore petitioners assert that kenmore routinely cashed checks for many of its suppliers and other persons involved in related businesses all of which checks went through its account but were incorrectly attributed to kenmore as income we have found that kenmore routinely kept thousands of dollars sometimes tens of thousands of dollars in its safe the deposits into kenmore’s account often included currency from this we conclude that any check-cashing by kenmore might have affected the mix of checks and currency that kenmore deposited but did not affect the total_amounts of the deposits accordingly we conclude that if kenmore indeed did any check-cashing that is not a nontaxable source of gross_receipts we conclude and we have found that respondent has shown by clear_and_convincing evidence that none of kenmore’s suggested nontaxable sources other than the dollar_figure per year purchase-money mortgage payments explains its unreported income b purchases on its tax returns kenmore claimed to have spent almost dollar_figure million on purchases over fiscal and fiscal supra table sec_1 and in the notice_of_deficiency respondent determined that kenmore had spent dollar_figure more than kenmore had claimed for those years supra table sec_3 and on brief respondent concedes that kenmore spent over dollar_figure million more than kenmore had claimed for those years supra table sec_3 and our findings are in amounts slightly greater than respondent’s concessions supra table sec_3 and thus we treat kenmore as having spent and as being entitled to subtract more than dollar_figure million in purchases for those years even though kenmore claimed only dollar_figure million on its tax returns for those years supra table sec_3 and petitioners do not make any specific contentions on brief about their allowable costs of purchases they do make generalized statements about the use of currency to make purchases both broskin and bohn testified about kenmore’s use of cash including the extensive recycling of cash to pay for purchases we are satisfied from the record in the instant cases that any such purchases not reflected in our findings_of_fact would be matched by gross_receipts that were not deposited into kenmore’s account and so were not included in our findings_of_fact as to kenmore’s gross_receipts petitioners have not directed our attention to and we have not found any additional costs of purchases that would have reduced the net of kenmore’s gross_receipts minus its purchases respondent need not prove that kenmore did not have the offsetting deductions that petitioners assert in conclusory terms once the commissioner has presented clear_and_convincing evidence of unreported gross_receipts the taxpayer has the burden of coming forward with evidence as to offsetting deductions claimed by the taxpayer even in criminal cases where the government must prove a deficiency beyond a reasonable doubt e g 351_f2d_336 2d cir 231_f2d_928 9th cir see also 77_tc_1169 dollar_figure this rule is independent of the general_rule applicable to civil cases in which the taxpayer has the burden of proving entitlement to deductions before they may be allowed rule a 290_us_111 we are satisfied and we have found that kenmore understated the net of its gross_receipts over its purchases by dollar_figure for and dollar_figure for supra table sec_3 and we so hold c legal fee--eggertsville inn respondent‘s determination against kenmore for its fiscal is based primarily on the bank_deposits method in addition respondent disallowed kenmore’s deduction of a dollar_figure payment by kenmore to a law firm lotempio brown this payment was made in connection with the eggertsville inn supra table note the notice_of_deficiency states that the payment is disallowed because it has not been established that it was for an ordinary and necessary business_expense sec_162 a allows a deduction for all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business in order to satisfy the requirements of sec_162 an expense must be both ordinary and necessary and it must have the requisite relationship to the taxpayer’s business george r 82_tc_686 also the trade or sec_162 provides in pertinent part as follows sec_162 trade_or_business_expenses a in general --there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business business of the corporation must be considered separately from the trade_or_business of the shareholders 64_tc_989 gleave testified that the date dollar_figure kenmore check to amherst delta inc was the deposit from kenmore to the landlord if i recall for eggertsville inn which was an investment of kenmore however gleave’s date bankruptcy filing shows him not kenmore as owner of eggertsville inn inc kenmore’s date bankruptcy filing shows kenmore not owning any corporate stock and not otherwise owning any interest in eggertsville inn inc kenmore’s fiscal tax_return balance_sheet shows that kenmore did not own any corporate stock at all and gleave told the irs auditor that the dollar_figure check was for a tavern that gleave had an option to buy we conclude and we have found contrary to gleave’s testimony that kenmore did not own an interest in eggertsville inn inc in addition we conclude and we have found that the dollar_figure lotempio brown payment was in connection with gleave’s buying eggertsville inn inc this dollar_figure was a capital_expenditure to be added to gleave’s basis in eggertsville inn inc and was not currently deductible by gleave or by kenmore petitioners do not contend that the dollar_figure lotempio brown payment was deductible by kenmore for any alternative reason eg as compensation to gleave and so we do not consider alternatives see eg 46_tc_214 n we hold for respondent on this issue d it is clear that our determinations eliminate any possible claim of kenmore net_operating_loss carrybacks from its fiscal or fiscal supra table sec_1 and respondent does not dispute kenmore’s claimed investment credits for fiscal or fiscal in fact respondent increases kenmore’s claimed fiscal investment_credit by dollar_figure neither of these allowed investment credits is great enough to generate an investment_credit carryback to fiscal thus kenmore has a dollar_figure deficiency for fiscal generated entirely by the elimination of the claimed carryback from fiscal supra note we have so found we hold for respondent on this issue e summary we conclude and we have found that respondent has proven by clear_and_convincing evidence that kenmore had an underpayment_of_tax for each of the years in issue we hold for respondent on this issue fraudulent intent respondent contends as follows kenmore’s failure to keep or furnish adequate books_and_records is a strong indicium of fraud kenmore’s failure to report substantial amounts of gross_receipts for both its fiscal and its fiscal is an obvious indication of its fraudulent intent to evade tax petitioners’ explanations of kenmore’s asserted large nontaxable deposits and the reasons for large cash expenditures are so implausible that the giving of the explanations is itself a further indication of fraud kenmore’s pleas to theft and admission to the receipt of income resulting from this theft is further proof of fraudulent intent and kenmore’s extensive dealings in cash show its attempt to conceal corporate assets petitioners contend as follows kenmore made a good_faith effort to keep adequate_records and was prevented from producing all its records by a burglary of kenmore’s then- attorney’s office and by new york state’s auctioning off of the remaining contents of that office kenmore was forced by market conditions to operate for many vital transactions on a cash_basis and kenmore did not conceal its income and gleave was not educated and he left the bookkeeping to trusted long term employees each of whom did the best they sic could with the transactions at hand we agree with respondent’s conclusion and with some of respondent’s contentions in weighing kenmore’s intent and actions we note that a corporation is a separate_entity created by statute which acts through its officers employees and agents 42_tc_358 affd 355_f2d_929 6th cir 22_tc_833 where there are a number of shareholders all of whom are parties to the fraud their fraudulent intent is attributed to the corporation ace tool eng inc v commissioner t c pincite similarly the fraud of a sole or dominant shareholder can be attributed to the corporation benes v commissioner t c pincite 21_tc_191 affd 216_f2d_693 1st cir corporate fraud exists if an agent commits fraud and the corporation is the agent’s alter ego or the agent is acting on behalf of the corporation such that the corporation actually benefits from the fraudulent acts 476_f2d_502 10th cir affg on this issue tcmemo_1971_194 see 34_tc_740 affd 325_f2d_1 2d cir we have found pursuant to the parties’ stipulation that at all pertinent times gleave was kenmore’s president and sole owner a criminal activity both kenmore and gleave pleaded guilty to embezzlement and theft of gasoline on various occasions between date and date during the years in issue kenmore operated a retail gasoline station kenmore’s embezzlement and theft of gasoline in its fiscal and its fiscal are significant evidence of its fraudulent intent with regard to its income taxes for these years bradford v commissioner f 2d pincite petzoldt v commissioner t c pincite mcgee v commissioner t c pincite b substantial omissions kenmore reported taxable_income in the amount of dollar_figure for its fiscal and dollar_figure for its fiscal supra table kenmore failed to report taxable_income in the amount of dollar_figure for its fiscal and dollar_figure for its fiscal supra table sec_3 and which amounts to more than percent of kenmore’s fiscal taxable_income and more than percent of its fiscal taxable_income supra table these omissions are not the result of any good-faith dispute as to taxability see infra d implausible explanations the mere failure to report income is not sufficient to establish fraud petzoldt v commissioner t c pincite however exceedingly large discrepancies between the taxpayer’s actual net_income and the net_income reported do constitute evidence of fraud when such discrepancies are not adequately explained stone v commissioner t c pincite kenmore’s substantial omissions of taxable_income for its fiscal and its fiscal are substantial evidence of fraud as to these years c inadequate records an aggregate of more than dollar_figure million was deposited into kenmore’s account during kenmore’s fiscal and its fiscal supra table in addition to the dollar_figure million of deposits into kenmore’s account there was some indeterminate amount of cash that passed through kenmore’s safe and did not show up in kenmore’s account the one-write bookkeeping system focused only on kenmore’s account both gleave and broskin used kenmore’s account the one-write system did not adequately distinguish among kenmore gleave and broskin transactions as heintz and bohn carried it out the one-write system used a miscellaneous column gleave account for any transactions that they were aware of and did not know how to classify we cannot deduce what happened to many of the gleave account items except that we know that heintz and bohn put all the broskin items that they recognized into the gleave account not only was the currency in the safe generally dollar_figure-dollar_figure not recorded in the one-write system but also there was not a system to enable heintz or bohn to know how much of the currency belonged to broskin and how much belonged to kenmore or gleave kenmore’s operations were large enough and varied enough and the comingling of kenmore’s broskin’s and gleave’s assets was extensive enough so that it was obvious that detailed record-keeping was important failure to keep and supply adequate_records may be an indication of fraud 363_f2d_151 9th cir affg tcmemo_1963_333 we understand that some portion of kenmore’s records had been stolen in and this was at least partially responsible for petitioners’ inability to produce complete records at the trial however the records that were produced and the testimony of bohn gleave and broskin convince us that the records never were adequate to track through the maze of kenmore’s activities and assets thus the theft does not affect our conclusions on this point kenmore’s failure to make and keep adequate_records in the context of the instant cases is significant evidence of fraud d implausible explanations gleave’s determination to run his financial activities through kenmore--both with regard to kenmore’s account and the cash in the safe at the kenmore location--led to many of the record-keeping confusions that may have inspired several of the implausible explanations that petitioners offered in attempts to bridge the substantial gap between the total deposits into kenmore’s account and the gross_receipts reported on kenmore’s tax returns thus petitioners contend that more than dollar_figure of the gap resulted from gleave’s deposits into kenmore’s account--dollar_figure from the ted’s nursery sale and dollar_figure from the apparent inheritance as we explained supra a gross_receipts we are satisfied that if any such deposit occurred after the ted nursery sale then it did not affect more than dollar_figure of the gap for each of kenmore’s fiscal and fiscal and gleave did not deposit into kenmore’s account the proceeds he claims to have received from his grandmother’s estate also petitioners have tried to throw up smokescreens by general contentions that broskin’s dealings would fill this gap but as we have shown broskin’s dealings would not have affected the substantial shortfall in kenmore’s reporting of its taxable_income petitioners have tried to explain away kenmore’s failure to keep sufficient records of currency by arguing that kenmore’s need for currency eg in order to cash checks explains the gap in its reporting we have no reason to believe the underlying factual predicates as far as we can tell any check- cashing that kenmore may have done probably was small in amount and affected only the check-versus-currency mix and not the total amount of the deposits to kenmore’s account the transparent falseness of petitioners’ explanation of kenmore’s reporting omissions is itself an indicator of kenmore’s fraudulent intent bahoric v commissioner f 2d pincite boyett v commissioner f 2d pincite we conclude from the foregoing and we have found that respondent has shown by clear_and_convincing evidence that kenmore intended to evade its income taxes for each of its fiscal and fiscal years which taxes kenmore knew or believed it owed by conduct intended to conceal income and prevent the collection_of_taxes e in general if a net_operating_loss is carried back from a fraud year to a nonfraud year a credit or refund is issued to the taxpayer and the credit or refund leads to an underpayment for the nonfraud year then the underpayment for the nonfraud carryback_year is treated as due to the fraud of the loss_year 743_f2d_309 5th cir affg tcmemo_1984_25 our holding that toussaint is distinguishable and the rule is otherwise if the carryback is of a new_jobs_credit and the amount of the claimed credit is nonfraudulent was reversed 923_f2d_1005 2d cir revg tcmemo_1990_30 it appears that kenmore’s entire fiscal underpayment is attributable to a carryback from kenmore’s fiscal which may have been a carryback of a net_operating_loss or of an investment or new_jobs_credit supra note the parties have stipulated that the instant cases are appealable to the court_of_appeals for the second circuit which reversed us in arc elec our conclusion that kenmore’s fiscal underpayment is due to fraud leads us to conclude that kenmore’s fiscal underpayment also is due to fraud whether the carryback was of a fiscal net_operating_loss toussaint or an otherwise allowable fiscal credit arc elec const co v commissioner supra 54_tc_742 affd 445_f2d_985 10th cir accordingly we do not in the instant cases determine what is the nature of the claimed carryback nor do we at this time reconsider our holding in arc elec we hold for respondent on this issue b gleave underpayment_of_tax we have found that respondent has shown by clear_and_convincing evidence that gleave had income subject_to tax in the following amounts 1980--dollar_figure 1981--dollar_figure dollar_figure supra tables and we have found that gleave is entitled to deductions that exceed the zero_bracket_amount for each of these years supra note and associated text it is evident however that the deductions are not large enough to eliminate gleave’s tax_liability for any of these years gleave did not file tax returns for any of these years accordingly in the instant cases we conclude that gleave’s entire tax_liability for each year is a deficiency for that year and an underpayment for that year sec_6653 c we discuss several of the items that led to the conclusions that gleave has an underpayment_of_tax for each of the years in issue a gleave loans to kenmore the most significant dispute centers on petitioners’ contention that gleave made numerous loans to kenmore and that kenmore’s payments to gleave or on gleave’s behalf were merely repayments of these loans and thus not income subject_to tax for gleave gleave made a soup sandwich almost inevitable when he determined to use kenmore’s account for his personal banking and not keep personal records in our findings_of_fact we have described two instances in which gleave did deposit amounts into kenmore’s account and we concluded that certain payments to gleave or for gleave’s benefit were not income to gleave supra 1980--not income to gleave in the portion of our opinion dealing with kenmore’s gross_receipts we examined and rejected petitioners’ contentions as to the proceeds of the sale of ted’s nursery except for dollar_figure per year and the proceeds of gleave’s and his brother’s apparent inheritances from their grandmother we observed gleave as he testified we examined the statements he signed under penalty of perjury in connection with his and kenmore’s bankruptcies as to his compensation from kenmore as to kenmore’s not owing anything to him and not repaying any loans during the preceding year the dollar_figure per month payments on the purchase-money mortgage from the sale of ted’s nursery require a different analysis in our analysis as to kenmore it was evident that if the payments were deposited to kenmore’s account then kenmore’s taxable_income should be reduced because dollar_figure of kenmore’s annual gross_receipts came from a source that was nontaxable to kenmore we concluded that there was a sufficient likelihood that the deposits were made so that respondent had failed to present clear_and_convincing evidence that the payments were not deposited into kenmore’s account in the years in which the purchase-money mortgage payments were made however in order for us to conclude that gleave’s taxable_income should be reduced the mortgage payments had to be deposited into kenmore’s account and the deposits had to be by way of loans and not shareholder contributions to capital and it had to be intended that some of the kenmore payments to gleave described in our findings_of_fact as gleave income--clear and convincing and not those in other items--burden of proof be repayments of the asserted loans we conclude that the likelihood of all of those predicates being true is so slight that we are satisfied that respondent has negatived that likelihood by clear_and_convincing evidence we conclude and we have found that the income subject_to tax as found is tables and was not from kenmore’s repayment of gleave loans b dollar_figure check on date kenmore issued a check to gleave in the amount of dollar_figure at trial gleave testified as follows-- q summer item c is a check payable to ted gleave do you recall what that was about a gleave yes i do q would you please tell the court a at this particular time i was about to be indicted by ashland oil this money was in 747’s account the monies really didn’t belong to or ted gleave and it had to be drawn out so it could pay the people that the monies really belonged to q was part of that money used to repay loans by yourself to if you know a i don’t know q do you recall a portion of that being utilized to pay for a truck a that could have been some of the monies that were used to pay for our truck q do you recall how much money you had to pay for that truck approximately a i’m going to just say in the dollar_figure range q do you know who actually went over and picked up the truck a yes i do a who was that a bob broskin q do you know if he paid the money for the truck on your behalf a i think bob did q then did repay mr broskin a yes on cross examination gleave testified as follows a warner paragraph c of the stipulation reflects that on date you issued check payable to yourself in the amount of dollar_figure correct a gleave that’s correct q you testified relative to that dollar_figure that you had written that check to pay off certain individuals who you owed money to a the gasoline people had turned around and had checks that were running through the systems you might as well say q who were those individuals a bob broskin frank calderella james tavenier q prior to date had written checks to bob broskin before that hadn’t they a yes i imagine they did yes q subsequent to date wrote checks to bob broskin didn’t they a what do you mean q after date checks were written to bob broskin a i imagine they did i don’t have the records q but in this instance you chose to write a check to yourself for dollar_figure and pay off bob broskin in cash a no i knew that the indictment was coming down for ashland oil everybody knew it there was a grand jury investigation what happened there was i was advised by my attorney and my bookkeeper that if you want to keep the stations in business and have the money to operate take it out of the checkbook because they are going to seize the checkbook thus gleave testified that the dollar_figure did not belong to either him or kenmore and had to be returned to the rightful owners most of the dollar_figure was used to buy a truck for kenmore which kenmore did not show as a depreciable asset on its fiscal tax_return and the money had to be hidden from ashland oil and kept available to kenmore so that kenmore could stay in business this dollar_figure item is more than four times as large as the next largest item in the notice_of_deficiency to gleave gleave testified as to the dollar_figure item that he did recall what that was about even though the event was many years before the trial in the instant case if gleave did recall what that was about then why did he promptly give us three conflicting stories under oath if the dollar_figure had to be returned to its rightful owners then why did kenmore not merely write checks to those owners rather than pass the money into gleave’s hands if gleave spent about dollar_figure to buy a truck for kenmore then why did kenmore not show the truck depreciation investment_credit on its tax_return if gleave kept it hidden on the side then what was to be gained since kenmore’s creditors would quickly see the substantial check and what finally happened to the money after discounting gleave’s conflicting testimony we are left with the fact that kenmore paid the dollar_figure to gleave because of gleave’s decision that kenmore should pay the money to him thus the record herein establishes that gleave received the dollar_figure and the dollar_figure came from kenmore’s account which is the source of many payments which constitute income to gleave see dileo v commissioner t c pincite tokarski v commissioner t c pincite gleave’s testimony convinces us that gleave either kept the dollar_figure or used it for his own purposes and it is income to gleave c key-man_insurance during the years in issue kenmore issued at least three checks to western-southern life_insurance co as premium payments on an insurance_policy on gleave’s life gleave claims that these premium payments are not income to him because this policy was a key-man life_insurance_policy generally life_insurance premiums_paid by an employer on the life of its employee where the proceeds of the insurance are payable to the employee’s beneficiary are part of the employee’s gross_income sec_1_61-2 income_tax regs if the life_insurance_policy is an asset of the employer then it may be that the premium payments made by the employer are not income to the employee even if the employee is also the employer’s controlling shareholder resolution of this matter involves consideration of various factors see eg 247_f2d_440 2d cir revg 26_tc_1020 55_tc_16 41_tc_329 revrul_59_184 1959_1_cb_65 the record in the instant cases does not provide us with the information that is necessary to decide whether the life the rationale of the court_of_appeals was accepted by this court in 55_tc_16 insurance premium payments made by kenmore are or are not income to gleave we thus conclude that the tax treatment of the checks in the amounts of dollar_figure for dollar_figure for and dollar_figure for that kenmore issued to western-southern life_insurance co as premium payments is to be determined in accordance with the burden_of_proof d blue cross during kenmore issued at least four checks to blue cross gleave claims that these checks were not income to him because they were payments for health insurance premiums for gleave and his family section provides that gross_income does not include contributions by the employer to accident or health_plans for compensation through insurance or otherwise to his employees for personal injuries or sickness the regulations provide that the gross_income of an employee also does not include contributions by the employer to health_plans that include the employees’s spouse and dependents sec_1_106-1 income_tax regs however sec_106 requires by its terms that the employer’s contributions here kenmore’s payments of premiums to blue cross be for compensation to the employer’s employees see 48_tc_629 n affd later amendments to this provision providing exceptions for highly compensated individuals did not apply until and so do not affect the instant cases f 2d 1st cir revrul_58_90 1958_1_cb_88 gleave was kenmore’s sole shareholder its president and an active worker as we have pointed out supra note neither side in the instant cases is clear as to its position regarding which hat gleave wore with regard to any of the kenmore payments neither side has given us the benefits of stating much less analyzing its position as to whether sec_106 properly leads to gleave’s excluding from his income kenmore’s payment of the blue cross premiums our analysis of the record in the instant cases does not enable us to redetermine this point thus we conclude that the tax treatment of kenmore’s payments of the blue cross premiums is to be determined in accordance with the burden_of_proof e kenmore’s income petitioners contend that the income attributed to mr gleave was in fact income of kenmore all of gleave’s income that we deal with in the instant cases are payments by kenmore to or for the benefit of gleave there is not an inconsistency between an item_of_income to kenmore providing the funds for a payment that results in income to gleave f eggertsville inn petitioners contend on brief that the eggertsville inn was a wholly owned and operated subsidiary of kenmore they state that ted gleave and shirley bohn and clifford pixley all testified without contradiction that both sheridan and the eggertsville inn were wholly owned and operated subsidiaries of kenmore bohn’s and pixley’s testimony to which petitioners cited does not appear to deal with the eggertsville inn only gleave’s testimony indicates that kenmore was an owner of eggertsville inn however in contrast to the statements on brief gleave testified that kenmore was one of three partners and not that kenmore was sole owner of eggertsville inn in even sharper contrast are the careful statements on both gleave’s and kenmore’s bankruptcy petitions that gleave owned the eggertsville inn and that kenmore did not own any interest in the eggertsville inn gleave executed both of these petitions and certified to their correctness under penalty of perjury we believe gleave’s bankruptcy statements under penalty of perjury that he not kenmore owned the eggertsville inn we have so found g the zahno boat gleave testified that kenmore provided the money to buy the zahno boat gleave bought the zahno boat in his own name and registered it in his own name with the new york state department of motor vehicles gleave’s cousin registered the zahno boat days before gleave signed his and kenmore’s bankruptcy petitions in which gleave and kenmore disclaimed any ownership of the zahno boat and being a creditor of any debt related to it when the smoke cleared gleave’s cousin died but apparently neither the cousin’s widow nor the cousin’s estate or other heirs had any interest that survived and gleave traded the zahno boat in for a second boat which gleave still had at the date of the trial we are convinced that the cousin’s involvement was not in derogation of gleave’s interest and that kenmore’s providing gleave with the money to buy the zahno boat resulted in dollar_figure income to gleave for h conclusion we hold and we have found that respondent proved by clear_and_convincing evidence that gleave had an underpayment_of_tax for each of the years and fraudulent intent gleave knew he had income he signed under penalty of perjury kenmore’s bankruptcy petition on the very page where it states that kenmore paid dollar_figure compensation and he signed his own bankruptcy petition on the very page where it states that he took from his business dollar_figure - dollar_figure per week draws self employed gleave knew that kenmore was paying many of his obligations gleave tried to drop out of the system gleave did not file tax returns even though he signed kenmore’s tax returns gleave ran his funds through kenmore’s account thereby avoiding information reporting by any bank gleave did not have kenmore provide information reports such as forms w-2 and consistent with this approach gleave did not keep personal records to show his income see eg habersham-bey v commissioner t c pincite gleave pleaded guilty to embezzlement and theft of gasoline from ashland oil inc on various occasions between date and date activities which by their nature produce income bradford v commissioner f 2d pincite petzoldt v commissioner t c pincite mcgee v commissioner t c pincite gleave’s overarching explanation is that kenmore’s payments to him or for his benefit are not income to him because they are merely repayments of loans by him to kenmore we do not believe the stories of his receiving assertedly nontaxable sources of capital at convenient times in addition we note that petitioners do not even contend that any of the asserted transfers by gleave to kenmore met any of the criteria for loans as distinguished from contributions to capital for a discussion of such criteria and case law see bittker eustice federal income_taxation of corporations and shareholders par pincite through 6th ed gleave’s implausible explanations which we reject are themselves an indication of fraud bahoric v commissioner f 2d pincite boyett v commissioner f 2d pincite we conclude from the foregoing and we have found that respondent has shown by clear_and_convincing evidence that gleave intended to evade his income taxes for each of the years and which taxes gleave knew or believed he owed by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes we hold for respondent on this issuedollar_figure c additional_amount for portion attributable to fraud the additional_amount added to the tax under sec_6653 is equal to percent of the interest payable under sec_6601 and applies only to the portion of the underpayment that is attributable to fraud in the notices of deficiency respondent determined that this additional_amount applies to the entire deficiencies determined against kenmore for its fiscal and gleave for respondent has the burden of proving by clear_and_convincing evidence what portion of the deficiency is attributable to fraud sec_7454 rule b dollar_figure because of our holding on this issue we do not reach the alternative contention that gleave is liable for additions to tax under sec_6651 failure to timely file tax returns and a negligence etc which respondent asserted in the answer sec_1503 of tra 100_stat_2742 amended sec_6653 to provide as follows sec_6653 additions to tax for negligence and fraud b fraud -- determination of portion attributable to fraud --if the secretary establishes that any portion of an underpayment is attributable to fraud the entire underpayment shall be treated as attributable to fraud continued kenmore in part i a of this opinion we considered the parties’ disputes as to the amounts of kenmore’s income in order to determine whether respondent proved by clear_and_convincing evidence that kenmore has an underpayment_of_tax after examining the evidence in the record we concluded that respondent carried this burden_of_proof for each of the years in issue this conclusion applies also to our consideration of the additional addition_to_tax under sec_6653 for kenmore’s fiscal in particular we conclude that respondent has proven by clear_and_convincing evidence that consistent with our holding supra in part i a kenmore omitted from taxable_income dollar_figure for its fiscal supra table and that the underpayment_of_tax resulting from this omission is attributable to fraud we hold for respondent as to the amount of underpayment resulting from this omission we hold for petitioner as to any other amount of underpayment for continued except with respect to any portion of the underpayment which the taxpayer establishes is not attributable to fraud this amendment placed the burden_of_proof on the taxpayer to establish that a portion of the deficiency was not attributable to fraud the amendment applies to tax returns the due_date of which is after date and so does not affect the instant cases gleave in part i b of this opinion we considered the parties’ disputes as to the amounts of gleave’s income in order to determine whether respondent proved by clear_and_convincing that gleave has an underpayment_of_tax after examining the evidence in the record we concluded that respondent carried this burden for each of the years in issue this conclusion applies also to our consideration of the additional addition_to_tax under sec_6653 for in particular we conclude that respondent has proven by clear_and_convincing evidence that gleave omitted from taxable_income dollar_figure supra table less the deductions described in our findings_of_fact supra note and associated text and his personal_exemption and that the underpayment_of_tax resulting from this omission is attributable to fraud we hold for respondent as to the amount of underpayment resulting from this omission we hold for petitioner as to any other amount of underpayment for ii amounts of deficiencies in part i of this opinion respondent had the burden of proving by clear_and_convincing evidence that there were under- payments of tax some part of which was due to fraud respondent carried this burden also in part i c of this opinion respondent had the burden of proving by clear_and_convincing evidence the amounts of petitioners’ underpayments of tax for or fiscal that were attributable to fraud respondent carried this burden to the extent described in part i c in this part of the opinion petitioners have the burden of proving by a preponderance_of_the_evidence that respondent erred in the notice_of_deficiency determinations as to matters of fact rule a 290_us_111 a kenmore we have set forth our findings as to the amounts of kenmore’s income for its fiscal and its fiscal supra in table sec_3 and the amounts of kenmore’s omitted income for these years are derived from adjustments that increase kenmore’s gross_receipts and increase kenmore’s purchases we have held in part i a that respondent proved by clear_and_convincing evidence that for fiscal and fiscal kenmore’s taxable_income was understated by the amounts set forth supra in table sec_3 and in our analysis as to fraud we indicated our uncertainty as to the matter of dollar_figure per year of purchase-money mortgage payments petitioners have failed to carry their burden of proving that it is more_likely_than_not that part of the deposits to kenmore’s account consisted of these payments accordingly we hold that in computing kenmore’s deficiencies for its fiscal and the parties are to add dollar_figure to the amounts set forth supra in table sec_3 and as taxable_income omitted under the heading court’s findings we hold for respondent as to kenmore’s fiscal b gleave we have set forth our findings as to the amounts of gleave’s income supra in tables and we conclude and we have found that gleave has failed to carry his burden_of_proof as to the amounts set forth in the row burden_of_proof in tables and we hold for respondent in the amounts set forth supra in tables and in the rows income to gleave and burden_of_proof less the amounts of deductions set forth in our findings_of_fact at note and associated text we hold for gleave in the amounts set forth in tables and in the row not income to gleave to take account of the parties’ concessions and the foregoing decisions will be entered under rule dollar_figure at trial the parties were unsure whether gleave was entitled to any dependency deductions for his children for the years in issue this matter is to be dealt with in the computations under rule


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division uniform issue list mar tep ra ts legend decedent a ira x ira ira z amount a amount b amount c amount d state c dear this letter is in response to your request dated date submitted on your behalf by your authorized representative in which you request a waiver of the day rollover requirement contained in sec_408 of the internal_revenue_code code with respect to decedent a you are the executor of the estate of decedent a _ the following facts and representations have been submitted under penalty of perjury in support of the ruling requested page2 - you represent that prior to her death decedent a received a distribution of amount a and amount b from ira x and ira y respectively and on the same day executed a timely rollover of amount c to ira z the result is that amount d which is the sum of amount a and amount b less amount c was not timely rolled over you represent that at the time of the distribution decedent a suffered from a medical_condition which impaired her ability to make reasonably calculated decisions related to her medical_care and finances you assert that the failure to accomplish a rollover of amount d within the 60-day period prescribed by sec_408 was due to this medical_condition based on the facts and representations you request a ruling that the internal_revenue_service waive the day rollover requirement contained in sec_408 of the code with respect to the distribution of amount d sec_408 of the code provides that except as otherwise provided in sec_408 any amount_paid or distributed out of an ira shall be included in gross_income by the payee or distributee as the case may be in the manner provided under sec_72 of the code sec_408 of the code defines and provides the rules applicable to ira_rollovers sec_408 of the code provides that sec_408 of the code does not apply to any amount_paid or distributed out of an ira to the individual for whose benefit the ira is maintained if i the entire amount received including money and any other_property is paid into an ira for the benefit of such individual not later than the day after the day on which the individual receives the payment or distribution or ii the entire amount received including money and any other_property is paid into an eligible_retirement_plan other than an ira for the benefit of such individual not later than the day after the date on which the payment or distribution is received except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross_income determined without regard to sec_408 sec_408 of the code provides that sec_408 does not apply to any amount described in sec_408 received by an individual from an ira if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in sec_408 from an ira which was not includible in gross_income because of the application of sec_408 sec_408 of the code provides a similar 60-day rollover period for partial rollovers ag page sec_408 of the code provides that the rollover provisions of sec_408 do not apply to any amount required to be distributed under sec_408 sec_408 of the code provides that the secretary may waive the day requirement under sec_408 and sec_408 of the code where the failure to waive such requirement would be against equity or good conscience including casualty disaster or other events beyond the reasonable control of the individual subject_to such requirement only distributions that occurred after date are eligible for the waiver under sec_408 of the code revproc_2003_16 2003_4_irb_359 date provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to sec_408 the internal_revenue_service service will consider all relevant facts and circumstances including errors committed by a financial_institution inability to complete a rollover due to death disability hospitalization incarceration restrictions imposed by a foreign_country or postal error the use of the amount distributed for example in the case of payment by check whether the check was cashed and the time elapsed since the distribution occurred the information presented and documentation submitted by you is consistent with your assertion that decedent a’s failure to accomplish a timely rollover was caused by her medical_condition therefore pursuant to sec_408 of the code the service hereby waives the 60-day rollover requirement with respect to the distribution of amount d you are granted a period of days from the issuance of this ruling letter to contribute amount d into a rollover ira provided all other requirements of sec_408 of the code except the 60-day requirement are met with respect to such contribution the contribution of amount d into an ira will be considered a valid rollover_contribution within the meaning of sec_408 of the code however it is noted that to the extent that you as the executor name a beneficiary of the ira sec_1_401_a_9_-4 q a-4 of the regulations provides that a designated_beneficiary must be a beneficiary as of the date of death the service will not treat any beneficiary named by you as executor as a designated_beneficiary under sec_401 thus for purposes of sec_401 the rollover ira will have no designated_beneficiary finally the scope of the executor’s powers is a matter of state law this ruling assumes that your actions in contributing amount d into an ira set up in decedent a’s name are in accordance with the laws of state c and pursuant to your authority as the executor of the estate herein under the provisions of any other section of either the code or regulations which may be applicable thereto no opinion is expressed as to the tax treatment of the transaction described page this letter is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file in this office if you wish to inquire about this ruling please contact at please address all correspondence to se t ep ra t3 sincerely laura b warshawsky manager employee pians technical group enclosures deleted copy of ruling letter notice of intention to disclose cc