t c memo united_states tax_court steven k han petitioner v commissioner of internal revenue respondent docket no filed date richard l manning and ira m burman for petitioner marjory a gilbert and catherine m thayer for respondent memorandum findings_of_fact and opinion gale judge respondent determined a deficiency in and additions to petitioner’s federal_income_tax for as follows additions to tax_deficiency sec_6651 a sec_6653 sec_6661 dollar_figure dollar_figure dollar_figure dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure in an amendment to petition petitioner alleged that the income reported on his return should be reduced by dollar_figure because he erroneously reported interest_income that was earned on funds that belonged to his wholly owned corporation n a tours inc in an amendment to answer to amendment to petition respondent asserted that an increased deficiency for arose from unreported income from theft of dollar_figure dividend income of dollar_figure capital_gains from real_estate sales of dollar_figure and ordinary_income from those sales of dollar_figure and a change in petitioner’s filing_status from single to married_filing_separately respondent further asserted that the additions to tax determined in the notice_of_deficiency under sec_665l a a and for should apply to the increased deficiency after concessions ’ the issues remaining for decision are whether petitioner had unreported income of dollar_figure from funds diverted from his wholly owned corporations whether petitioner had unreported income of dollar_figure from dividends earned from brokerage accounts held in his name whether petitioner had unreported income of dollar_figure from dividends earned from brokerage accounts held in the names of petitioner’s nominees whether petitioner had income of dollar_figure from interest earned on funds diverted from his wholly owned corporations whether petitioner is entitled to depreciation_deductions of dollar_figure claimed on his return whether petitioner had unreported rental income of dollar_figure from two corporations owned by him whether petitioner is subject_to an addition_to_tax under sec_6653 for negligence and whether petitioner is subject_to an addition_to_tax under sec_6661 for substantially understating his income_tax ' in addition to issues settled in a stipulation of settled issues filed in this case petitioner conceded on brief that he is not entitled to a rental_expense_deduction of dollar_figure or to an investment_interest expense deduction of dollar_figure claimed on his return he also conceded that he is liable for an addition_to_tax under sec_665l1 a for failure to timely file his return findings_of_fact some facts have been stipulated and are so found the stipulation of facts first supplemental stipulation of facts second supplemental stipulation of facts and attached exhibits are incorporated herein by this reference petitioner resided in lincolnwood illinois when he filed the petition in this case petitioner’s retail travel and consolidator activities in petitioner who also is known as kee soo han incorporated air america travel services inc air america an tllinois corporation the principal_place_of_business of which was in chicago illinois at all times petitioner was air america’s sole shareholder air america sold airline tickets to the general_public as a retail travel agent during air america also started doing business as a consolidator’ for northwest airlines inc northwest air america’s consolidator activities primarily involved selling airline a consolidator is a third-party seller of airline tickets written on blank tickets imprinted with the airline carrier’s name called ticket stock issued by an airline carrier the consolidator sells the ticket stock wholesale to retail travel agents called subagents at a price lower than the price at which retail travel agencies usually sell airline tickets to the general_public for some of the relevant period northwest airlines inc operated under the name northwest orient airlines tickets in korean ethnic communities in the united_states for flights between the united_states and korea beginning in petitioner incorporated six wholly owned corporations operating in different localities under the na tours name to conduct his consolidator business hereinafter in the aggregate referred to as the na tours companies in date petitioner incorporated k-p travel inc k-p travel an tllinois corporation in date petitioner changed k-p travel’s name to n a tours inc il na tours its principal_place_of_business was chicago illinois in date petitioner incorporated na tours of california inc ca na tours a california corporation whose principal_place_of_business was los angeles california in date petitioner incorporated na tour of new york inc ny na tours a new york corporation whose principal_place_of_business was new york new york in date petitioner incorporated na tours of san francisco inc sf na tours a california corporation whose principal_place_of_business was san francisco california at some time petitioner also incorporated na tours of washington d c whose principal_place_of_business was washington d c and na tours of seattle washington whose principal_place_of_business was seattle washington from until the end of air america did not operate as a consolidator but during that period it continued to operate as a retail travel agent air america returned to doing consolidator business at the end of hereinafter we will refer to air america and the na tours companies collectively as petitioner’s or his corporations by petitioner’s corporations were generating approximately dollar_figure million in annual gross_receipts from their operations as consolidators for northwest and had between and employees during petitioner hired david chung chung to serve as accountant for his corporations sometime later petitioner promoted chung to controller and vice president of il na tours among other things chung was responsible for preparing financial statements for the na tours companies petitioner continued to be the sole shareholder and president of air america and each of the na tours companies throughout when he incorporated each na tours company petitioner did not contribute any money or property to the capital of the corporation none of the na tours companies ever declared a dividend il na tours used the other na tours companies air america and unaffiliated subagents as its subagents to distribute airline tickets the na tours companies continued to operate as consolidators for northwest into in il na tours also operated as a consolidator for korean airlines and the na tours companies sold retail airline tickets northwest did not reguire its consolidators to pay for ticket stock at the time of transfer to the consolidator or upon the transfer of that ticket stock to the consolidator’s subagents rather payment was not due and a consolidator could retain the proceeds of a sale of northwest ticket stock until the submission of an auditor’s coupon to northwest an auditor’s coupon was one copy of the multiple-copy ticket that served as a permanent record of a ticket sold before auditor’s coupons did not have to be submitted to northwest until days after each 2-week sales period when coupons for all tickets sold during the sales period were due together with payment for the tickets less the consolidator’s commission sometime in northwest modified its procedures to reduce the period during which proceeds from the sale of ticket stock could be retained by a consolidator under the new procedures consolidators were required to submit auditor’s coupons for tickets sold on a weekly basis northwest then prepared a sales report based on the submitted coupons and invoiced the consolidator with payment due within days of receipt of the invoice as a consequence of northwest’s procedures for collecting payment for ticket stock from its consolidators petitioner’s corporations were able to postpone payment for ticket stock for significant periods in addition before il na tours was freguently late in remitting payment to northwest after the initiation of the more expedited procedures in il na tours’ payment delays intensified during the periods that petitioner’s corporations held ticket sales proceeds petitioner would invest them in the stock market petitioner enjoyed speculating in the stock market frequently purchasing heavily margined stock petitioner used various brokerage accounts for purposes of investing his corporations’ funds including ticket sales proceeds in the stock market during petitioner opened the following three brokerage accounts among others account no at merrill margin is a method of buying securities on credit extended by the brokerage firm handling the purchases the securities are used as collateral for the loan the brokerage firm establishes a margin_account for the customer the initial_amount of funds in the margin_account initial margin is regulated by the federal reserve board in addition the brokerage firm specifies the minimum amount maintenance margin below which the balance in the margin_account may not fall before the brokerage firm will request that either more cash or securities be added to the margin_account or the securities be sold margin call modern dictionary for the legal profession lynch pierce fenner smith inc merrill lynch merrill lynch no which was opened in the name of air america and under air america’s taxpayer_identification_number tin but considered to be il na tours’ account account no at merrill lynch merrill lynch no which was opened in the name of ny na tours and under ny na tours’ tin but considered to be il na tours’ account and account no al19 at e f hutton co ince merrill lynch no which was opened in the name of il na tours and under air america’s tin and considered to be il na tours’ account hereinafter we refer to those three accounts collectively as the corporate accounts transfers out of corporate accounts in in date petitioner opened a brokerage account account no allied account at allied capital group under his name and social_security_number but with the designation d b a tours of illinois notwithstanding this designation the the brokerage firm’s name changed during the periods relevant to the instant case and at some time it acquired the brokerage firm e f hutton co for simplicity hereinafter we use the term merrill lynch to refer to the brokerage firm merrill lynch pierce fenner smith regardless of the name it used on a specific date the transfers of cash and assets from corporate accounts to petitioner’s personal accounts or accounts under his personal control that are discussed in this section are not included in the amounts that respondent alleges are includible in petitioner’s income in -- - account was petitioner’s personal account the securities transactions from which were reported on his individual tax returns on august and date petitioner transferred dollar_figure and dollar_figure respectively from il na tours to the allied account in date petitioner transferred dollar_figure of il na tours’ funds to account no chung no at merrill lynch an account which petitioner had opened at some time in chung’s name and under chung’s social_security_number chung however was a nominee only as he had no ownership_interest in chung no and received no benefit from the account petitioner closed chung no on date and transferred the assets in the account at its closing to account no o3t chung no at prudential-bache securities prudential-bache’ which he had opened in chung’s name on or before date chung no was funded with stock and money that came directly or indirectly from il na tours between january and date an additional dollar_figure of il na tours’ corporate funds was transferred to petitioner’s personal control as follows ’ prudential-bache securities at some time became known as prudential securities inc for simplicity we will refer to the brokerage firm throughout the opinion as prudential-bache regardless of it precise name at any particular time description amount interbank transfers to bank accounts dollar_figure in petitioner’s individual name checks payable to petitioner big_number checks payable to cash big_number endorsed by petitioner checks payable to gambling casinos big_number check for mortgage payment for property big_number pincite n hermitage avenue chicago’ check payable to brokerage account big_number in name of on sug youn’ check payable to brokerage account in big_number names of on sug youn and si joung youn total big_number ' this real_property was purchased by petitioner in and when it was sold in the proceeds were equally divided between petitioner and his former spouse other than the fact that she was not an employee of petitioner or petitioner’s corporations the record does not disclose on sug youn’s relationship to petitioner however the record does disclose that in addition to the accounts noted above a joint brokerage account with right_of_survivorship was established by petitioner under his name and that of on sug youn during one of the corporate accounts merrill lynch no held stock in the gerber products co gerber stock on date petitioner transferred the gerber stock to account no at merrill lynch chung no which petitioner had opened sometime during in chung’s name and under chung’s social_security_number chung however served as a nominee only for chung no he had no ownership_interest in that account and received no benefit from it petitioner controlled and directed all activities with respect to chung no and it belonged to him personally petitioner transferred the gerber stock to hide it from a margin call while in chung no the gerber stock was sold on date for dollar_figure assets purchased with the gerber stock proceeds were transferred from chung no on february and to another account that petitioner had directed chung to open at prudential-bache account no aty chung no assets in chung no were transferred to an account in petitioner’s name account no aty at prudential-bache p- b no on date petitioner was actively buying and selling securities in p-b no during march through date the net balance in p-b no as of date was dollar_figure the net balance as of date was dollar_figure during petitioner also used funds in p-b no to pay personal visa charges totaling dollar_figure on date dollar_figure which petitioner’s attorney represented to be the gerber stock proceeds was transferred from p-b no to a client trust account established by petitioner’s attorney in connection with a proposal by petitioner to secure a release from all personal as with the other chung accounts although chung no was opened under chung’s name and social_security_number chung did not have an ownership_interest therein but instead served only as petitioner’s nominee petitioner owned chung no personally liability to northwest the net balance in p-b no as of date was zero see infra pp stock market crash during date many stocks listed on the stock market began to decline in value then on date the stock market declined dramatically stock market crash resulting in substantial decreases in value for many stocks petitioner had purchased many of the stocks in the corporate accounts on margin and he was called upon to furnish additional margin when he was unable to meet the margin calls the stocks were sold at a loss on its corporate return il na tours reported net losses of dollar_figure some of which resulted from losses_incurred by the corporate accounts following the stock market crash northwest ticket recall program the tickets that consolidators wrote on northwest ticket stock were not easily distinguishable from ticket stock originating from other sources in northwest decided to redesign the ticket stock in order for consolidator tickets to be more easily distinguishable consequently in date northwest began a recall of all old ticket stock ticket recall program under the terms of the ticket recall program a consolidator would not be issued new ticket stock until the consolidator accounted for all old ticket stock the ticket recall program would disclose any ticket stock that a consolidator had sold but not yet reported to northwest because a consolidator had to return either its old ticket stock or payment for that stock by a specified date in date petitioner received notice of the ticket recall program he realized the ticket recall program would require him to account to northwest for all amounts his corporations owed for ticket stock northwest had previously issued to them additionally petitioner realized that neither he nor his corporations had sufficient funds to pay northwest what his corporations owed it for previously issued ticket stock petitioner feared that northwest would seize his corporations’ assets as payment toward the debt they owed northwest transfers out of corporate accounts into petitioner’s personal accounts in after learning of the ticket recall program petitioner in early transferred approximately dollar_figure million from il na tours corporate funds into a personal brokerage account to purchase stock held in that account il na tours maintained a money market account account no albank no at albany park bank and trust albank’ between january and albany park bank trust operated under various names throughout the years for consistency we will use the name albank to refer to that financial_institution regardless of its continued -- - date petitioner transferred dollar_figure from il na tours’ albank no account into his personal brokerage account at first chicago investment services account no fcis account to fund various purchases of stock for the fcis account the specific transfers and the stock purchases to which they were applied were date amount shares purchased jan dollar_figure big_number navistar intl jan dollar_figure big_number marion labs jan dollar_figure big_number fed natl mtg jan dollar_figure big_number fed natl mtg jan dollar_figure big_number fed natl mtg jan dollar_figure big_number pan am feb dollar_figure big_number kodak feb dollar_figure big_number lorimar telepi feb dollar_figure big_number intel total dollar_figure between january and date petitioner sold all of the stock in the fcis account that had been purchased with funds from the albank no account except for the big_number shares of bkastman kodak co kodak stock and the big_number shares of pan am corp pan am stock and transferred the resulting proceeds back to the albank no account in the following amounts continued exact name at any particular time date jan feb feb feb feb feb tot on april al amount dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure shares sold big_number fed natl mtg big_number marion labs big_number marion labs big_number lorimar telepi big_number intel big_number navistar intl petitioner transferred a dollar_figure dividend paid on the kodak stock in the fcis account from that account back to albank no on his return petitioner reported the gains and losses on all of the foregoing sales except with respect to the federal_national_mortgage_association fed natl mtg stock as noted the kodak stock and pan am stock were not liquidated and transferred back to albank no instead each was subsequently transferred from petitioner’s fcis account to other personal accounts of petitioner’s the kodak stock was transferred from petitioner’s fcis account on date days after northwest began an audit of petitioner’s corporations’ p to account no o3t another personal account fcis account until date no another personal account then closed consolidator activities see infra at prudential-bache p-b no the pan am stock remained in the when it was transferred to p-b petitioner’s fcis account was petitioner again transferred the kodak stock on date day before signing a personal guaranty of his corporations’ outstanding debts to northwest see infra p from his personal p-b no account to account no o3t at prudential-bache which he had opened in date under the name and social_security_number of his brother sam han’ sam han account subsequently on date days after learning that northwest would file suit against him see infra pp petitioner transferred the kodak stock back to p-b no petitioner sold the kodak stock on date for dollar_figure on june this amount was transferred to a client trust account pursuant to the terms of a temporary restraining order obtained by northwest against petitioner the previous day see infra pp on his return petitioner claimed a loss of dollar_figure relating to the sale of the kodak stock il na tours did not claim such a loss on its own return dividends totaling dollar_figure were declared on the kodak stock while it was held in petitioner’s fcis account as previously noted those dividends were deposited into the fcis account on date on the same day petitioner returned dollar_figure to il na tours’ albank no sam han also known as seung soo han was not an employee of any of petitioner’s corporations during -- - account neither petitioner nor il na tours reported this dividend income on their returns petitioner’s p-b no account into which the pan am stock was transferred on date had had a net balance of dollar_figure on date the pan am stock in p-b no was sold in two portions in april and date petitioner sold big_number shares on date for a net of dollar_figure and the remaining big_number shares on date for a net of dollar_figure numerous other transactions occurred in p-b no during march through date the net balances in p-b no were dollar_figure and zero as of april and date respectively date agreement with northwest regarding back debt in furtherance of its ticket recall program northwest advised petitioner on date that as of that date its records indicated that the na tours companies owed northwest a net of dollar_figure back debt and it requested that petitioner individually and as president of il na tours enter into a letter agreement with northwest january agreement providing for periodic_payment of the back debt at that time northwest’s ticket recall program was not complete petitioner agreed to northwest’s proposal when he signed the january agreement on ‘t thus pan am stock purchased for dollar_figure was sold for a total of dollar_figure neither petitioner nor il na tours reported any loss from the sale of the pan am stock on their returns date petitioner knew that il na tours owed northwest significantly more than the amount set forth in the january agreement under the january agreement petitioner as president and owner of il na tours agreed to pay northwest dollar_figure per week toward the back debt those payments were to be in addition to any current amount petitioner’s corporations owed northwest for ticket sales in order for them to be current by the end of il na tours made at least seven payments of dollar_figure each between february and date 1' neither petitioner nor any na tours company made any payments to northwest under the january agreement after date transfers out of corporate accounts into the sam han account in on january and immediately before executing the january agreement petitioner withdrew dollar_figure and dollar_figure respectively from il na tours’ albank no account and placed we cannot determine from the record the source from which il na tours obtained the funds to make these payments to northwest petitioner contends on brief that the funds he returned from his fcis account to il na tours’ albank no account were used to meet the corporation’s obligations to northwest the record however does not show that the funds returned to albank no from the fcis account were used to make those payments to northwest statements in briefs are not evidence and they cannot be used as such to supplement the record see eg rule b 99_tc_202 n - - those amounts into the sam han account petitioner owned and controlled the sam han account sam han had no ownership_interest in it sometime in before march petitioner placed dollar_figure of il na tours’ funds into albank no one of his personal accounts on date petitioner withdrew dollar_figure from albank no and placed it into the sam han account on date petitioner withdrew dollar_figure from a bank account maintained by sf na tours and placed it into the sam han account the dollar_figure had been transferred in to the sf na tours account from il na tours’ funds thus between late january and early date cash from il na tours’ accounts totaling dollar_figure was transferred into the sam han account other transfers from corporate accounts to personal_use in from january through date petitioner withdrew dollar_figure in cash from il na tours’ albank no account for his personal_use on date petitioner took dollar_figure from account no albank no maintained at albank in the name of il na tours and placed it into the allied account a personal brokerage account of petitioner’s ‘3 during in addition to the sam han account petitioner maintained four other brokerage accounts in sam han’s name into which petitioner placed corporate funds the record does not provide information as to the disposition of the assets in those accounts and they are not in issue in the instant case --- - on date petitioner took dollar_figure from account no albank no maintained at albank in his own name and put it into his allied account on date petitioner transferred dollar_figure from il na tours’ albank no account to his albank no account to cover an overdraft in the latter caused by the date transaction also during petitioner used corporate funds to pay the following personal expenses loans or gifts item amount car insurance premiums dollar_figure car repairs big_number real_estate insurance premiums big_number real_estate taxe sec_442 american express charges big_number life_insurance utilitie sec_506 beverly a seman big_number florist bill sec_305 attorney’s fees big_number total big_number petitioner did not include the corporate payments of personal expenditures in income on his return thus in addition to the corporate funds used to purchase the pan am and kodak stock and the dollar_figure in transfers of corporate funds to the sam han account petitioner transferred -- - into personal accounts or took for personal_use additional corporate funds totaling dollar_figure in petitioner reported no dividend income on his return from any of his corporations and the total reported as wages or salary was dollar_figure northwest audit northwest commenced an audit of petitioner’s corporations’ consolidator activities on date petitioner retained an attorney sheldon belofsky belofsky to represent him and his corporations in the matter of northwest’s audit of their consolidator activities northwest’s audit of petitioner’s corporations’ consolidator activities revealed large round number withdrawals from corporate accounts going into various brokerage firm accounts the brokerage account statements were not kept at petitioner’s corporations’ offices and northwest had trouble obtaining copies of the statements from petitioner or from the brokerage firms during the course of northwest’s audit of petitioner’s corporations’ consolidator activities petitioner refused to give northwest records of receipts from ticket sales to subagents petitioner also refused to give northwest’s auditors personal ‘ this dollar_figure does not form any part of the dollar_figure in funds at issue in this case that respondent asserts is taxable_income of petitioner in - - financial information joseph j hasman hasman an attorney representing northwest came to believe that petitioner’s failure to provide the records was deliberate in attempting to trace funds northwest concluded that petitioner had opened more than different brokerage accounts in the names of various individuals into which he placed corporate funds during and petitioner’s guaranty of corporate indebtedness to northwest by date northwest officials knew that petitioner’s corporations’ debt to northwest far exceeded the dollar_figure set forth in the january agreement conseguently at northwest’s request on date petitioner individually and on behalf of his corporations executed a written personal guaranty guaranty under the guaranty petitioner personally guaranteed the prompt payment to northwest at maturity of all the past and future monetary obligations of petitioner’s corporations which arose out of ticket sales one day before signing the guaranty petitioner transferred the contents of p-b no an account in his name to the sam han account registered in his brother’s name this transfer included the kodak stock at issue in this case as well as stocks valued at dollar_figure and debit memos of dollar_figure not at issue in this case in addition as noted previously on date -- - petitioner had taken dollar_figure from an account in his name albank no which amount he had taken earlier in the year from il na tours and placed it into the sam han account also on march petitioner had taken dollar_figure from a corporate account of sf na tours and placed it into the sam han account belofsky was not made aware of the guaranty or its terms before petitioner signed it after learning of the guaranty belofsky on march protested its execution and validity to hasman arguing that petitioner had signed the guaranty without benefit of counsel and without consideration and therefore that it should be returned to petitioner interim agreement on date petitioner entered into an interim agreement interim agreement with northwest on behalf of himself il na tours ny na tours and air america in the interim agreement northwest agreed to give petitioner’s corporations big_number tickets of northwest ticket stock subject_to prepayment reguirements and strict accounting rules which included petitioner’s agreement to pay northwest dollar_figure as a partial prepayment for the ticket stock petitioner admitted in the interim agreement that petitioner’s corporations had received proceeds from the sale of northwest ticket stock to subagents which had not been forwarded to northwest petitioner further - - admitted that while the total amount not forwarded was unknown petitioner’s corporations had not forwarded and now owed northwest an amount in excess of dollar_figure million in addition in the interim agreement petitioner personally guaranteed the debts of petitioner’s corporations arising from the sale of northwest tickets received in but not before and agreed to pledge any unencumbered assets of petitioner’s corporations to secure future corporate debts to northwest petitioner further agreed to make a full and complete disclosure to northwest of all personal and corporate financial records including bank and brokerage accounts after the interim agreement was signed belofsky continued to challenge the validity of the guaranty and to request its return belofsky also asserted that the guaranty did not form any basis for the interim agreement petitioner’s proposal for release of his liabilities under the guaranty and the interim agreement on date belofsky wrote a letter to northwest seeking a return of petitioner’s guaranty and his release from liability under the interim agreement as consideration for the release and the return of the guaranty belofsky proposed that petitioner would liquidate the ‘ gerber’ account and give the proceeds to northwest to be applied first against the amounts petitioner’s corporations owed northwest for ticket stock issued - - to those corporations after date and then to the amounts owed for ticket stock issued before that date belofsky further advised northwest that he would have petitioner deposit with belofsky the proceeds of the gerber’ account which he would then hold until he received appropriate documentation from northwest at the time this letter was written the gerber stock proceeds as well as numerous other assets including the pan am stock had been transferred to one of petitioner’s personal accounts p b no on date petitioner transferred dollar_figure in cash from p-b no to account no anb no a client trust account with american national bank american national which belofsky had established for petitioner northwest did not accept belofsky’s proposal northwest’s litigation against petitioner and his corporations on date northwest advised belofsky that northwest’s analysis of petitioner’s corporations’ consolidator activities showed that petitioner and his corporations owed ' as previously noted the gerber stock was transferred by petitioner from one of the corporate accounts merrill lynch no to petitioner’s personal account chung no on date the stock was sold for dollar_figure on date and the proceeds were held in chung no until date when all assets in that account were transferred to another personal account of petitioner’s chung no on date petitioner transferred the assets in chung no to another personal account p b no -- p7 - northwest dollar_figure computed on the basis of auditor’s coupons after giving credit for commissions earned the following day hasman informed belofsky that northwest intended to file suit against petitioner and petitioner’s corporations because northwest maintained petitioner had refused to cooperate or comply with the interim agreement thereafter on date northwest filed a multicount complaint against petitioner individually and against petitioner’s corporations for among other things specific performance of the interim agreement breach of oral contract express guaranty fraudulent conversion unjust enrichment imposition of a constructive trust and injunctive relief northwest litigation ' in its complaint northwest further alleged that petitioner had failed to comply with the interim agreement by inter alia refusing to disclose all of the bank and brokerage account records of petitioner and his corporations throughout the northwest litigation belofsky represented both petitioner and his corporations northwest decided to sue petitioner individually and to include a fraudulent conversion count against him because northwest’s audit had revealed that substantial amounts of the te petitioner il na tours and air america filed answers in the northwest litigation but ny na tours ca na tours and sf na tours did not a default judgment was subsequently entered against the latter three corporations - - money petitioner’s corporations owed northwest had been transferred from corporate accounts into individual accounts in petitioner’s name or the names of relatives or employees throughout the northwest litigation petitioner denied any personal liability to northwest northwest claimed damages in excess of dollar_figure million in its complaint ’ alleging that petitioner and his corporations had fraudulently converted and or were unjustly enriched by at least dollar_figure million northwest included one count in its complaint against petitioner alone based upon the guaranty from the initiation of the northwest litigation until its settlement petitioner and his corporations conceded that his corporations but not petitioner individually were liable to northwest for ticket sales proceeds that had not been remitted petitioner and his corporations also did not agree with northwest’s calculation of the amount owed northwest claiming that petitioner’s corporations owed northwest just under dollar_figure million on date northwest sought a temporary restraining order tro in an attempt to prevent petitioner and his the dollar_figure million included net sales proceeds of dollar_figure million that northwest alleged it was owed for ticket stock sold by petitioner’s corporations plus an estimated net value of dollar_figure million for big_number tickets for which petitioner and his corporations had not accounted to northwest - - corporations from misappropriating dissipating or losing ticket sales proceeds or assets in which the proceeds might have been invested as well as blank unsold ticket stock and ii require petitioner and his corporations to disclose bank and brokerage account information northwest was granted the tro that same day the tro among other things restrained petitioner and his corporations from transferring encumbering investing dissipating using or otherwise disposing of proceeds from northwest tickets sold before date or any assets in which the proceeds might have been invested except to deposit the proceeds in an account over which northwest had signatory authority and control or otherwise upon northwest’s or the court’s authorization the tro further ordered petitioner and his corporations to make a full disclosure of all books records and documents pertaining to the sale of tickets and the proceeds thereof including bank and brokerage account statements finally the tro prohibited petitioner and his corporations from distributing transferring or otherwise disposing of any blank unsold northwest tickets delivered to them on or before the date of the interim agreement at the time the tro was granted the sale of northwest tickets constituted approximately percent of petitioner’s corporations’ business activity the tro was renewed periodically through at least date -- - to effect compliance with the tro hasman and belofsky agreed that belofsky as sole trustee would hold in client trust accounts those funds that northwest discovered had been diverted from petitioner’s corporations’ accounts consequently at various times in addition to anb no which contained the proceeds from the sale of the gerber stock see supra pp belofsky established other client trust accounts at american national to comply with the tro those client trust accounts included account no anb no account no anb no account no anb no account no anb no and account no anb no collectively the anb accounts belofsky used petitioner’s social_security_number for the anb accounts during their existence ’ belofsky acted at all times in a custodial capacity with respect to the anb accounts on date with hasman’s authorization belofsky transferred dollar_figure representing the proceeds of the sale of the record indicates that other anb accounts were maintained to which petitioner’s or petitioner’s corporations’ funds may have been deposited directly or indirectly however the record does not provide sufficient information relating to those accounts to enable us to make further findings_of_fact with respect to them accordingly we do not address those accounts petitioner received various backup_withholding_tax credits with respect to the anb accounts in his name during and --- - the kodak stock from petitioner’s personal p-b no account into anb no notwithstanding the granting of the tro northwest remained frustrated in its efforts to obtain information from petitioner regarding bank and brokerage accounts into which ticket sales proceeds had been transferred on date hasman wrote belofsky advising him of petitioner’s refusal to provide financial documents and hasman’s opinion that such conduct violated the tro and urging belofsky to counsel petitioner on the need to comply with the tro so as to resolve the growing need for court supervision of your client’s conduct more specifically hasman wrote i was advised yesterday that our northwest’s auditors’ review of the sparse documents which mr han and mr chung have made available disclosed six brokerage accounts about which northwest had no prior knowledge because of mr han’s prior refusal to disclose those accounts or documentation which would lead to disclosure of those accounts this appears to be a pattern that your client has been following namely withholding information and documentation which would lead to the disclosure of relevant financial and other information necessary to conduct the ongoing audit we believe that the withholding of documentation which would lead to disclosure of accounts in which mr han and his companies have transferred funds has been and continues to be intentional and in violation of the requirement of the tro which requires the defendants to allow my client immediate access to books records and documents - - subsegquently on date with hasman’s approval belofsky deposited a check for dollar_figure drawn on the sam han account to anb no but northwest was not made aware of the existence of the sam han account at this time northwest’s auditors uncovered the sam han account sometime shortly before date when hasman wrote belofsky demanding an explanation the sam han account was the subject of an amendment to the tro sought by northwest and granted on date which specifically identified and froze it as of in an date letter to belofsky hasman reiterated complaints about petitioner’s recalcitrance in disclosing information enclosed marked attachments i through iv is the current list of information and documents requested from mr han quite some time ago but still not turned over even a cursory review of attachments i through iv belies your recent statements that we are close to having all of the significant information that we need to complete our audit when i see unaccounted for wire transfers and withdrawals in the quarter or half million dollar ranges i cannot help but become very skeptical about the reasons mr han has not been forthcoming with this information x we are learning of new_accounts other previously undisclosed assets and other information suggesting that there may be more out there than mr han has misled us to believe hasman’s date letter states we demand prompt written explanation of who seung soo han is our ticket money has been traced into prudential-bach account aty-110949 ie the sam han account standing in that person’s name - - date the sam han account contained assets with a value of dollar_figure the record does not reflect what happened to the remainder dollar_figure of the dollar_figure that petitioner had transferred to the sam han account between january and date thus including the so-called gerber account proceeds transferred in date from p b no to anb no in connection with belofsky’s proposal for gaining petitioner’s release from personal liability by yearend the following amounts were on deposit in accounts governed by the terms of the tro the foregoing analysis of the sam han account disregards the transfers of the kodak stock into and out of that account on mar and date respectively by late date p-b no contained the proceeds from the sale of the gerber stock and from the sale of the pan am stock as well as other assets the gerber stock proceeds are not included in the amounts that respondent alleges are includible in petitioner’s income in although the pan am stock proceeds are account amount source anb no dollar_figure gerber account proceeds from p-b no anb no big_number kodak stock proceeds from p-b no anb no big_number sam han account sam han acct big_number tro amended to cover total 1big_number ' an additional client trust account established by belofsky at american national account no anb no contained dollar_figure transferred thereto on date from petitioner’s allied account pursuant to hasman’s aug authorization although the allied account contained amounts transferred from corporate accounts in and these transfers are not included in the amounts that respondent alleges are includible in petitioner’s income in northwest’s exercise of letters of credit from petitioner’s corporations on date northwest exercised a letter_of_credit in the amount of dollar_figure from petitioner’s corporations northwest exercised a second letter_of_credit in the amount of dollar_figure from petitioner’s corporations on date it exercised a third letter_of_credit in the amount of dollar_figure from petitioner’s corporations on date the foregoing letters of credit were secured_by various assets of petitioner’s corporations held by albank as well as real_property owned by petitioner personally -- - recordation of anb accounts in il na tours’ workpapers in date in connection with the preparation of financial statements for il na tours covering the period january through date chung prepared workpapers that recorded the balances in the anb accounts at that time as assets of il na tours chung obtained information for this purpose from belofsky northwest’s conclusions from its audit northwest’s auditors completed the audit of petitioner’s corporations’ consolidator activities on or about date northwest concluded that as of date after crediting the letters of credit exercised and the commissions northwest owed petitioner’s corporations petitioner and his corporations owed northwest approximately dollar_figure petitioner did not agree with northwest’s calculation of the amount owed as a result of the audit northwest’s auditors concluded on the basis of the information then available to northwest that during and petitioner had transferred dollar_figure of the proceeds from the sale of northwest’s ticket stock into brokerage accounts of which northwest then had knowledge contested accounts he had transferred dollar_figure from the contested accounts into various other accounts he had withdrawn - - dollar_figure which northwest’s audit could not trace and only dollar_figure could be attributable to losses in the stock market northwest’s auditors never were able to determine what petitioner had done with the dollar_figure cash withdrawn from the contested accounts shortly after conclusion of the audit on or about date northwest reiterated to petitioner that he and his corporations could no longer sell northwest’s tickets disbursements from anb accounts during northwest litigation during the pendency of the northwest litigation date through its settlement on date northwest did not receive any amount from the anb accounts northwest asked petitioner and belofsky to release the funds in the anb accounts to it during but petitioner refused because he wanted to keep control_over the funds for purposes of negotiating a settlement in date with northwest’s permission belofsky used dollar_figure of the funds in anb no to redeem petitioner’s personal_residence from sale for back taxes petitioner did not report the dollar_figure as income on his return settlement of the northwest litigation petitioner and northwest agreed to settle the northwest litigation and executed an agreement to that effect settlement agreement on date in the settlement agreement -- - petitioner and petitioner’s corporations among other things agreed to pay northwest dollar_figure from anb account nos and with any remaining balance to become the property of petitioner and his corporations pursuant thereto northwest received dollar_figure from anb nos and and the remaining balance of dollar_figure in those two accounts was paid to petitioner and his corporations the entire balance in anb no dollar_figure including accrued interest and in anb no dollar_figure including accrued interest became the property of petitioner and his corporations northwest also acknowledged in the settlement agreement that belofsky held the anb accounts solely as a custodian pursuant to the terms of the tro the settlement agreement further provided that the entire balance in the sam han account then approximately dollar_figure would be assigned by petitioner and his corporations to northwest as well as any amounts remaining in chung nos and the record doe sec_74 as of date anb no contained funds that had been transferred to it from anb no in date at the time of the transfer to abn no anb no contained funds that had been transferred to it from anb no additionally on date dollar_figure had been transferred from anb no to anb no as noted previously the corporate funds that were transferred to anb no form no part of the dollar_figure that respondent contends is includible in petitioner’s income in the source and disposition of funds in pursuant to the settlement agreement were continued -- - not show what amount if any northwest received from chung nos and the settlement agreement did not address the p-b no account subsequent to the execution of the settlement agreement petitioner paid belofsky dollar_figure from anb no and dollar_figure from anb no for his services 26’ continued amount interest from earned amount and disposition to source source pet pet corp northwest chung to chung to p-b to anb dollar_figure dollar_figure dollar_figure dollar_figure fcis to p--b to anb to anb to anb big_number big_number big_number big_number albank albank mayfair bank to sam han big_number n a -0- big_number chung n a n a -0- big_number albank albank mayfair bank to sam han to anb big_number big_number big_number --q- allied to anb big_number big_number big_number --q- -- -- corporate returns and other corporate information for il na tours filed a form_1120 u s_corporation income_tax return which did not indicate that it constituted a consolidated tax_return the return reported gross_receipts of dollar_figure and a net_loss after net_operating_loss_deduction of dollar_figure the schedule l balance sheets reflected total assets of dollar_figure accounts_payable of dollar_figure capital losses of dollar_figure and no stockholder equity as of yearend for il na tours filed a form_1120 which did not indicate that it constituted a consolidated tax_return il na tours’ return reported gross_receipts of dollar_figure anda net_loss of dollar_figure before any net_operating_loss_deduction as of yearend schedule l reflected total assets of dollar_figure accounts_payable of dollar_figure capital losses of dollar_figure other liabilities of dollar_figure and capital stock of dollar_figure common_stock the return does not reflect any loans to or from shareholders at the beginning or close of the year the return also does not reflect any purchases or sales of stock nor any income from interest or dividends for il na tours did not have any current_earnings_and_profits nor any accumulated_earnings_and_profits -- - il na tours did not file any federal_income_tax returns after its return air america filed returns for and but not for the years through neither air america’s nor il na tours’ returns for or reported any transactions related to the brokerage accounts under individual names to which northwest had traced corporate funds regarding those brokerage accounts for petitioner reported on his return selected transactions relating only to his fcis account his allied account and various other brokerage accounts not at issue in this case for petitioner reported only selected sales of stock in his fcis account his allied account and p-b no on his return dividend income issue during the following amounts of dividend income were paid on stocks held in the accounts noted dollar_figure in chung no on march dollar_figure in chung no dollar_figure in the fcis account on date dollar_figure in the sam han account and dollar_figure in p-b no during date petitioner reported no dividend income on his return interest_income issue on date belofsky forwarded forms interest_income to chung which reported that anb nos through had - al --- earned interest_income during totaling dollar_figure petitioner reported the dollar_figure in interest as income on his return the dollar_figure interest_income remained in the anb accounts during petitioner obtained backup withholding credits in and with respect to the anb accounts depreciation and rental income issues during petitioner through a land trust owned real_property pincite n lincoln avenue chicago illinois lincoln avenue i property and pincite6 n lincoln avenue lincoln avenue ii property collectively the lincoln avenue properties petitioner was the sole owner of the lincoln avenue properties during and the offices of air america and il na tours were located on the first and second floors respectively of the lincoln avenue i property after air america occupied the entire lincoln avenue i property on its return il na tours claimed a deduction of dollar_figure for rent expense in the other deductions category of expenses air america did not deduct rent expense on its return other than a deduction for equipment rent on their returns air america reported rent expense of dollar_figure in the other deductions line category of expenses and il na tours reported rent expense of dollar_figure in the other deductions - -- category of expenses as well as in the rents line category during petitioner received rental income he deposited checks received from rentals in an account at albank on schedule e supplemental income schedule of his return petitioner reported dollar_figure in rents received dollar_figure of expenses other than depreciation depreciation of dollar_figure anda net_loss of dollar_figure related to the lincoln avenue ii property he did not report any rents or expenses related to the lincoln avenue i property on that return on schedule e of his return petitioner reported rents received of dollar_figure other expenses other than depreciation of dollar_figure depreciation of dollar_figure and a net_loss of dollar_figure related to the lincoln avenue ii property he reported no rental_activity related to the lincoln avenue i property during the audit of petitioner’s return petitioner told the revenue_agent conducting the audit that the dollar_figure deducted by il na tours and the dollar_figure deducted by air america for rents in total dollar_figure constituted rents they had paid him for use of space in the lincoln avenue i property the revenue_agent included dollar_figure of unreported rental income relating to the lincoln avenue i property in petitioner’s income for purposes of determining the deficiency for the revenue_agent -- - derived the dollar_figure unreported rental income by subtracting erroneously from the dollar_figure rental income relating to the lincoln avenue i property the dollar_figure that petitioner had received and reported in income relating to the lincoln avenue ii property during trial preparation petitioner reiterated to respondent’s counsel that during air america and il na tours had paid him dollar_figure for use of the lincoln avenue i property petitioner’s return petitioner did not review his return before he signed it on that return petitioner deducted dollar_figure for real_estate_taxes on schedule a itemized_deductions that were paid_by his corporations he also deducted dollar_figure of unreimbursed employee_expenses even though his corporations paid his employee_expenses in addition petitioner deducted dollar_figure of investment_interest on schedule a of the return to which he concedes he is not entitled on schedule e of the return petitioner deducted dollar_figure for expenses other than depreciation related to the lincoln avenue ii property respondent disallowed this deduction for lack of substantiation and petitioner now concedes that he is not entitled to it opinion diverted corporate funds issue in early petitioner transferred dollar_figure from an account of one of his corporations albank no into a personal brokerage account the fcis account to purchase stock held in that account before the end of date all but two blocks of the stock purchased ie the pan am and kodak stock had been sold and the proceeds transferred from petitioner’s fcis account back to his corporation’s albank no account the stock so liquidated was generally sold at a profit as a result with respect to the dollar_figure taken from the corporate account petitioner was able both to return dollar_figure to the corporation and to retain in his fcis account stock purchased with dollar_figure in corporate funds ie dollar_figure for the pan am stock plus dollar_figure for the kodak stock on date petitioner transferred the kodak stock from his fcis account to another personal account p-b no on date petitioner transferred the kodak stock from p-b no to the sam han account which he controlled de transferred the kodak stock back to p-b no on date on date petitioner sold the kodak stock for a net of - -- dollar_figure ’ and transferred the proceeds to anb no a custodial_account governed by the tro in date pursuant to the settlement agreement northwest received dollar_figure and petitioner and his corporations received dollar_figure from anb no which had been funded with money transferred from anb no through anb no see supra note on date petitioner transferred the pan am stock to another personal brokerage account p-b no which contained the proceeds of the gerber stock diverted from a corporate account in as well as other assets of petitioner’s the pan am stock was then sold on april and date fora net of dollar_figure on date petitioner transferred dollar_figure in cash from p-b no to anb no a custodial_account governed by the tro in date pursuant to the settlement agreement in the northwest litigation northwest received dollar_figure and petitioner and his corporations received dollar_figure from anb no see supra note with respect to the transfers between the corporate albank no account and petitioner’s fcis account respondent determined that the net amount taken from and not returned to petitioner reported the loss from the sale of the kodak stock on his individual return il na tours did not report it the loss on the sale of the pan am stock was not reported by petitioner or by il na tours on their respective returns -- - the corporate account by yearend constituted taxable_income to petitioner that is respondent determined that the dollar_figure transferred from the corporate account to purchase stock in the personal brokerage account less dollar_figure in stock sales proceeds returned to the corporate account or dollar_figure was additional income to petitioner in respondent proposed no adjustment to petitioner’s taxable_income as a result of the profitable or losing sales of the stocks for which the proceeds were returned to albank no thus respondent’s determination of additional income as a result of the transfers between the corporate albank no account and petitioner’s personal fcis account equaled dollar_figure even though stocks purchased with corporate funds totaling dollar_figure were retained in petitioner’s fcis account as the net result of the transfers in addition during the first months of petitioner transferred a total of dollar_figure in cash from corporate accounts into the sam han account on date a check for dollar_figure for this purpose respondent treated the stock proceeds returned to the corporate account dollar_figure as well as a dollar_figure dividend paid on the kodak stock on date and transferred from petitioner’s fcis account to the corporate albank no account on the same day as amounts returned petitioner in any event reported the gains and losses from the sale of all but one of these stocks on his return although he now contends that he held the stocks as an agent of his corporations drawn on the sam han account was deposited into anb no a custodial_account governed by the tro on date the tro was amended specifically to cover the sam han account the account contained assets of dollar_figure at yearend pursuant to the settlement agreement i in date petitioner and his corporations received dollar_figure and northwest received nothing from anb no and ii on date northwest received the balance remaining in the sam han account which at that time was dollar_figure see supra note the dollar_figure that petitioner transferred to the sam han account from corporate accounts together with the net of dollar_figure in funds taken from and not returned to the corporate albank no account by yearend make up the dollar_figure that respondent asserts in an amendment to his answer was diverted by petitioner from his corporations in respondent contends that the entire dollar_figure is ordinary_income which must be included in petitioner’s income for in the alternative respondent contends that the dollar_figure should be deemed a distribution from il na tours in excess of petitioner’s basis in the stock which must be included in his income for the unreported income issue constitutes new_matter resulting in an increased deficiency respondent has the burden of proving any new_matter or increased deficiency rule -- - a 89_tc_1280 petitioner bears the burden_of_proof with respect to the determinations made in the notice_of_deficiency rule a generally unless otherwise provided gross_income under sec_61 includes net accessions to wealth from whatever source derived 348_us_426 a gain constitutes taxable_income when its recipient has such control_over it that as a practical matter he derives readily realizable economic value from it that occurs when cash is delivered by its owner to the taxpayer in a manner which allows the recipient freedom to dispose_of it at will even though it may have been obtained by fraud and his freedom to use it may be assailable by someone with a better title to it 343_us_130 citations omitted see also 384_f2d_748 5th cir 50_tc_478 the economic benefit accruing to the taxpayer is the controlling factor in determining whether a gain 1s income rutkin v united_states supra united_states v rochelle supra under the claim_of_right_doctrine it is well settled that unlawful as well as lawful gains are included within the sec_7491 does not apply to this case because the examination commenced before date the effective date of that section see internal_revenue_service restructuring and reform act of publaw_105_206 sec c 112_stat_727 --- - definition of gross_income 366_us_213 money obtained from embezzlement rutkin v united_states supra money obtained by extortion 33_tc_1093 money diverted from wholly owned insolvent corporation to defraud corporation’s creditors affd per curiam 295_f2d_503 6th cir generally a taxpayer who unlawfully and fraudulently obtains funds is liable for taxes on the full amount of the funds if the taxpayer receives the money without the consensual recognition of an obligation to repay and there is no restriction on the disposition of the money james v united_states supra pincite mais v commissioner 1t c leaf v commissioner supra pincite the mere possibility that demands may eventually be made for refunds or that the taxpayer has an obligation to make requested refunds in a later taxable_year does not relieve the taxpayer of tax on the diverted funds james v united_states supra 470_f2d_837 2d cir leaf v commissioner supra see also 762_f2d_891 11th cir affg tcmemo_1983_450 524_f2d_617 7th cir affg 62_tc_223 however where repayment is effected during the same taxable_year as the taking the taxpayer is not taxed on the amounts repaid mais v commissioner supra -- - leaf v commissioner supra stovall v commissioner tcmemo_1983_450 funds distributed by a corporation to its shareholders with respect to their stock over which the shareholders have dominion and control generally are taxed under the provisions of sec_301 where a shareholder diverts corporate funds or uses corporate property for his personal benefit not proximately related to corporate business the shareholder must include the value of the benefit in income as a constructive_dividend e g truesdell v commissioner supra pincite5 85_tc_332 however ‘not every corporate expenditure incidentally conferring economic benefit on a shareholder is a constructive_dividend ’ 577_f2d_1206 5th cir quoting 496_f2d_1384 5th cir 115_tc_172 the determinative factor is whether the distribution was primarily for the shareholder’s benefit in which case it is taxable to the shareholder as a constructive_dividend or primarily for the corporation’s benefit in which case it is not a constructive_dividend crosby v united_states supra pincite hood v commissioner supra pincite -- - additionally in general a taxpayer need not treat as income moneys which he did not receive under a claim of right which were not his to keep and which he was required to transmit to someone else as a mere conduit 56_tc_530 affd 492_f2d_286 7th cir thus money a taxpayer receives in his or her capacity as a fiduciary or agent does not constitute taxable_income to that taxpayer 84_tc_120 44_tc_96 and a shareholder who takes personal control of corporate funds is not taxable on them so long as it is shown that he held the funds as an agent of the corporation and or deployed them for a corporate purpose ajf transp consultants inc v commissioner tcmemo_1999_16 affd without published opinion 213_f3d_625 2d cir st augustine trawlers inc v commissioner tcmemo_1992_148 affd sub nom o’neal v commissioner 20_f3d_1174 11th cir alisa v commissioner tcmemo_1976_255 in the instant case petitioner admits that he transferred corporate funds totaling dollar_figure into his personal accounts during early respondent contends that petitioner diverted the dollar_figure and hid it in brokerage accounts he controlled because he intended to defraud northwest of the moneys petitioner’s corporations owed it respondent maintains that - - petitioner increased his net wealth by dollar_figure when he reduced that amount to his personal dominion and control therefore respondent asserts petitioner’s income should be increased by dollar_figure for petitioner contends however that the dollar_figure is not taxable to him because he did not withdraw those funds from the corporate accounts for his own benefit rather he placed them into his personal accounts in his capacity as an agent for il na tours and for its benefit to protect the funds from seizure by northwest petitioner maintains that he did not use the dollar_figure for personal purposes but that he used the funds to benefit il na tours including transferring funds from his personal accounts to the anb accounts which were used first to negotiate a settlement with northwest in order for il na tours to remain in business and then to pay corporate debts owed northwest petitioner relies on 865_f2d_342 d c cir revg and remanding rosenbaum v commissioner tcmemo_1983_113 in support of his agency theory in stone the commissioner determined that the taxpayers a corporate officer who also was a shareholder in the corporation and the corporation’s attorney who also served as one of its directors had to include in income dollar_figure million of corporate funds which had been derived from a series of -- - transactions designed to defraud the u s government and which had been placed in secret swiss bank accounts over which the taxpayers exercised control the court_of_appeals concluded that the funds need not be included in income the court_of_appeals stated even when a corporate officer is its sole shareholder and thus in ultimate control and he transfers corporate funds to his personal checking account and his dealings with the corporation are extremely informal there is no constructive_dividend so long as he can show that his intent was to use such funds for corporate purposes as an agent of the corporation x x id quoting 257_fsupp_443 n d cal petitioner contends that the following facts demonstrate that he was acting on behalf of his corporations as an agent to benefit the corporations when he withdrew corporate funds and placed them into personal accounts he returned funds to il na tours to facilitate il na tours’ meeting its obligations to remit dollar_figure per month to northwest except for a nominal amount he did not use the funds for personal purposes but instead invested them for corporate purposes ie in an effort to save his corporations by earning money with which to repay northwest he made personal guaranties of the corporate debt he transferred funds to the anb accounts the control petitioner also argues in this connection that he mortgaged personal assets in order to obtain letters of credit continued -- -- over which he gave to belofsky and the transfers to which were made within so by yearend petitioner had ceded control back to il na tours belofsky used the funds in the anb accounts to settle the lawsuit with northwest which related to debts il na tours owed northwest and chung recorded the anb accounts as assets of il na tours on the date balance_sheet and on il na tours’ corporate return respondent disputes petitioner’s claim that he had a corporate purpose for depositing the dollar_figure into his personal brokerage accounts respondent contends that petitioner diverted the funds and shuffled them through a maze of accounts to defraud northwest so that he could keep the funds for himself whether petitioner was acting as an agent of his corporation is a question of fact see 100_f3d_1308 7th cir question of fact whether shareholder’s diversion of corporate funds constitutes constructive_dividend affg tcmemo_1995_243 we look to petitioner’s testimony and the objective facts to ascertain petitioner’s intent see eg 728_f2d_945 7th cir objective factors used to determine intent affg tcmemo_1983_98 spheeris v commissioner continued that were subsequently exercised by northwest to satisfy obligations of his corporations -- - f 2d 7th cir legal relationship between closely_held_corporation and its shareholders as to payments to the latter must be established by a consideration of all relevant factors indicating the true intent of the parties affg tcmemo_1959_225 43_tc_580 we note at the outset that petitioner was not a credible witness we found his testimony implausible and unconvincing it was at times vague evasive self-serving and contradictory he had selective recall relating to the and transactions and the assets in issue in the instant case we are not required to accept self-serving testimony particularly where it is implausible and there is no persuasive corroborating evidence e g 925_f2d_180 7th cir the statements of an interested_party as to his own intentions are not necessarily conclusive even when they are uncontradicted affg tcmemo_1989_103 as amended by tcmemo_1989_393 877_f2d_624 7th cir affg tcmemo_1987_295 87_tc_74 additionally a taxpayer’s testimony as to intent is not determinative particularly where it is contradicted by the objective evidence busch v commissioner supra pincite 397_f2d_537 7th -- - cir taxpayer’s uncontradicted testimony need not be accepted affg tcmemo_1967_119 the objective evidence in the record contradicts petitioner’s contention that he was acting as an agent in furtherance of a corporate purpose petitioner points first to the fact that between january and date he returned significant sums to il na tours that is of the dollar_figure that he initially transferred from an il na tours’ corporate account to his personal fcis account dollar_figure was returned to il na tours before the end of february it is true that this return of funds to the corporation which occurred almost exclusively in date might support an inference that petitioner was holding them as the corporation’s agent if these were the only relevant facts we might be persuaded however petitioner’s other actions during discussed below belie the claim of agency petitioner contends that the dollar_figure returned to il na tours was used to meet il na tours’ obligation under the january agreement to make payments of dollar_figure per week to northwest the evidence in the record does not support this contention in any event for purposes of petitioner’s argument that the return of funds to il na tours indicates agency it is sufficient that the funds were in fact returned to the corporation which is undisputed -- - petitioner’s next argument is that he did not except for nominal amounts use the funds at issue for personal purposes instead according to petitioner he invested the funds in the stock market in an effort to produce sufficient earnings so that northwest could be repaid and petitioner further claims all of the funds transferred from corporate accounts to personal accounts were eventually either transferred to the anb accounts or frozen by the tro and used ultimately to negotiate a settlement of il na tours’ debt to northwest petitioner’s argument misstates the facts established by the record contrary to petitioner’s argument a significant portion of the dollar_figure at issue in this case has not been accounted for the record establishes that from late january through early date a total of dollar_figure was transferred from the accounts of petitioner’s corporations to the sam han account the record further demonstrates that on date dollar_figure from the sam han account was deposited into anb no and that at yearend the balance in the sam han account was dollar_figure the record does not reflect what happened to the remainder dollar_figure and petitioner has made no effort to address this discrepancy we treat this argument as referring to petitioner’s actions prior to the issuance of the tro once the tro was issued petitioner was under a court order proscribing his personal_use of the funds see supra p -- - because petitioner’s argument relies on the premise that all of the funds transferred from corporate accounts were accounted for it must fail petitioner next argues that his making a personal guaranty of his corporations’ debts to northwest as requested by northwest in date is inconsistent with respondent’s theory that he transferred corporate funds to personal accounts for his own benefit and not as an agent of the corporation as petitioner observes on brief what would be the point in putting corporate money in a personal account and then subjecting the personal account to the corporate debt a close examination of the record in this case provides an answer to petitioner’s rhetorical question namely by the time petitioner signed the guaranty on date he had succeeded in transferring the bulk of the funds at issue into an account in his brother’s name ie the sam han account of the dollar_figure at issue dollar_figure was in the sam han account dollar_figure of which was moved there from corporate accounts in early an additional dollar_figure that had been earlier moved from corporate accounts to accounts in petitioner’s own name was moved on march and to the sam han account then on march day before he signed the guaranty the kodak stock--which had been purchased with dollar_figure of the remaining funds at issue--was transferred from --- - petitioner’s personal account to the sam han account thus when petitioner signed the guaranty on march he had already taken steps to place all of the assets at issue except the pan am stock in accounts that did not bear his name thereby raising practical barriers to enforcement of the guaranty against the bulk of the transferred corporate funds the very close proximity of the kodak stock transfer and the execution of the guaranty creates a strong inference that petitioner made the transfer in anticipation of signing the guaranty viewed in that light the guaranty appears to be a ruse designed to mislead northwest with respect to petitioner’s good_faith moreover any conclusion regarding agency that petitioner would have us infer from the guaranty is substantially undermined by the fact that petitioner almost immediately repudiated it upon learning of the guaranty a few days after it was signed the fact that petitioner left the pan am stock in a personal account after signing the guaranty is consistent with a pattern we discern in his other conduct namely making it possible for northwest to recover relatively small amounts of the ticket sales proceeds in an effort to convince northwest that he was cooperating in good_faith this pattern first surfaced at the beginning of when petitioner executed the january agreement acknowledging his corporations’ indebtedness exceeding dollar_figure million when he knew the figure was substantially higher and promising to retire the debt by yearend through weekly payments of approximately dollar_figure these weekly payments were in fact made until mid-march by which time northwest had figured out that petitioner’s defalcations were much greater than dollar_figure million -- - petitioner’s attorney disavowed it as entered into without benefit of counsel or adequate_consideration petitioner’s attorney argued that the guaranty was void and repeatedly sought its return until the time that northwest filed suit petitioner’s position throughout the northwest litigation was that his corporations but not he personally owed northwest for whatever ticket sales proceeds were missing petitioner next points to the transfer of certain of the funds at issue to the anb accounts between may and date as evidence of his agency petitioner first points to the transfer of dollar_figure to anb no which occurred in date before northwest filed suit contrary to petitioner’s position we believe that careful scrutiny of that transfer shows that it was made to further petitioner’s personal interests to the detriment of the interests of his corporations the record in this case demonstrates that the date transfer of dollar_figure referred to by petitioner was from p-b no a personal account of petitioner’s the contents of which are traceable both to the gerber stock transferred in from a corporate to a personal account and to the proceeds of the pan am stock that had been the gerber stock had originally been transferred from a corporate account to chung no a personal account of continued -- - purchased with corporate funds in date and initially placed in petitioner’s fcis account ’ the date transfer to the anb no trust account was effected in connection with a proposal made to northwest by belofsky under which petitioner would be released from all liability under the guaranty and the interim agreement in exchange for inter alia the payover to northwest of the proceeds in the gerber account belofsky sent a letter to northwest on date proposing the foregoing terms and advising northwest that i am directing mr han to deposit with me the proceeds of the ‘gerber’ account to be held by me until appropriate documentation is furnished in accordance with this letter on date dollar_figure was transferred from p-b no to anb no which had been established by belofsky as a client trust account northwest rejected belofsky’s offer nonetheless from the standpoint of ascertaining whether petitioner was acting as an agent to serve a corporate purpose we believe his actions with continued petitioner’s in date then sold in date the gerber proceeds remained in chung no until all contents of that account were transferred to chung no during date on date dollar_figure was transferred from chung no to p-b no as previously noted the pan am stock was transferred from the fcis account to p-b no on date and liquidated before the date transfer of dollar_figure from p-b no to anb no -- - respect to the dollar_figure transferred in an effort to consummate his lawyer’s proposal are significant in transferring the dollar_figure to anb no petitioner was attempting to secure release from any personal liability to northwest for the more than dollar_figure million he had acknowledged his corporations owed the airline company under the guaranty petitioner without benefit of counsel had guaranteed all past and future monetary obligations of his corporations that arose out of ticket sales in the interim agreement entered into with the benefit of counsel petitioner i confined his personal guaranty to debts arising from the receipt and sale of tickets received from northwest in but not before and acknowledged on behalf of his corporations that with respect to pre-1988 ticket sales his corporations had retained sales proceeds due and owing to northwest in an amount exceeding dollar_figure million had petitioner been successful in securing his release from all personal liability under the foregoing agreements the result would have been to saddle his corporations with the sole liability for debts exceeding dollar_figure million the consideration petitioner proposed to use to secure his release consisted of dollar_figure from a personal account into which corporate funds had been diverted obviously this attempt would have primarily benefitted petitioner see loftin woodard inc v united -- - states f 2d pincite and been quite detrimental to petitioner’s corporations which would have lost a guarantor on acknowledged debts exceeding dollar_figure million petitioner’s contention that the transfer of the dollar_figure to anb no in date before northwest filed suit indicates that he was acting on behalf of his corporations is untenable instead this transfer demonstrates that petitioner was exercising personal dominion and control_over the funds petitioner also argues an agency theory with respect to the remaining transfers of funds to the anb accounts all of which occurred after northwest filed suit specifically petitioner contends that his intent to act as an agent is shown because he funded the belofsky trust accounts petitioner argues that he willingly relinquished control_over the disputed funds to belofsky to be held by him in the anb accounts as trustee and that once in the anb accounts the funds were used in an effort to make a deal to keep il na tours in business the argument concludes petitioner used these funds as an agent of il na tours to keep it in business when that was no longer possible he used these funds to settle its debts petitioner’s argument is an attempt to make a virtue out of a necessity aside from the anb no transfer in may petitioner did not willingly transfer anything to the remaining - -- anb accounts those transfers were made to comply with the tro that northwest had obtained against petitioner which mandated that petitioner produce information on the whereabouts of ticket sales proceeds and that those proceeds be transferred into accounts over which northwest and or the court exercised control indeed the record in this case amply demonstrates that the court’s granting of a tro against petitioner was insufficient to cause him to identify all ticket sale assets and transfer them to trust accounts although an initial dollar_figure was transferred to anb no on date day after the granting of the tro the correspondence between petitioner’s and northwest’s attorneys shows that the struggle to force petitioner to provide information regarding assets continued for several months thereafter on july northwest’s attorney wrote petitioner’s attorney advising that the sparse documentation provided by petitioner had enabled northwest to unearth six additional accounts complaining of petitioner’s pattern of withholding financial and account information to which northwest claimed entitlement under the tro and i111 threatening to seek court supervision if petitioner’s pattern continued the remaining transfers to the anb accounts nos and occurred after this correspondence the transfers made to the anb accounts after northwest obtained the tro do not reflect petitioner’s agency they were involuntary petitioner’s claim that he used the funds at issue on behalf of il na tours ie to keep it in business is contradicted by the objective evidence in the record as late as date northwest remained willing to do business with petitioner and his corporations providing them with substantial ticket stock for resale pursuant to the terms of the interim agreement notwithstanding that they had acknowledged selling northwest’s tickets and failing to remit proceeds in an amount exceeding dollar_figure million presumably northwest made the business calculation that its chances of ever seeing its money were better if petitioner’s corporations were allowed to continue operations however what northwest perceived as petitioner’s unrelenting efforts to hide the missing funds from northwest’s auditors----that is his refusal to cooperate in providing the information he had agreed to provide in the interim agreement even when both sides acknowledged that ticket proceeds exceeding dollar_figure million had not been remitted--ultimately prompted northwest to file suit and an additional dollar_figure of the funds that the record establishes were taken from the il na tours’ account and placed in the sam han account was not revealed and made subject_to the tro until date -- - obtain a tro that prohibited petitioner and his corporations from dealing any further in northwest tickets the record amply demonstrates that between the execution of the interim agreement in early april and northwest’s filing suit in mid-june it became obvious to northwest that petitioner was hiding assets and would not cooperate in providing any restitution of amounts that he acknowledged were owed by his corporations the record is equally clear that it was petitioner’s actions that caused the change in northwest’s attitude from reluctant creditor willing to provide additional ticket stock to legal adversary determined to prohibit petitioner and his corporations from any further dealings in northwest tickets belofsky conceded in his testimony in this case that the sale of northwest tickets constituted percent of petitioner’s corporations’ business activity at the time on this record we do not accept petitioner’s contention that his actions with respect to the funds at issue were for the primary benefit of his corporations rather than himself it is clear that petitioner’s actions harmed his corporations in this regard we look to petitioner’s actions both in the months leading up to northwest’s filing suit and after the filing and granting of the tro when petitioner’s conduct caused northwest to threaten to seek sanctions on several occasions and in our view hardened northwest’s animosity towards petitioner -- - effectively forfeiting their ability to do business with northwest we also conclude that it was reasonably foreseeable by petitioner that his actions would have this result we do not believe petitioner could have thought otherwise in view of his conduct and the response it engendered in northwest in the months leading up to and following the filing of northwest’s lawsuit we are satisfied from the record that petitioner’s intentions by mid-1988 were to keep for himself whatever ticket proceeds he could hide from northwest’s auditors with the exception of anb no the funds in the anb accounts subject_to the tro were transferred there despite petitioner’s best efforts although petitioner tried to thwart northwest’s discovery of the ticket proceeds by not cooperating in disclosing financial information despite his obligation to do so under the interim agreement and then the tro northwest’s auditors were able to trace and identify the funds thereby forcing petitioner to transfer them to custodial accounts because of petitioner’s efforts to keep the funds hidden we find petitioner’s remaining evidence of agency namely that chung recorded the funds in the anb accounts as assets of il na tours in workpapers for the corporation’s date financial statement and on its return unpersuasive to the extent these funds were so recorded those compilations occurred -- - after northwest had succeeded in tracing the funds and forcing them into custodial accounts governed by the tro thus these recordations----the earliest of which occurred in date--are not probative regarding whether petitioner was holding the funds as an agent before his actions were mandated by the tro petitioner’s vigorous efforts to keep the funds that he had taken from corporate accounts hidden from northwest even when these actions harmed his corporations also persuade us that petitioner exercised personal dominion and control_over those funds in in one instance petitioner may have voluntarily disclosed diverted corporate funds to northwest namely when the dollar_figure identified by petitioner’s attorney as the proceeds of the gerber account was transferred from p-b no to anb no on date in connection with petitioner’s attorney’s proposal to secure petitioner’s release from liability under the guaranty and interim agreement ' however in line with our respondent objected at trial to the admission of the workpapers on grounds of authenticity hearsay and completeness we reserved ruling on those objections in a separate order we have overruled respondent’s objections and admitted the workpapers as evidence however in our view the workpapers are not probative regarding petitioner’s intentions or agency and we do not rely on them in reaching our findings whether petitioner voluntary disclosed to northwest his purchase of the gerber stock with his corporations’ funds or northwest’s auditors instead traced the transaction is not clear from the record in view of the record as a whole however the latter is much more likely -- - earlier analysis of this transaction we conclude that petitioner exercised personal dominion and control_over the anb no funds when he sought to employ them to secure his release from any personal liability with respect to his corporations’ obligations to northwest thus by mid-1988 petitioner had exercised personal dominion and control_over all of the corporate funds that he had transferred to personal accounts in early although we conclude petitioner had exercised dominion and control_over the funds at issue by mid-1988 the question remains whether the taxability of the funds to petitioner is affected by the fact that some of the funds were returned to custodial accounts or otherwise made subject_to the tro before yearend funds over which a taxpayer has obtained dominion and control lawfully or unlawfully are not taxable to him to the extent they are repaid before yearend 51_tc_494 33_tc_1093 stovall v commissioner tcmemo_1983_450 see also hammer v commissioner tcmemo_1989_396 amounts returned by shareholder to corporation in subsequent year not taxable where shareholder derives no benefit revrul_65_254 1965_2_cb_50 deduction allowable under sec_165 with respect to embezzled funds in the year of repayment in leaf v commissioner supra pincite we held that a controlling shareholder who takes funds -- jo - from his corporation when it is insolvent is taxable on the portion of the funds that he keeps for his own purposes but not on the portion that is returned to the corporation or its creditors before yearend a difficult issue in this case is whether the transfer of funds into accounts subject_to the tro constitutes a repayment to the corporation within the meaning of the foregoing authorities respondent’s position is that it does not respondent argues that petitioner maintained dominion and control_over the funds after their transfer into the anb accounts respondent cites several factors the anb accounts were maintained in petitioner’s name and social_security_number with petitioner’s attorney as trustee petitioner reported the interest earned on anb account funds in on his return and received backup withholding credits in certain years disbursements were made from the anb accounts to pay personal expenses of petitioner petitioner refused northwest’s repeated requests that funds in the anb accounts be released to northwest in payment of his corporations’ acknowledged indebtedness the anb accounts were used as security for petitioner’s attorney’s fees and were used to negotiate and settle petitioner’s personal liability to northwest - 7jl1- we do not agree that petitioner maintained dominion and control_over the funds that were placed in accounts subject_to the tro we note first that the relevant inquiry here is petitioner’s dominion and control vis-a-vis his corporations not in relation to northwest respondent at times appears to suggest the contrary as when he argues that petitioner’s refusal to turn the funds in the anb accounts over to northwest indicates petitioner’s exercise of dominion and control but in refusing to release the anb account funds to northwest petitioner could have been acting equally on behalf of his corporations and of himself since both were defendants in northwest’s complaint and the funds subject_to the tro were being held in effect to secure whatever claims northwest might have against petitioner or his corporations we also do not find persuasive of petitioner’s dominion and control such factors as the anb accounts’ being established under petitioner’s name and social_security_number petitioner’s initially reporting the interest earned in the accounts on his own return or petitioner’s being given backup withholding credits with respect to the accounts relying on petitioner’s nominal ownership would elevate form over substance similarly the position a taxpayer takes on his return is relevant but far from dispositive respondent’s suggestion that petitioner’s - j2 - attorney served as custodian for the accounts overlooks the fact that belofsky at all times served as counsel for both petitioner and his corporations the one disbursement for petitioner’s personal expenses from an anb account---to pay delinquent taxes on petitioner’s residence--was made with northwest’s permission respondent’s contention that funds in the anb accounts served as security for petitioner’s attorney’s fees finds little support in the record pursuant to the settlement of the northwest litigation petitioner and his corporations in received all amounts remaining in the anb accounts after payment to northwest of dollar_figure the payment to northwest was satisfied with funds from anb nos and a successor to anb no with the remaining balance of dollar_figure in those accounts going to petitioner and his corporations petitioner accordingly received the entire contents of anb nos and totaling dollar_figure belofsky was subsequently paid a total of dollar_figure from anb no and dollar_figure from anb no moreover as noted belofsky served as counsel to both petitioner and his corporations thus payment of his fees to some extent served a corporate purpose moreover this expenditure arguably served northwest’s interests as a creditor by preserving assets available to satisfy a judgment the funds in anb no are not at issue in this case -- - of singular importance we disagree with respondent’s contention that the funds in the anb accounts were used to satisfy petitioner’s personal liability to northwest we do not believe that respondent who has the burden_of_proof has shown by a preponderance_of_the_evidence that the anb funds were used to satisfy petitioner’s as opposed to his corporations’ liabilities to the airline northwest’s complaint was filed and the tro obtained against petitioner and his corporations northwest at all times pursued its complaint against the foregoing defendants and likewise entered the settlement agreement with both petitioner and his corporations the corporations not petitioner had operated as consolidators for northwest ie northwest’s ticket stock had been provided to and sold by the corporations thus petitioner’s corporations were primarily liable to northwest for the ticket stock or the proceeds from its sale in our view this is why northwest in addition to filing suit against both petitioner and his corporations also had sought petitioner’s personal guaranty of his corporations’ indebtedness to northwest refused to surrender the guaranty and based one count of the complaint on it default judgments were entered against ny na tours ca na tours and sf na tours but petitioner’s other corporations remained defendants until settlement starting almost immediately after its execution petitioner vigorously challenged the validity of the guaranty respondent also attempts to demonstrate that the funds in the anb accounts were used to satisfy petitioner’s personal liabilities and therefore remained under his personal dominion and control by emphasizing that northwest had asserted claims of fraudulent conversion and unjust enrichment against petitioner personally since northwest had asserted claims against petitioner personally respondent’s argument goes use of the funds in the custodial accounts to settle the northwest litigation satisfied petitioner’s personal liabilities respondent in effect attempts to negate any significance of the transfer of the funds to custodial control by arguing that petitioner incurred personal liability by virtue of taking funds from his corporation that were owed to the corporation’s creditor so that when the funds were paid over to the creditor the liabilities extinguished were those of petitioner rather than the corporation in the circumstances of this case we think the argument is specious any controlling shareholder who takes funds from his corporation when it is insolvent will likely have exposure to a claim of fraudulent conversion unjust enrichment or similar charges from the corporation’s creditors if as respondent argues this factor means that the return of funds to - j5 - the corporation or its creditors satisfies the shareholder’s liability and therefore serves a shareholder rather than a corporate purpose we think the exception provided in 33_tc_1093 for wrongfully appropriated funds that are returned within the same year would be nullified mr leaf received a criminal conviction for taking funds from his insolvent corporation but he was not taxable on the amounts returned in the year of the taking respondent’s argument regarding the satisfaction of petitioner’s personal liabilities to northwest is inconsistent with the holding in leaf and we accordingly reject it on this record respondent has not shown that the funds in the anb accounts were held in or ultimately used in to satisfy petitioner’s as opposed to his corporations’ obligations to northwest as a consequence we find that the deposit of funds into accounts subject_to the tro represented a deployment of the funds for corporate purposes the anb accounts and the sam han account were subject_to the tro as a result no transfer or other_disposition of the funds in the accounts could be made without northwest’s or the court’s authorization the tro was granted upon a showing that northwest had a substantial likelihood of prevailing in its claim that the accounts contained proceeds from -- - the sale of northwest’s ticket stock that were owed to northwest we find that in the accounts in effect served to secure northwest’s rights against petitioner and his corporations and in a substantial portion of the accounts was in fact paid in settlement of northwest’s claims asserted against petitioner and his corporations consequently by yearend the funds in the anb accounts and the sam han account were being held under court supervision to satisfy liabilities that were as much petitioner’s corporations’ as petitioner’s in these circumstances we conclude that the funds in the anb accounts and the sam han account by yearend had been repaid or returned to petitioner’s corporations in that year and accordingly are not taxable to petitioner under leaf and like cases applying the exception to the claim_of_right_doctrine we base our conclusion that these funds had been returned to the corporations for purposes of this exception on several factors first petitioner no longer had dominion and control_over the funds once they were subject_to the tro although respondent argues that petitioner’s attorney’s role as custodian of the anb accounts demonstrates petitioner’s maintenance of dominion and control the facts do not support this characterization the disbursements for petitioner’s personal expenses were made only with northwest’s approval further northwest’s attorney testified in this proceeding that petitioner’s attorney’s actions with respect to the anb accounts were at all times consistent with his custodial function second the cases that have considered the exception for the repayment of taken funds within the same taxable_year have countenanced a range of circumstances as constituting repayment or return in leaf v commissioner supra the sole shareholder- taxpayer had taken funds from his insolvent corporation after the corporation’s creditors filed an involuntary bankruptcy petition against it and within the same year as the taking the taxpayer repaid to the corporation or its creditors a portion of the funds id pincite we held the shareholder was taxable only on the funds not returned to the corporation or its creditors in the year of the taking id pincite see also 51_tc_494 dicta portion of embezzled funds turned over in year of embezzlement to third party to be held for victim not taxable stovall v commissioner tcmemo_1983_450 shareholder’s diversions from corporation not taxable to extent used in year of diversion to purchase certificates of deposit in corporation’s name we are mindful that the court_of_appeals for the seventh circuit to which an appeal in this case would ordinarily lie has for purposes of the same-year repayment exception distinguished --- - between actual repayment and the giving of a promissory note holding the latter insufficient to prevent wrongfully taken funds from being taxed to the taker 524_f2d_617 7th cir affg 62_tc_223 nonetheless we are satisfied that petitioner’s transfer of funds to the anb accounts and the subjection of the sam han account to the tro constitute repayments for purposes of the exception these amounts were returned to the corporation or its creditors because petitioner lost control of the funds to a third-party custodian who held them as security for a creditor’s claim against his corporations we now apply our findings concerning petitioner’s exercise of dominion and control by mid-1988 over and his return before yearend of a portion of the funds at issue in this case the dollar_figure at issue is best understood as comprising the dollar_figure net_proceeds petitioner retained after the multiple transfers in early between the corporate albank no account and his personal fcis account and the dollar_figure in cash transferred from corporate accounts to the sam han account the dollar_figure net_proceeds are traceable to the kodak stock and the pan am stock purchased with dollar_figure and dollar_figure of corporate funds respectively the total amount used to purchase these two blocks of continued - jq - in accordance with our earlier analysis petitioner exercised dominion and control_over the kodak stock before returning the proceeds from its sale to his corporations by virtue of the transfer of those proceeds to the anb no account on date specifically after being moved from petitioner’s fcis account to the p-b no account to the sam han account and back to p-b no the kodak stock was sold on date for a net of dollar_figure which was transferred that same day to anb no since petitioner purchased the kodak stock with diverted corporate funds of dollar_figure and returned only dollar_figure to his corporations he is chargeable with dollar_figure in income as a result dollar_figure - dollar_figure dollar_figure continued stock exceeds respondent’s determination because petitioner sold the other stocks purchased with corporate funds at a profit and returned the augmented proceeds to a corporate account because of this augmentation of the returned proceeds respondent’s computation of the net_proceeds retained by petitioner--- measured by the amount taken less the amount returned---is less than the actual corporate funds retained by petitioner and invested in the kodak and pan am stock see discussion supra pp as noted earlier petitioner reported the loss from the sale of kodak stock on his return since the diminution in the stock’s value occurred while it was under petitioner’s dominion and control and he is chargeable with the income resulting from his return to his corporations of kodak stock proceeds that were less than the corporate funds used to acquire the stock we conclude that petitioner is entitled to the loss as claimed -- - similarly with respect to the pan am stock because we have concluded that petitioner by mid-1988 had exercised personal dominion and control_over the assets diverted from his corporations and was not holding them as a mere agent of his corporations petitioner exercised dominion and control_over the pan am stock however the evidence adduced by respondent shows that unlike the kodak stock neither the pan am stock nor its proceeds were returned to petitioner’s corporations before yearend the pan am stock remained in the fcis account from its purchase on date until date when petitioner transferred it to another personal account p-b no p-b no already contained substantial assets including the proceeds from the gerber stock with a net value of dollar_figure on date just prior to its receipt of the pan am stock the gerber stock had been liquidated on date for dollar_figure and the contents of the account containing the gerber stock proceeds then totaling dollar_figure had been transferred to p-b no on date on date petitioner transferred dollar_figure in cash from p-b no to anb no a custodial_account that belofsky had set up in connection with his proposal to secure petitioner’s release from any personal liability to northwest belofsky represented to northwest that anb no was being funded with the ‘gerber’ account proceeds -- - because the p-b no account had been the recipient of the gerber stock proceeds the pan am stock proceeds and other assets of petitioner’s before petitioner transferred dollar_figure in cash from the account to fund anb no the guestion arises whether the amount so transferred is traceable to the gerber stock the pan am stock or some other asset of petitioner’s petitioner was actively buying and selling securities through the p-b no account in march through date as well as making personal charges against the proceeds in the account by means of a credit card the gerber and pan am stock proceeds were commingled with other personal funds of petitioner’s and were used to offset losses in other stocks in the account that had been purchased on margin the statements for p-b no in the record do not show a clear source of the funds for the dollar_figure transfer to anb no however because petitioner’s attorney represented to northwest that the dollar_figure transfer to anb no was the proceeds of the gerber account we treat this as an admission by petitioner that the amount transferred was from that source and no other consequently we find that no portion of the pan am stock proceeds was transferred to anb no instead the record in this case establishes that the pan am stock was transferred from petitioner’s fcis account to petitioner’s p-b no account on date sold in two - - blocks on april and date for a net total of dollar_figure and commingled with other personal funds of petitioner’s since the record establishes that petitioner used dollar_figure in corporate funds to purchase the pan am stock and that the pan am stock and its proceeds are traceable to a personal account of petitioner’s respondent has met his burden of showing that petitioner had unreported income of dollar_figure in as a result of the pan am stock transactions ’ with respect to the dollar_figure in cash that petitioner transferred in early from corporate accounts to the sam han account petitioner’s exercise of personal dominion and control_over all transferred assets by mid-1988 renders the cash in the sam han account taxable to him except to the extent that the record shows that amounts in the sam han account were transferred to custodial accounts or otherwise made subject_to the tro the record establishes that dollar_figure was transferred on date from the sam han account to anb no a custodial_account subject_to the tro in addition northwest’s auditors discovered the sam han account in august or early date and the tro was amended specifically to cover it on date respondent has shown that dollar_figure in cash from corporate ’ since petitioner sold the pan am stock for dollar_figure in he may be entitled to a loss on its disposition we anticipate that the parties will address this matter in their rule_155_computations - - accounts was transferred into the sam han account in that dollar_figure was transferred to a custodial_account and that dollar_figure in assets remained in the sam han account after it was discovered and made subject_to the tro in late leaving dollar_figure in cash that petitioner took from his corporations unaccounted for respondent has also shown petitioner’s habit of spending corporate funds for personal items for example respondent has shown that in petitioner caused corporate funds of dollar_figure to be paid to gambling casinos dollar_figure to be paid on the mortgage loan on his personal_residence and dollar_figure to be paid into accounts in the names of women who were not employees of s and in that petitioner diverted petitioner’s corporations to personal purposes additional corporate funds of dollar_figure that are not included in the unreported income pled by respondent in his answer consequently we find that respondent has shown that petitioner dissipated for personal purposes or otherwise exercised dominion and control_over the dollar_figure in cash transferred to the sam han account that is not otherwise accounted for accordingly we conclude that petitioner has in this regard it is also significant that the diversions we note for occurred before the stock market crash that is they occurred before the exigencies of the losses from the stock market crash and northwest’s ticket recall program that petitioner contends caused him to divert corporate assets in order to hide them from northwest - -- unreported income in that amount as a result of diversions from his corporations the amounts we conclude petitioner diverted from his corporations to personal_use in are description amount kodak stock proceeds dollar_figure pan am stock proceeds big_number sam han account big_number total big_number the question remains whether the amounts we have concluded are unreported income of petitioner are taxable as ordinary_income under sec_61 or as constructive dividends under sec_301 respondent relying principally on leaf v commissioner t c pincite contends that the amounts are taxable under sec_61 because they were wrongfully appropriated ina fraud upon a third party dealing with the corporation petitioner citing our opinion in 89_tc_1280 contends that sec_301 governs the taxation of any amounts that we conclude were transferred from il na tours to him for the reasons outlined below we agree with petitioner in leaf we held that amounts that had been taken by a shareholder from his wholly owned corporation for his own use and not returned within the year of the taking at a time when - - the corporation was insolvent were taxable to the shareholder under the predecessor of sec_61 the taxpayer had not argued and we did not consider whether these amounts were constructive dividends taxable under sec_301 in amore recent case truesdell v commissioner supra the commissioner likewise argued that a shareholder who diverted funds from his wholly owned corporation was taxable under section 6l a the taxpayer argued that the amounts were constructive dividends taxable pursuant to the terms of sec_301 we agreed with the taxpayer stating as a general proposition where a taxpayer has dominion and control_over diverted funds they are includable in his gross_income under sec_61 unless some other modifying code section applies the latter is the situation here since congress has provided that funds or other_property distributed by a corporation to its shareholders over which the shareholders have dominion and control are to be taxed under the provisions of sec_301 id pincite citation omitted we distinguished leaf on the grounds that the taxpayer therein had fraudulently transferred funds that should have been available to creditors in contemplation of bankruptcy by contrast the diverted funds in truesdell had not been wrongfully appropriated from other shareholders or in fraud of creditors we need not and do not express an opinion on the need to apply a constructive_dividend analysis in a situation where the sec_22 i r c -- - shareholder utilized the corporation to steal from embezzle from or otherwise defraud other stockholders or third parties dealing with the corporation or shareholder id pincite see also 153_f3d_445 7th cir citing truesdell with approval respondent contends that the instant case should be governed by leaf rather than truesdell because petitioner took the funds at issue to defraud a third party northwest dealing with the corporation we disagree the unreported income issue is new_matter which respondent raised by amendment to answer to the amended petition therefore respondent has the burden_of_proof on this issue rule a respondent has not shown by a preponderance_of_the_evidence that the funds taken by petitioner belonged to northwest as opposed to il na tours or one of the other corporations of which petitioner was the sole shareholder northwest issued the ticket stock to petitioner’s corporations at a large discount money for the ticket stock was due after the tickets were sold the corporations were entitled to substantial commissions for the sold tickets there is no evidence that il na tours or any of petitioner’s other corporations segregated the funds due northwest or that the consolidator agreement required them to do so in addition the na tours companies served as consolidators for korean air lines and air america and -- - il na tours operated as retail travel agents for which services additional compensation could be earned thus at any time the funds commingled in corporate accounts could include il na tours’ profit share from ticket sales and commissions earned in addition to any funds petitioner’s corporations owed northwest and any other airline companies for which they sold tickets the fact that northwest was not entitled to all the funds at issue finds further support in the fact that pursuant to the settlement of the northwest litigation in northwest agreed that petitioner and his corporations would receive dollar_figure of the corporate funds plus accrued interest that northwest alleged and petitioner concedes in the instant case were taken by him and placed in personal accounts the record does not disclose why northwest agreed that petitioner and his corporations would receive some of the disputed funds what the record does establish is that petitioner’s corporations unlike the corporation in leaf were not adjudicated bankrupt instead the creditor in the instant case compromised its claim for something less than all the debtors’ assets we accordingly conclude that respondent has failed to show that the facts in the instant case bring it under the rule in leaf our conclusion that the amounts petitioner took from his corporations should be taxed pursuant to sec_301 finds -- - further support in the fact that the record strongly suggests and respondent has certainly failed to show otherwise that the amounts in issue were previously subject_to tax at the corporate level il na tours reported gross_receipts exceeding dollar_figure million on its return respondent concedes that the losses in excess of dollar_figure million in the corporate investment accounts occasioned by the stock market crash were reported on that return il na tours reported gross_receipts exceeding dollar_figure million on its return a dropoff that is consistent with the disruption in its sale of northwest tickets in that year these gross_receipts figures suggest that the northwest ticket sales that were the source of petitioner’s diversions were reported at the corporate level in truesdell we quoted with approval the following observation of the court_of_appeals for the ebighth circuit we believe that the only way that the diverted income already taxed to the corporation can be taxed to the individual taxpayers is by the treatment of such diversions as dividends and corporate_distributions truesdell v commissioner t c pincite quoting 248_f2d_869 8th cir because the record strongly suggests that the amounts petitioner diverted from his corporations were subject_to tax at the corporate level we are quite reluctant to find them taxable -- -- to him pursuant to sec_61 in the absence of better proof by respondent we decline to do so and hold that the taxation of the amounts at issue is governed by sec_301 under sec_301 the distribution is treated as a dividend if it meets the requirements of sec_316 under sec_316 dividends are taxable to the shareholder as ordinary_income to the extent of the earnings_and_profits of the corporation and any amount received by the shareholder in excess of earnings_and_profits is considered a nontaxable return_of_capital to the extent of the shareholder’s basis in his stock any amount received in excess of both the earnings_and_profits of the corporation and the shareholder’s basis in his stock is treated as gain from the sale_or_exchange of property respondent concedes that il na tours had no current or accumulated_earnings_and_profits petitioner had no basis in his il na tours stock accordingly the dollar_figure that we have il na tours’ return lists capital stock on its balance_sheet of dollar_figure although petitioner testified that he only lent money to his corporations even if petitioner contributed dollar_figure to il na tours we are satisfied that petitioner had no basis in his il na tours’ stock we have found that petitioner took an additional dollar_figure from il na tours during that was not included in the amount that respondent has pled as unreported income and petitioner reported salary income of only dollar_figure on his return thus there were diversions from il na tours in that exceeded any possible basis petitioner had in the stock of the corporation -- - found petitioner diverted from his corporations in is to be treated as a gain from the sale_or_exchange of property dividend income issue in the notice_of_deficiency respondent determined that petitioner had unreported income for of dollar_figure ' relating to dividend income credited to his fcis account and to p-b no petitioner has the burden of proving that he did not underreport his income relating to those accounts rule a respondent contends that petitioner did not offer any credible_evidence regarding this issue by amendment to his answer respondent additionally asserted that petitioner had unreported income for of dollar_figure relating to dividends credited during to the sam han chung no and chung no accounts the parties agree that those three accounts received dividend income totaling dollar_figure during respondent has the burden of proving the increased deficiency relating to the dollar_figure dividend income rule a as previously noted the sam han chung no and chung no accounts were owned and controlled by petitioner petitioner contends that none of the dollar_figure in dividends in the original determination or the amended pleadings is taxable ' the parties have stipulated that the dividends_paid on stocks in the fcis and p-b no accounts totaled dollar_figure --- - to him because he held the funds in his fcis account p-b no the sam han account chung no and chung no as an agent of il na tours thus petitioner contends the funds belonged to il na tours and it should have reported the dividend income for on its own return respondent contends however that petitioner must include the dollar_figure in his income for because the principal in the foregoing brokerage accounts was under his sole dominion and control when the dividends were earned and therefore such dividends were income to him under the fruit of the tree doctrine in 281_us_111 we have concluded and held herein that petitioner exercised dominion and control_over the funds diverted in and is taxable on them except to the extent the funds were returned to custodial accounts within the taxable_year with respect to respondent’s original determination concerning the dollar_figure in dividends in the fcis and p-b no accounts we hold that petitioner has failed to show error in the determination and accordingly sustain it the dollar_figure dividend on the kodak stock in the fcis account was paid on date when petitioner had dominion and control_over the fcis account and before the kodak stock proceeds were transferred to a custodial_account on - -- date the dollar_figure in dividends recorded in the p-b no account was paid during date before any amounts in that account were transferred to a custodial_account moreover there is no evidence that any portion of this dividend income was paid over to a custodial_account we turn to the remaining dividend income for which respondent bears the burden_of_proof stocks in the sam han account earned dividends totaling dollar_figure throughout although petitioner had dominion and control_over the account at least until northwest’s auditors discovered it in early date which resulted in the tro’s being amended to specifically cover it a substantial portion of the contents of the account was made subject_to custodial control before yearend specifically dollar_figure was transferred from the sam han account to anb no on date and the remaining contents in the sam han account at yearend after it had been made subject_to the tro equaled dollar_figure in these circumstances we conclude that respondent has failed to show that the dividends earned in the sam han account were not transferred to custodial control before yearend we accordingly hold that petitioner is not although petitioner transferred dollar_figure from his fcis account to il na tours’ albank no account on the same day the fcis account received the dollar_figure dividend respondent effectively reduced his deficiency assertion by that amount when he treated this dollar_figure as a return of funds to il na tours - - taxable on the dollar_figure in dividends earned in the sam han account the balance of the dividend income for which respondent bears the burden was earned in chung no dollar_figure on date and chung no dollar_figure respondent has shown that petitioner had dominion and control_over chung no when the dividends were earned further respondent has shown that the transfers out of chung no into chung no which are traceable to anb no occurred before the dividends at issue were paid accordingly respondent has shown that the dividends in chung no were not transferred to anb no or any other custodial control therefore we sustain respondent’s averment that petitioner has unreported dividend income of dollar_figure in connection with his control of chung no with respect to chung no the record does not disclose when the dollar_figure in dividends_paid on a money market fund in that account was paid moreover because there were transfers from chung no to p-b no to anb no and the money market dividends could reasonably be described as gerber account proceeds in accordance with petitioner’s characterization of those transferred amounts that we have elsewhere treated as an admission we conclude that respondent has failed to show that the dividends_paid in the chung no account were not -- - transferred to custodial control before yearend we therefore hold that petitioner does not have unreported dividend income of dollar_figure in connection with his control of the chung no account petitioner contends further however for the first time on brief that respondent failed to give him the benefit of all of the incidents_of_ownership of the brokerage accounts asserted to be under his dominion and control according to petitioner these brokerage accounts in large part purchased stocks on margin and they incurred margin interest costs of dollar_figure which was deducted directly from the brokerage accounts and for which respondent did not give petitioner credit petitioner additionally alleges that the brokerage accounts incurred capital losses of dollar_figure for which respondent did not give petitioner credit petitioner contends that if he must include the dividends in his income then he should also be allowed to claim the capital losses of dollar_figure and margin interest deductions of dollar_figure respondent counters that petitioner’s untimely claim of additional losses and deductions prejudices respondent because he is effectively precluded from attempting to show that petitioner had additional unreported gains from other personal brokerage accounts into which corporate funds were diverted but which were not included in the deficiencies asserted -- - this court generally will not consider issues that are raised for the first time on brief particularly where the belated claim would prejudice a party rule sec_34 a and bo 92_tc_376 affd 920_f2d_1196 5th cir 64_tc_989 see also toyota town inc v commissioner tcmemo_2000_40 affd sub nom 268_f3d_1156 9th cir leave to amend a pleading should be given however when justice so requires rule a we note first that we have concluded herein that petitioner is effectively not the owner of the dividends respondent attributed to him from the sam han and chung no accounts these two accounts contain dollar_figure of the dollar_figure in margin interest for which petitioner seeks an offset moreover the evidence adduced by respondent in this case demonstrates that petitioner had additional unreported income of dollar_figure in that respondent nonetheless did not use as a basis to amend his pleadings to assert an increased deficiency in these circumstances we conclude that respondent would be prejudiced if petitioner were permitted to raise for the first time on brief his entitlement to margin interest deductions and capital losses also the belated income offsets to which petitioner might be -- - entitled fall short of the additional unreported income noted above consequently the interests of justice do not require that petitioner be permitted to raise new issues on brief interest_income issue on his return petitioner included dollar_figure of interest_income attributable to the anb accounts the anb accounts were opened and maintained throughout and beyond under petitioner’s social_security_number petitioner obtained backup_withholding_tax credits in and for the anb accounts in an amendment to petition petitioner alleged that the interest_income should not be included in his income because the anb accounts belonged to il na tours and therefore the corporation should have reported it petitioner contends that the anb accounts were reflected as assets on il na tours’ date financial statement and on its corporate return petitioner maintains that he had no power to control the anb accounts after they were funded he did not receive the interest and the funds in the anb accounts including the interest earned on those funds were not intended to benefit him he further contends that money in the anb accounts was used for il na tours’ benefit and ultimately to pay its debts petitioner asserts that his accountant erroneously included the interest on petitioner’s return - - respondent contends however that petitioner properly reported the interest_income on his return because it was earned on funds he had taken from his corporations and converted to his own dominion and control in line with our earlier holding that the transfer of funds to the anb accounts before yearend constitutes a return of those funds to petitioner’s corporations it follows that the interest earned on the funds in the anb accounts in is not taxable to petitioner we so hold depreciation issue on his return petitioner reported rental income of dollar_figure and deducted rental expenses of dollar_figure in addition to depreciation of dollar_figure relating to the lincoln avenue ii property respondent determined that petitioner was not entitled to deduct the rental expenses or the depreciation petitioner has conceded that he is not entitled to deduct the rental expenses petitioner has the burden of proving that he is entitled to the depreciation deduction rule a petitioner contends that he is entitled to a depreciation deduction of dollar_figure relating to the lincoln avenue ii property he maintains that he bought the property during for either dollar_figure or dollar_figure and that he financed the purchase with a the parties have stipulated that the appropriate depreciation if any is allowable is dollar_figure -- -- mortgage in his name which he paid petitioner asserts that respondent did not cross-examine him on his testimony nor offer any evidence that petitioner did not pay for the property in respondent contends that petitioner has failed to establish the cost of the property or that he used his own funds to acquire it accordingly respondent contends petitioner has failed to prove his basis in the property or his entitlement to the depreciation claimed to show entitlement to a deduction for depreciation petitioner must establish among other things the depreciable basis of the property see 28_tc_845 affd in part revd and remanded on another issue 267_f2d_39 6th cir the evidence in the record relating to basis in the lincoln avenue ii property consists solely of petitioner’s self-serving statements which we reject because they are uncertain ambiguous and uncorroborated see frierdich v commissioner f 2d pincite tokarski v commissioner t c pincite accordingly petitioner has not established basis and may not deduct depreciation with respect to the lincoln avenue ii property in we therefore sustain respondent’s determination rental income issue during air america and il na tours occupied space on the first and second floors respectively of the lincoln avenue i property on their returns air america deducted dollar_figure and il na tours deducted dollar_figure for rent in the other deductions category on the returns in addition il na tours deducted dollar_figure in the rent category of its return ’ on his return petitioner reported dollar_figure in rental income relating to the lincoln avenue ii property but did not report any rental income relating to the lincoln avenue i property during the examination of petitioner’s return petitioner told the revenue_agent conducting the examination that the amounts deducted for rent by air america dollar_figure and il na tours dollar_figure in total dollar_figure were for_the_use_of space in the lincoln avenue i property in the notice_of_deficiency respondent determined that petitioner had unreported income of dollar_figure relating to rental income attributable to the lincoln avenue i property respondent has not put in issue any additional income that might be associated with the duplicative dollar_figure deduction the revenue_agent had erroneously subtracted the dollar_figure rental income reported on petitioner’s return relating to the lincoln avenue ii property from the dollar_figure in unreported rental income relating to the lincoln avenue i property respondent has not amended the answer further to include the additional unreported rental income during trial preparation petitioner reiterated to respondent’s counsel that during air america and il na tours had paid him rent totaling dollar_figure for their use of space in the lincoln avenue i property before trial commenced however petitioner retracted that statement and instead informed respondent’s counsel that he had discovered he had not received rent for use of space in the lincoln avenue i property from his corporations he claimed further that the rent deducted by il na tours constituted rent the corporation had paid to various commercial rental agents on behalf of various subagents of il na tours in support of his statement petitioner submitted to respondent’s counsel a number of checks made payable to third parties with addresses in cities where certain na tours companies were located those companies were separately incorporated corporations wholly owned by petitioner petitioner bears the burden of proving that he did not receive the rental income in issue during rule a petitioner contends that he did not receive rent from il na tours or air america during according to petitioner he told the revenue_agent that he thought the dollar_figure in rent had been paid to him for_the_use_of space in his lincoln avenue i property he contends that he made the statement at a time when he did not have any records relating to the transactions petitioner maintains that checks he gave respondent’s counsel during trial preparation compared with cash disbursement spreadsheets included in certain workpapers in evidence show that the rent payments did not go to him but instead went to third- party commercial rental agents that rented space to branch offices of il na tours respondent contends that petitioner has not shown that il na tours and air america did not pay him rent during respondent asserts that the evidence on which petitioner relies is not relevant to the issue of rental payments made by il na tours and air america to him because none of the checks or cash disbursement recordations relate to payments for space used by il na tours or air america respondent asserts further that the checks petitioner submitted do not add up to the dollar_figure in total that air america and il na tours deducted as rental expense on their corporate returns respondent contends that petitioner’s pattern of taking money from his corporations belies his claim that he passed up an opportunity to take rental income from his corporations especially when his activities were being carefully monitored by northwest we are persuaded on the basis of the record that petitioner was in error when he informed the revenue_agent and respondent’s counsel that il na tours paid him dollar_figure in rent for_the_use_of space in his lincoln avenue i property we are persuaded that the dollar_figure deducted on il na tours’ return consisted of rental payments for commercial office space in cities where il na tours maintained branch offices the checks petitioner submitted for were drawn on bank accounts maintained by il na tours ny na tours or ca na tours and total dollar_figure which approximates the amount il na tours deducted as rental expense chung signed most of the checks he testified that the office rents reflected in the corporation’s workpapers were payments for office space rented by branch offices maintained by il na tours in various cities he also testified that it would have been his practice to obtain the numbers reflected in the workpapers from the listing of accounts_payable as controller of il na tours chung would be ina better position than petitioner to know the recipients of payments that il na tours had deducted on its return respondent’s argument that the payments do not add up to the dollar_figure in issue is misleading inasmuch as those checks relate to payments made by il na tours which deducted dollar_figure the balance of the dollar_figure relates to the dollar_figure deducted by air america petitioner did not submit any checks written on accounts maintained by air america on the basis of chung’s corroborating testimony we are persuaded that the rental expenses il na tours claimed on its corporate return did not relate to payments made to petitioner thus we hold that petitioner did not have unreported rental income of dollar_figure from il na tours in the rationale we apply to decide whether il na tours paid petitioner dollar_figure in rental income during does not apply however to the dollar_figure deducted by air america for rental expense in other than petitioner’s self-serving retraction of his statements to the revenue_agent and respondent’s counsel there is no proof that petitioner did not receive the dollar_figure he admitted receiving from air america for use of space in the lincoln avenue i property petitioner’s arguments relating to the cash disbursement spreadsheets and to the checks he submitted to respondent’s counsel are not persuasive as to rental payments made by air america since those spreadsheet notations and checks apply only to il na tours presumably air america maintained its own books_and_records since it was a separate_entity from il na tours the propriety of il na tours’ deduction of rental payments for the benefit of other corporations owned by petitioner is not before the court and therefore we do not address the question of whether the payments to the third-party rental agents would have been a deductible expense of il na tours petitioner told both the revenue_agent and respondent’s counsel that air america paid him rent for_the_use_of space in the lincoln avenue i property air america maintained its office at property owned by petitioner and deducted dollar_figure for rent expenses the record contains no proof that air america paid anyone other than petitioner for rent expenses as far as the record reflects air america did not have branch offices the na tours companies were separate entities from air america we do not agree with petitioner that the corporate workpapers in evidence show that he did not receive rental income from air america those documents were records of il na tours not air america moreover in arguing for the receipt into evidence of these workpapers petitioner stressed that these documents did not constitute all of the books_and_records for il na tours and were merely workpapers accumulated by chung to assist him in the preparation of il na tours’ tax returns chung did not testify that those documents constituted all of the workpapers chung gathered for that purpose furthermore petitioner’s counsel never asked chung at trial whether air america paid rental income to petitioner during the normal inference is that testimony on that matter would have been unfavorable to petitioner’s position see frierdich v commissioner f 2d pincite tokarski v commissioner t c pincite 65_tc_182 6_tc_1158 affd 162_f2d_513 10th cir we are not required to accept petitioner’s self-serving testimony that his corporations did not pay him rent frierdich v commissioner supra 808_f2d_312 4th cir affg tcmemo_1985_107 674_f2d_342 5th cir affg in part revg in part and remanding on another issue tcmemo_1979_491 on the basis of the foregoing we hold that petitioner has not met the burden of proving that he did not have dollar_figure in unreported rental income from air america in addition_to_tax for negligence issue in the notice_of_deficiency respondent determined that petitioner is liable for an addition_to_tax for negligence under sec_6653 for in the amendment to answer to amendment to petition respondent alleged that petitioner was liable for the addition_to_tax for negligence for the issues raised in the amendment to answer sec_6653 imposes an addition_to_tax equal to percent of the underpayment if any part of the deficiency was due to negligence or intentional disregard of rules or regulations negligence includes a failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code sec_6653 disregard includes any careless reckless or intentional disregard of rules or regulations id 92_tc_899 85_tc_934 the negligence addition_to_tax will apply if among other things the taxpayer fails to maintain adequate books_and_records with regard to the items in question crocker v commissioner supra in the stipulation of settled issues petitioner has conceded that he understated income and overstated deductions relating to his return petitioner has failed to prove that those items were not due to negligence furthermore petitioner has conceded that he would be liable for the addition_to_tax for negligence if we decide as we have in part that the funds he took from corporate accounts must be included in his income in for the addition_to_tax for negligence applies to the entire deficiency if any part of the deficiency is due to negligence or intentional disregard of rules or regulations accordingly we conclude that petitioner is liable for the addition_to_tax for negligence under sec_6653 for the deficiencies determined in the notice_of_deficiency and the increased deficiencies asserted in the amendment to answer to the amended petition to the extent sustained herein addition_to_tax for substantial_understatement_of_income_tax issue in the notice_of_deficiency respondent determined that petitioner is liable for the addition_to_tax under sec_6661 for because he substantially understated his income_tax in the amendment to answer to amendment to petition respondent asserts that petitioner is liable for the addition_to_tax for substantial_understatement of income for the issues raised in the amendment to answer petitioner has the burden_of_proof as to the issues raised in the notice_of_deficiency and respondent has the burden_of_proof for the new_matter and increased deficiency asserted in the amendment to answer rule a sec_6661 imposes an addition_to_tax egqual to percent of the underpayment attributable to an understatement where there is a substantial_understatement_of_income_tax an understatement is substantial if it exceeds the greater of percent of the tax required to be shown or dollar_figure sec_6661 b a an understatement is defined as the excess of the tax required to be shown on the return over the tax actually shown on the return the amount of the understatement is reduced for sec_6661 purposes by the portion of the understatement which is attributable to the taxpayer’s treatment of an item if there is substantial_authority for that treatment or if relevant facts affecting the item’s tax treatment are adequately disclosed in the return sec_6661 b petitioner contends merely that the addition_to_tax for substantial_understatement of tax is computational and will not apply if we accept his arguments relating to the issues involved in the instant case thus petitioner provided no evidence that he had substantial_authority for the understatement and his tax_return did not disclose the relevant facts sufficient to enable respondent to identify the potential controversy involved schirmer v commissioner 89_tc_277 respondent presented evidence at trial through testimony of witnesses and documents and through the concessions at trial and in the briefs sufficient to meet the burden of proving certain increased deficiencies raised in the amendment to answer to amendment to petition accordingly we sustain respondent as to the imposition of the addition_to_tax for substantial_understatement_of_income_tax to reflect the foregoing decision will be entered under rule