Court Opinion

ID: 4603566
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:32:15.351033+00
Date Added: 2024-06-11T07:52:52.505530
License: Public Domain

PHILLIP S. FRY and K. SUSAN FRY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, RespondentFry v. CommissionerDocket No. 46185-86United States Tax CourtT.C. Memo 1991-51; 1991 Tax Ct. Memo LEXIS 76; 61 T.C.M. (CCH) 1812; T.C.M. (RIA) 91051; February 11, 1991, Filed *76 Decision will be entered under Rule 155.  Phillip S. Fry, pro se. 1David W. Otto and S. Mark Barnes, for the respondent.  PARR, Judge.  PARRMEMORANDUM FINDING OF FACTS AND OPINION Respondent determined deficiencies in and additions to petitioners' joint Federal income taxes as follows: Additions to Tax YearDeficiencySection 6653(b) 2Section 6654(a)1977$ 108,999.00$ 54,499.50$ 3,878.571978604,924.70302,462.3519,311.1819791,102,594.23551,297.1246,092.03Respondent determined a separate deficiency of $ 2,436,382.86 and additions *77  to tax under sections 6653(b) and 6654(a) of $ 1,218,191.43 and $ 155,234.30, respectively, in petitioner Phillip S. Fry's Federal income taxes for 1980. After concessions by the parties, the issues remaining for decision are: (1) Whether petitioners failed to report substantial amounts of gross receipts during the years in issue; (2) whether petitioners are entitled to expense deductions in excess of those respondent allowed; (3) whether petitioners are liable for the addition to tax for fraud under section 6653(b); (4) whether assessments of deficiencies and additions to tax for the years in issue are barred by the statute of limitations; (5) whether petitioners are liable for self-employment taxes pursuant to sections 1401 et seq.; and (6) whether petitioners are liable for an addition to tax for failure to make estimated tax payments under section 6654(a). For clarity and convenience we have combined, in major part, our findings of fact and opinion herein because of the mass of financial and documentary data contained in the record. GENERAL AND BACKGROUND FACTSSome of the facts have been stipulated and are so found.  The stipulation of facts and accompanying exhibits are*78  incorporated herein by this reference. Petitioners resided in Mesa, Arizona, at the time they filed their petition in this case. Petitioners conducted business during the years 1977, 1978, 1979, and 1980 through an organization called Tax Information Center (TIC), which may appropriately be described as an income tax, estate planning, and financial consulting firm.  TIC operated as Mr. Fry's sole proprietorship and was headquartered in buildings on part of 120 acres of land petitioners owned near New Concord, Ohio. 3 By 1980 petitioners were successful in soliciting a nationwide clientele of over 1,000 clients for TIC's tax return preparation practice. Mr. Fry graduated from Case Western Reserve with a degree in economics.  He also attended law school classes at the University of Akron and Georgetown University*79  Law Center, and he has taken courses toward earning a masters of business administration at George Washington University.  However, he has not received a graduate degree from any of these institutions. Throughout his education, Mr. Fry never enrolled in a course involving Federal income taxation.  Even so, he was variously identified in TIC promotional materials as "one of the nation's most creative year-round income tax and estate planning specialists"; a "tax accountant and multi-millionaire"; a "highly eloquent lecturer who has explained our nation's complicated tax laws in everyday, easy to understand words"; a "leading tax consultant"; and a "multi-millionaire tax specialist." TIC marketed its services through an aggressive self-promotion campaign featuring free seminars at which Mr. Fry was the featured speaker.  Petitioners scheduled seminar dates at motels or hotels in various towns and cities and promoted them through advertisements in local newspapers.  The newspaper advertisements announced that Mr. Fry, as a noted tax expert, would be speaking on the subjects of tax savings and financial planning. In addition, he would appear on local talk shows to discuss theories *80  of taxation and estate planning and to further publicize the upcoming seminar. During the seminars, Mr. Fry described the tax burden borne by the average wage-earning taxpayers and self-employed people.  He identified the benefits available through the use of estate planning devices, particularly involving revocable trusts, and promoted TIC's services to the audience.  Mr. Fry conducted interviews after the seminars where he and his confederates sought to contract with individuals for TIC's services.  He also offered books and other publications he had written for sale through another Fry-owned entity, "Let the People Know" Law Book Store. Mr. Fry authored books with the following titles and copyright dates: "How to Disinherit the IRS & Probate Court" (copyright 1973, 1975, 1977, 1978 and 1979); "Pay No Income Tax Without Going to Jail" 4*81  (copyright 1975 and 1978); "How to Cut Your Taxes in Half By Incorporating Your Job or Business" (copyright 1976 and 1978); "Our Lady of Perpetual Deductions" (copyright 1977); and "Blood Taxes at Harvest Time" (copyright 1977). 5Individuals interested in TIC's services signed a formal agreement as to the scope of services to be provided and the fee charged. 6 The client fee was calculated on the financial condition of the particular client and was paid in cash or by credit card at the time of signing the TIC Agreement.  Prospects were officially considered TIC's clients after signing the agreement. TIC created at least 14 regional franchises staffed by sales representatives for the promotion and sale of TIC's services.  Mr. Fry sold one TIC franchise for $ 25,000.  Sales representatives*82  received a percentage of the fees collected from TIC clients solicited by the representative. Mrs. Fry attended high school through the eleventh grade, but has a general equivalency degree (ged).  She worked with Mr. Fry at TIC from its inception through 1980 and was described as TIC's business manager and publicity director.  However, she received no direct compensation for her services to TIC during the years in issue.  Her duties included assisting in the preparation and maintenance of internal books and records. Petitioners made a practice of opening a separate bank checking account for most of the entities (or trusts) they created, and each had signatory authority on the checking accounts they established.  Mrs. Fry was in charge of overseeing the banking transactions in each checking account of petitioners' enterprises.  The deposits were handled by Mrs. Fry or TIC office personnel under her supervision.  Mrs. Fry prepared the checks and she signed the majority of them, often at her husband's direction.  During 1977 through 1980, Mrs. Fry signed thousands of checks drawn on accounts for TIC and other entities petitioners controlled. TIC was the nucleus of petitioners' operations. *83  However, during 1977 through 1980, petitioners also conducted various other business activities and promotions through subentities.  As previously alluded to, "Let the People Know" Law Book Store (LBS) was a clearinghouse for books and publications authored by Mr. Fry. Petitioners created Orlando Advertising to obtain advertising agency discounts for their promotion of TIC. 7 Mr. Fry used the name "William Carlson" and Mrs. Fry used the name "Kathy Orlando" when conducting business through the agency. Petitioners created Family Health & Improvement Society (FHIS) in the form of a trust.  FHIS operated as a mail order ministry whereby clients of TIC had the opportunity to form their own church as a tax avoidance device.  As an adjunct to FHIS, petitioners created a legal services plan to benefit the members of FHIS and named it Group Legal Plan (GLP).  Whenever trusts were prepared for TIC clients, the trusts were prepared by GLP attorneys. *84  GLP attorneys were independent lawyers practicing in Pennsylvania and Arizona who were paid for their services through TIC. 8FRY FAMILY TRUSTSIn 1973 Mr. Fry formed the Fry Family Trust, a grantor trust.  In 1976 petitioners formed a second grantor trust as a successor to the Fry Family Trust called the MLJ Trust.  The two trust documents are identical except for the name of the trust created.  Mr. Fry was the trustee and sole income beneficiary of the Fry Family Trust and the MLJ Trust.  Mrs. Fry was the*85  successor trustee for both trusts.  In 1977 and the years that followed, petitioners used the MLJ Trust exclusively. SYNDICATED TRUSTSBeginning in 1978, petitioners encouraged investors and clients of TIC to invest in Precious Metals Holding Company, a Trust (Precious Metals).  Precious Metals was designed to be an investment vehicle for Mr. Fry and certain of his clients.  Mr. Fry served as the trustee of the Precious Metals trust. By 1979, petitioners began to actively prepare and present other investment opportunities to TIC clients. 9 Eight syndicated trusts were organized and participations sold to TIC investors in 1979.  Most of these syndicated trusts involved an investment in mobile home parks around the United States.  In 1980, eight additional syndications were formed and sold by Mr. Fry, each taking the form of a trust.  The syndications existing and marketed to clients during 1979 and 1980 were as follows: 1979 1980 Precious Metals HoldingCapital Appreciation TrustCo., A Trust (1978)Columbus Game Arcade, A TrustCasa Serena Trust IEnergy Lodging TrustCasa Serena Trust IIInnovative Investors TrustCentral Ohio Trust #1Jordan Estates, A TrustHamilton Road Partnership,Fantasyland Trust IA Trust (1978)Orchard Lakes Estates TrustLa Oficina TrustSports Paradise RecreationalLake Estates, A TrustVehicle Park, A TrustLake Middlebourne Estates,A Trust Tall Timbers TrustTradewinds Trust*86 For each syndicated investment project marketed by Mr. Fry, a trust was formed making him the sole trustee.  A master trust agreement was created specifying the rights of the parties, a copy of which was signed by and given to each investor. For each syndication approximately 20 to 30 duplicate original trust documents existed. Each trust operated in a manner identical to that of a limited partnership, with Mr. Fry as the general partner and the investors providing the money as limited partners insulated from liability and from authority to make decisions on behalf of the enterprise.  Separate bank accounts were opened for each syndicated trust with Mr. and Mrs. Fry the authorized signatories. In almost every syndicated trust he established, Mr. Fry obtained a specified portion of beneficial interest in exchange for past and future*87  services.  Some of the trust agreements also provided for consulting or managing fees to be paid to Mr. Fry in addition to the beneficial interests allocated to him.  The amount of beneficial interest obtained and management fees varied among the trust agreements.  The MLJ Trust nominally owned the beneficial interests obtained by Mr. Fry. The size of the syndicated offerings ranged from $ 100,000 to $ 1,520,000 The capital solicited from investors was applied as the down payment on properties to be owned and operated by the syndication. In some cases a portion of the solicited capital was also applied as payment of Mr. Fry's one-time management, consulting, or organizational fee.  As a rule, petitioners never made any cash payments or contribution to any syndicated activity in exchange for receipt of the beneficial interest from any syndicated activity. Investment opportunities usually were heavily tax advantaged.  Each syndicated trust was heavily promoted by Mr. Fry to TIC clients.  He used the name "Positive Cash Flow Network" as a marketing strategem for eliciting investments in the syndications. The advertisements were often glowing in terms of the profit prospects of the*88  particular syndication. For 1979 and 1980, however, all fiduciary income tax returns (Forms 1041) filed by Mr. Fry for each of the syndicated entities reflected a loss from operations. Petitioners provided their accountant Ronald Snook (Mr. Snook) with information on the income and expenses of each of the syndications for which Mr. Fry was trustee.  Mr. Snook took the information provided by Mr. Fry and prepared income statements and balance sheets as well as drafts of fiduciary income tax returns.  Petitioners, rather than original documents, were the source of information for the majority of fiduciary returns that were filed for the syndicated entities. FREEDOM FUEL CORPORATIONIn 1979 petitioners incorporated Freedom Fuel Corporation (FFC).  Mr. Fry organized FFC in response to the oil crisis of the late 1970's with the stated purpose "to locate, find, and develop any and all forms of energy." Even though FFC never filed an election to be treated as an S corporation, Mr. Fry filed the FFC returns on Form 1120-S. An investor with FFC would buy a distributorship, paying no cash or a variable small down payment and sign a 30-year recourse promissory note.  The fee for the*89  license was $ 20,000 in 1979 and $ 25,000 in 1980.  In exchange, the investor received a license agreement expiring December 31 of the year of issuance.  The license gave the investor the right to distribute gasohol and any other products of FFC within the distributorship area granted to the investor. Gasohol production facilities were never constructed by FFC nor was any gasohol produced or made available to those who held FFC distributorship licenses. The products made available to FFC licensees consisted of compressed coal bricks, blue prints for alcohol stills and an energy efficient home, booklets, pamphlets, and hydrometers to measure alcohol and sugar concentration in the distillation process. In 1979, FFC materials advertised that an 8 to 1 tax writeoff was available to the investor who paid $ 2,500 down and signed a recourse promissory note for a total investment of $ 20,000.  Many of the distributorships were sold to investors late in December 1979 and 1980 giving the investor only a few days on his annual license agreement.  Renewal of the license required signing another promissory note.  Petitioners or their agents on at least one occasion backdated a license agreement*90  to generate additional deductions for a client even though the end of the taxable year had passed. FFC issued foreign and domestic licenses for the distribution of FFC products.  The representation contained in each license agreement was that the license was exclusive.  However, there was no rhyme or reason behind the selection of geographic areas of the foreign or domestic licenses. The same geographic areas were often sold several times to the same or different investors for the same year.  It was not unusual for petitioners to sell a license agreement with no geographic area designated. In addition, FFC licenses were granted to ten of the syndicated trusts increasing the losses claimed by the trusts for 1979 and 1980.  The syndicated trust entities and FFC distribution fees included in the claimed losses are as follows: Number of FFC DEDUCTION TRUSTDistributorships1979 1980 La Oficina3$ 60,000 0Lake Estates12$ 240,000 0Central Ohio #112$ 240,000 0Casa Serena I5$ 100,000 0Casa Serena I & II9 0$ 225,000Jordan Estates6 0$ 150,000Sports Paradise RV Park1 0$ 25,000Capital Appreciation7 0$ 175,000Energy Lodging5 0$ 125,000Fantasyland12 0$ 300,000Total72$ 640,000$ 1,000,000*91  In 1986 Mr. Fry was indicted by a Federal grand jury on a 17-count indictment relating to his control and marketing of FFC franchises.  He pled guilty to the first count of the indictment which charged him with criminal "conspiracy to defraud the United States by impeding, impairing, obstructing and defeating the lawful Government functions of the Internal Revenue Service in the ascertainment, computation, assessment and collection of income taxes." The relevant factual allegations contained in the first count of the indictment charged that Mr. Fry induced individuals to purchase FFC distributorships by promising tax deductions in excess of the required investment.  The FFC distributorship purchases were financed by a small down payment, or no down payment, with the balance secured by a 30-year recourse promissory note which Mr. Fry represented would not be handled as a legal enforceable obligation.  He used FFC to create tax deductions and prepared tax returns for individuals claiming the FFC deductions in them which served to defraud the United States. LEVERAGE LEASING CORPORATIONMr. Fry formed Leverage Leasing Corporation (LLC) in 1979 to aid him in obtaining money from*92  investors. Investors "deposited" cash and were promised a return of interest at money market rates.  Mr. Fry loaned the cash obtained from investors to other Fry controlled entities suffering a cash flow deficit.  In essence LLC operated as Mr. Fry's personal loan company. PERSONAL FILING HISTORYPetitioners filed their 1974 and 1975 joint Federal income tax returns on September 10, 1979.  They listed "financial planner" as their occupations and reported a loss of $ 17,510 and $ 2,080 on their 1974 and 1975 returns, respectively. Petitioners filed their 1976 joint Federal income tax return on June 24, 1977, reporting a $ 39,784 loss.  Mr. Fry's occupation was listed as "business owner" and Mrs. Fry's occupation was listed as "housewife." Petitioners entered into a stipulated decision in a previously docketed case in this Court regarding their 1974, 1975, and 1976 taxable years.  They agreed they had understated their tax liabilities, without regard to any additions to tax, in the amounts of $ 2,893.31, $ 10,701.75, and $ 740.47, respectively. Petitioners filed their 1977 joint Federal income tax return on December 27, 1978.  They filed their 1978 and 1979 joint returns on*93  September 18, 1980.  They did not file a return for 1980.  They listed "financial planner" as their occupation on the returns they filed.  They did not make estimated tax payments or pay any self-employment taxes for any of the years at issue.  The entries on the returns regarding income are as follows: Form 1040 Line Description1977 1978 1979Capital gain (loss)$ (487.00)Pensions, annuities, rents,partnerships, estates,trusts, etc.$ (18,451.00)168,920.00 (422,119.00)Net operating loss carryforward(60,615.00)Taxable income 0107,818.00  0 Tax liability 021,605.00  0 Investment tax credit$ 5,212.00  21,605.00 Tax due 0 0 0 The most significant entry on petitioners' returns for all years is the loss from partnerships and fiduciaries traceable to the MLJ Trust tax returns.  The MLJ Trust returns reported the following: Item Description19771978 1979 Income (loss) from partnerships 10$ (5,819)$ (4,130)$    3,765 Income (loss) from fiduciaries(68,158)(512,961)Gross profit from trade or business25,340 0  0  Net capital gain (loss)1,400 (974) 0  Business loss carryforward(38,786)0  0  Interest income150 0  0  Other income0  267,083 88,596 Charitable contribution(736)(25,875)0  Interest expense0  0  (1,039)Tax expense0  0  (480)Total$ (18,451)$ (167,946)$ (422,119)*94 THE AUDITPetitioners treated the majority of the persons performing services for their businesses as independent contractors rather than as employees for Federal tax purposes.  An individual who expected to receive a Form W-2, but did not, complained to the IRS. In May 1977 Revenue Agent Olin Melaragno was assigned to investigate the complaint.  He sent a letter to Mr. Fry scheduling an interview.  Two or three days before the interview, Mr. Fry's secretary called Mr. Melaragno and cancelled the appointment.  During a telephone conversation two months later, Mr. Fry stated that he "would not respond to any efforts to provide [Agent Melaragno] with any information related to any tax matters [Fry] might have." Thereafter, Mr. Melaragno requested a routine computer search of petitioners' income tax returns which revealed that, at that time, petitioners had not filed returns for their 1974, 1975, and*95  1976 tax years.  He then changed the scope of his examination from employment tax to income tax liability. In September 1977 Mr. Melaragno again contacted Mr. Fry who told him again that he would not cooperate with any IRS investigation.  Mr. Melaragno then received approval to resort to indirect methods of determining petitioners' income after discussing Mr. Fry's noncooperative attitude with his supervisors. Mr. Melaragno first attempted to use the net worth method to verify petitioners' income tax liability.  However, that approach proved unsuccessful because he was not sure that he had all the information necessary to calculate a beginning net worth.  Accordingly, he resorted to the bank deposits method to verify petitioners' correct income. On July 9, 1980, Mr. Melaragno informed petitioners by mail that he was expanding his examination to include their 1977 and 1978 income tax returns.  He scheduled an interview and requested petitioners produce their books and records to support their 1977 and 1978 tax returns.  Petitioners refused the request. On October 9, 1980, Mr. Melaragno informed petitioners by mail that he was expanding his examination to include their 1979 income*96  tax liability.  He scheduled another interview and requested petitioners bring their books and records to support their 1979 return.  He made a second request for petitioners to produce their records for their 1977 and 1978 tax returns.  Petitioners refused all requests and failed to cooperate. Mr. Melaragno then transferred the case to the Criminal Investigation Division of the IRS.  Special Agent Dennis O'Dell was assigned to the investigation and Mr. Melaragno continued to assist him. In an effort to determine petitioners' income from 1977 through 1980, Agent Melaragno and Special Agent O'Dell were required to reconstruct petitioners' income through third party records.  Mr. O'Dell compiled a list of entities that appeared to be related to Mr. Fry or through which he conducted business.  Mr. Melaragno surveyed banks located near petitioners' home and surrounding areas to locate their bank accounts. On September 9, 1981, Mr. O'Dell visited a TIC promotional seminar in Cleveland, Ohio, and served Mr. Fry with 56 summonses calling for the production of books and records for petitioners' businesses.  Included were summonses for records of TIC, Leverage Leasing, and FFC.  Summons*97  enforcement proceedings ensued in the United States District Court after Mr. Fry failed to comply with the summonses served by Mr. O'Dell.  The summons enforcement proceedings for the 1977, 1978, and 1979 tax years commenced as early as March 9, 1982, and continued into 1983. Mr. O'Dell caused summonses to be served upon TIC clients, Mr. Fry's marketing associates, brokerage houses with whom Mr. Fry did business, and banks where petitioners had checking accounts.  Mr. Fry instructed the banks not to comply with the summonses and summons enforcement proceedings were required to obtain compliance.  Frequently, Mr. Fry instructed other summoned parties not to comply with the summonses and additional summons enforcement proceedings ensued. Mr. Melaragno eventually received the summoned third party records, and found that some of the bank records were not available or not readable.  The banks were missing statements and other documentation.  When Agents Melaragno and O'Dell analyzed the bank records received from the Quaker City National Bank, they discovered that many checks had been written in an ink that did not photocopy.  Petitioners' use of "nonphotocopyable" ink hindered the investigation. *98  Nevertheless, upon receiving the incomplete information from the banks, Mr. Melaragno began looking for items of deposits in the various accounts.  He listed all of petitioners' deposits that he was able to verify from the bank documents on his worksheets.  He included in his analysis only those items of income that he could establish by the documents he was able to obtain. After listing all of the deposit amounts, Mr. Melaragno traced items which he believed were nontaxable transfers (such as transfers, loans, inheritances, and gifts) from other nonsyndication bank accounts, 11 and reduced the deposit amounts by these to arrive at petitioners' income.  Thus, Mr. Melaragno's bank deposits analysis included only nonsyndication accounts for which petitioners were the signatories and nontaxable items were excluded from the analysis to the extent they could be identified.  The income determined, as shown in the table on the following page, served as the basis for the statutory notice of deficiency. *99 AccountHolder1977197819791980TIC, Inc. (QCNB)$ 104,197.57$ 991,950.90$ 1,487,302.76$ 882,550.71MLJ Trust7,347.70100,297.0388,389.31956,672.15Orl. Adv.13,218.526,716.9819,565.1458,835.07Fam. H & I.S.5,769.8519,901.0027,222.5017,678.06Law Book Store104,092.1580,570.5010,405.200.00Talk Magazine750.500.000.000.00Energy Store1,900.000.000.000.00Discount Development286.950.000.000.00LBS0 (QCNB)16.750.000.000.00Phillip Fry0.0010,000.000.000.00GLP0.002,000.005,464.4427,454.41TIC (BONB)0.000.0040,126.0258,018.90TIC (VNB)0.000.00939.3018,980.00TIC Office Account0.000.0051,016.6838,333.84Guernsey Lumber0.000.000.0096,203.30MLJ/Merrill Lynch0.000.000.00705,029.97Amusement Concepts0.000.000.0042,500.00Increasing InnovativeIncome Magazine0.000.000.0022,547.53Cashier's Checks1,000.0019,222.00496,691.10131,325.16Total Deposits$ 238,579.99$ 1,230,658.41$ 2,227,122.45$ 3,056,129.16Plus interest0.000.000.0010,284.00Income$ 238,579.99$ 1,230,658.41$ 2,227,122.45$ 3,066,413.16*100  Throughout the course of Mr. Melaragno's investigation, which lasted from May of 1977 until May of 1984, petitioners refused to cooperate in the investigation of their income tax liability. 12 Because of petitioners' refusal to cooperate, business expenses were not available to be examined, and were neither identified or subtracted from their income determined in the notice of deficiency.  This modified bank deposits approach was used because without cooperation from petitioners, respondent could not make an accurate determination of their business expenses. UNREPORTED GROSS RECEIPTSThe focal point of this case centers around respondent's bank deposit schedules on which his notices of deficiency are based.  Petitioners have adopted the deposit information contained in them*101  to prepare their own income schedules in their attempt to illustrate nontaxable deposits. Mrs. Fry prepared and petitioners submitted summary schedules purporting to show transfers between their related entities and syndicated entities they controlled.  They attached cancelled checks and check stubs for some, but not all, of the transfers they claim in their schedules.  We have ignored the check stubs because they lack third party verification of the amount and existence of payment.  Furthermore, petitioners have not established that their internal accounting controls are adequate to rely on the check stubs as sufficient competent evidence of payment. In addition, we find that petitioners' schedules are unreliable because of the unsubstantiated transfers and obvious errors contained therein.  For example, several of their schedules include checks claimed as nontaxable transfers that are not included in respondent's deposit schedules.  We have disregarded these claimed nontaxable transfers because they were not previously included in petitioners' income.  Treating them as nontaxable transfers will result in a double exclusion of income.  Some of petitioners' other schedules misrepresent*102  the source of deposits. 13Respondent's schedules are not without error and respondent concedes that additional transfers should be removed due to evidence presented at trial.  Rather than examine each check and each deposit schedule, and point out each error made by both parties, we have traced the checks petitioners submitted, which are listed in appendix B, to the deposit information contained in the relevant deposit schedules, which are listed in appendix C.  We have grouped the deposits by source for *103  those bank accounts with disputed transfers and discuss them, infra, according to tables we have compiled for each separate year.  However, some preliminary considerations apply to all years in issue. Petitioners make the blanket assertion that all of the funds transferred were "transfers and loans," and are therefore nontaxable receipts.  They appear to be laboring under the misconception that merely because funds were transferred from a syndicated entity to a nonsyndicated entity they controlled, the transfer is a nontaxable receipt of funds.  This view is too simplistic and ignores the purpose for the transfer.  The checks petitioners submitted prove only the source of deposits and the amount transferred, not the purpose for the transfer.  They must further prove that the receipt of the funds is nontaxable by the purpose of the transfer. Petitioners rely heavily on their testimony that the interaccount transfers are loans.  We need not, and do not, accept such self-serving testimony without substantiating documentation.  Geiger v. Commissioner, 440 F.2d 688">440 F.2d 688 (9th Cir. 1971), affg. a Memorandum Opinion of this Court.  Although loans qualify transfers as nontaxable*104  receipts of funds, the evidence presented clearly contradicts the assertion that all of the transfers were loans. Although not conclusive, bank deposits are prima facie evidence of income and respondent need not prove a likely source of that income.  Tokarski v. Commissioner, 87 T.C. 74">87 T.C. 74, 77 (1986); Estate of Mason v. Commissioner, 64 T.C. 651">64 T.C. 651, 656-657 (1975), affd.  566 F.2d 2">566 F.2d 2 (6th Cir. 1977). Respondent has nevertheless shown client fees to be the likely source of petitioners' deposits. Furthermore, we note that most of the unexplained deposits on respondent's deposit schedules are regular and in odd dollar amounts.  Receipts of this type have a business appearance.  See United States v. Esser, 520 F.2d 213">520 F.2d 213, 217 (7th Cir. 1975); United States v. Procario, 356 F.2d 614">356 F.2d 614, 618 (2d Cir. 1966). Thus, we conclude that all deposits with an undocumented source are taxable gross receipts. Respondent treated deposits to the TIC, TIC Office Account, Orlando Advertising, Family Health & Improvement Society, Group Legal Plan, and MLJ Trust bank accounts as taxable gross receipts in his notice of*105  deficiency.  In theory, transfers between these entities must be excluded from the total deposits to prevent double inclusion of income; once for the original deposit and secondly for the transfer. This theory breaks down in the case where, for example, one entity transfers funds to another and claims the transfer as a business expense.  The second entity then claims the funds received as a nontaxable transfer when in reality it is a payment for goods and services and thus taxable income to the second entity. In this scenario, petitioners receive a double deduction for the same expense. At the risk of allowing petitioners a double deduction, we find that the identified transfers between petitioners' wholly owned entities are nontaxable transfers.  The risk of allowing double deductions is minimal because respondent disallowed business deductions for the transfers. Petitioners argue that Family Health and Improvement Society (FHIS) and Group Legal Plan (GLP) bank account deposits should not be included in their income because they are separate entities. Petitioners did not file tax returns for either FHIS or GLP.  Membership in FHIS was "free" upon signing the TIC client agreement. *106  See appendix A, par. 1. The client contract contained a provision which permitted the client to be represented by an attorney from the Group Legal Plan of FHIS.  See appendix A, par. 1.  The GLP lawyers were paid by TIC to do tax planning, drafting of revocable trusts for estate planning purposes, and client representation before the IRS in the event TIC planning was challenged.  TIC clients received tax advice from GLP attorneys and were required to implement at least 90 percent of GLP tax planning suggestions to be covered under TIC's ten-times-money-back guarantee of results.  Appendix A, par. 3. We doubt FHIS and GLP would have independent existence without TIC's support.  Further, we find the testimony that people other than TIC clients were members of FHIS highly suspect.  By petitioners' failure to introduce testimony of even one member of FHIS who was not a TIC client, we infer that there were none.  Pollack v. Commissioner, 47 T.C. 92">47 T.C. 92, 108 (1966), affd.  392 F.2d 409">392 F.2d 409 (5th Cir. 1968); Wichita Terminal Elevator v. Commissioner, 6 T.C. 1158">6 T.C. 1158, 1165 (1946), affd.  162 F.2d 513">162 F.2d 513 (10th Cir. 1947). Moreover, *107  the Government is not required to apply the tax laws in accordance with the form employed by the taxpayer where that form is a sham or is inconsistent with economic reality. Higgins v. Smith, 308 U.S. 473">308 U.S. 473, 477, 84 L. Ed. 406">84 L. Ed. 406, 60 S. Ct. 355">60 S. Ct. 355 (1940). Where the form of the transaction has not, in fact, altered any cognizable economic relationships, that form will be ignored and the law will be applied according to the substance of the transaction. Markosian v. Commissioner, 73 T.C. 1235">73 T.C. 1235 (1980). Notwithstanding the formal documents filed with the State of Ohio, we find that FHIS and GLP were integrated and interrelated into TIC's operations to the extent that their separate existence is a sham.  To conclude otherwise would exalt form over economic substance.  Accordingly, we hold that respondent properly included the FHIS and GLP bank accounts in determining petitioners' income. A fundamental principle of income tax law is that taxable income is computed on the basis of an annual accounting period.  Burnet v. Sanford & Brooks, 282 U.S. 359">282 U.S. 359, 75 L. Ed. 383">75 L. Ed. 383, 51 S. Ct. 150">51 S. Ct. 150 (1931). Accordingly, we discuss each year separately. 1977The following table categorizes petitioners' bank*108  deposits for 1977. BANK ACCOUNTS DepositMLJ Trust TIC LBS Orl. Adv.Total Source:Undocumented$ 7,227.70$ 103,612.57$ 103,994.15$ 2,057.52$ 216,891.94TIC (QCNB)20.00----3,880.003,900.00LBS(Central)100.00585.00--7,281.007,966.00Orlando Adv.----110.00--110.00TotalDeposits$ 7,347.70$ 104,197.57$ 104,104.15$ 13,218.52$ 228,867.94Petitioners have failed to introduce any evidence of transfers into the following bank accounts and are deemed to have conceded, under Rule 142(a), that the following deposits represent taxable income (See table, supra p. 20.): Bank AccountFamily Health & Improvement Society$ 5,769.85Energy Store1,900.00Discount Development/(Quickprint)286.95Law Book Store (QCNB)16.75Talk Magazine750.50Total$ 8,724.05Petitioners also failed to present any documentary evidence for the source of the single cashier's check in the amount of $ 1,000.00 made out to "Phillip Fry" that is included in respondent's bank account analysis.  See infra p. 72.  The purpose for which the check was drawn is also not proved by petitioners.  Thus, we find the cashier's*109  check represents income.  The undocumented deposits ($ 216,891.94), uncontested bank deposits ($ 8,724.05), and cashier's check ($ 1,000.00) total $ 226,615.99.  Based upon the foregoing, we find petitioners received $ 226,615.99 in taxable gross receipts during 1977. 1978After tracing the checks to respondent's schedules, we find the following to be the sources of 1978 deposits in petitioners' bank accounts. BANK ACCOUNTSDeposit Source:Orlando AdvFHIS MLJ Trust Undocumented$ 6,363.79$ 16,001.00$ 16,898.80TIC (QCNB)12,400.003,900.003,498.50FHIS450.00 - -1,300.00LBS3,960.00 - -170.00MLJ Trust - - - - - -Lake Middlebourne - - - -79,950.00Phillip Fry - - - - - -Total$ 23,173.79$ 19,901.00$ 101,817.30Deposit Source:TIC Total Undocumented$ 975,308.62$ 1,014,572.21TIC (QCNB) - -19,798.50FHIS - -1,750.00LBS - -4,130.00MLJ Trust13,000.0013,000.00Lake Middlebourne - -79,950.00Phillip Fry9,950.009,950.00Total$ 998,258.62$ 1,143,150.71The undocumented deposits constitute taxable gross receipts to petitioners.  The deposits with TIC (QCNB), FHIS, LBS, *110  and MLJ Trust listed as their source are considered nontaxable transfers to prevent double inclusion of income.  The deposit from Lake Middlebourne was in payment of a ground lease and constitutes gross rental receipts to petitioners.  Sec. 61; sec. 1.61-8, Income Tax Regs.The deposit schedules for Phillip Fry's account show that $ 500.00 was deposited in that account on October 10, 1978, and $ 1.50 was deposited on December 13, 1978.  Respondent's schedules do not contain the balance in that account at the beginning of the year.  Petitioners have not offered any evidence of the account balance at the beginning of 1978. Appendix B item numbers 105-1 and 105-2 comprise the transfers listed above from Phillip Fry's account to TIC's bank account.  These two checks were honored by the bank on October 10, 1978, and October 20, 1978, respectively.  Conceivably, the October 10, 1978, deposit of $ 500.00 could have been paid out as part of the check listed as appendix B item number 105-1.  Because the other deposit in the amount of $ 1.50 was made after the checks were honored, we find there were deposits of at least $ 9,451.50 into Phillip Fry's account.  Petitioners have not documented*111  the source for deposits into this account so we conclude that the $ 9,451.50 represents taxable gross receipts. Petitioners do not contest that the $ 80,570.50 deposited in the Law Book Store account represents income or the amount of the deposits. See table supra p. 20.  They do not contest the $ 2,000.00 amount deposited in the Group Legal Plan; however, they argue that Group Legal Plan was a separate entity and the income should not be attributed to them.  We find GLP and FHIS deposits are properly included in petitioner's income.  See supra p. 24-26. Petitioners have established TIC as the source for all but one of the cashier's checks included in respondent's schedule for 1978.  (See infra p. 80) Petitioners have failed to prove the source of funds or the purpose for the cashier's check in the amount of $ 1,000.00 paid to the Arizona Bank.  Accordingly, we view the $ 1,000.00 as properly included in taxable gross receipts. Based upon the foregoing, we conclude that petitioners received $ 1,187,544.21 in taxable gross receipts during 1978. 14*112 1979After tracing petitioner's checks to respondent's schedules, we find the source of deposits to be as shown on the following page. The undocumented deposits are taxable receipts.  The deposits from TIC (QCNB), Law Book Store, TIC Office Account, and FHIS bank accounts are nontaxable receipts. The transfer from Tall Timbers to TIC is to reimburse TIC for closing costs paid by TIC for the purchase of the mobile home park owned by the Tall Timbers syndication. Accordingly, the transfer does not represent taxable cash receipts. 1979BANK ACCOUNTS GroupOrlandoTIC Office Deposit SourceTIC (QCNB)Legal Plan AdvertisingAccountUndocumented$ 1,075,828.33 - -$ 11,665.14$ 6,816.68TIC (QCNB) - -$ 13,414.4420,400.0011,000.00Law Book Store - - - -250.004,000.00TIC Office Account15,000.00 - -4,000.00 - -FHIS - -4,600.00 - -3,000.00Tall Timbers5,785.41 - - - - - -Freedom Fuel Corp17,052.05 - -10,800.00 - -Leverage Leasing - - - - - - - -Hamilton Rd.2,588.62 - - - - - -La Oficina15,000.00 - - - - - -Lake Estates8,000.00 - - - - - -Precious Metals51,769.414,300.00 - -10,000.00Central Ohio Trust #110,000.00- - 900.00 - -Lake Middlebourne137,328.95 - - - -1,200.00Casa Serena I and II161,950.00- -5,000.0030,000.00Total$ 1,500,302.77$ 22,314.44$ 53,015.14$ 66,016.68*113 MLJDeposit SourceTrustTotal Undocumented$ 9,409.31$ 1,103,719.46TIC (QCNB)2,000.0046,814.44Law Book Store- - 4,250.00TIC Office Account480.0019,480.00FHIS1,440.009,040.00Tall Timbers- - 5,785.41Freedom Fuel Corp- - 27,852.05Leverage Leasing18,200.0018,200.00Hamilton Rd.- - 2,588.62La Oficina- - 15,000.00Lake Estates- - 8,000.00Precious Metals- - 66,069.41Central Ohio Trust #1- - 10,900.00Lake Middlebourne- - 138,528.95Casa Serena I and II59,300.00256,250.00Total$ 90,829.31$ 1,732,478.34Mr. Fry's accountant Ronald Snook stated in a sworn affidavit that Freedom Fuel Corporation expenditures were paid to or on behalf of Mr. Fry.  When Snook questioned the expenditures, Mr. Fry instructed Snook to "treat them as management or consulting fees rather than as wages for withholding purposes or as dividends." FFC expensed $ 405,073 in management and consulting fees on its tax return for fiscal year ending September 30, 1980.  Accordingly, we view the transfers from Freedom Fuel as taxable gross receipts. Mr. Fry formed Leverage Leasing Corporation to operate as a money market fund for TIC's clients. *114  According to Fry, a ledger card would be prepared for each client investing money.  A promissory note would be prepared for the deposit received.  LLC in turn would transfer the money to one or more syndicated or nonsyndicated activities agreeing to pay interest for the money provided.  Accordingly, the transfers from LLC are loans and nontaxable receipts. At the beginning of 1979, the Hamilton Road Partnership's balance sheet shows a $ 31,672.86 capital balance for Mr. Fry before subtraction of previously distributed losses of $ 68,157.90.  The partnership liabilities as of January 1, 1979, include a mortgage of $ 550,000.  We find no indication in the record of whether the partnership mortgage is a recourse or nonrecourse loan.  Those partnership records for 1979 reflect a $ 99,501 capital contribution made during the year by Mr. Fry consisting of Tax Information Center expenditures in the amount of $ 95,551.00 and a $ 3,950 cash contribution. We have traced $ 21,183.24 of the TIC expenditures to the TIC Office Account.  These expenditures were not expensed by TIC.  It is apparent that some TIC expenditures were to be repaid and others were not.  The transfer from Hamilton Road*115  Partnership identified above was recorded on the partnership's books as a repair and maintenance expense paid by cash.  The $ 2,588.62 transfer identified was substantiated by documents indicating repayment was to be made.  Accordingly, we conclude the $ 2,588.62 transfer to TIC is a loan repayment and does not consist of taxable gross receipts. La Oficina reported $ 37,500 as management or consulting fees expense in 1979.  Assuming petitioners maintained a double entry set of books, it is logical to assume the credit side of this accounting entry would be either to credit the cash account or an account payable to Mr. Fry.  The accounting records do not record an account payable to Mr. Fry, TIC, or the MLJ Trust.  We therefore consider the $ 15,000 transfer identified to be taxable gross receipts as part payment of the management fee expense. Lake Estates' financial records dated September 30, 1979, report a management and consulting expense in the amount of $ 100,000.00.  There is no account payable to, or account receivable from, TIC, Mr. Fry, or the MLJ Trust discernable from these records.  The management and consulting expense at the end of 1979 was recorded as $ 110,867.36. *116  We conclude that the $ 8,000 is not repayment of a loan from TIC or a related entity because petitioners have failed to present a check proving the original loan transfer.  Absent documentary evidence in the record of a loan from Lake Estates to TIC, we conclude that the $ 8,000.00 transfer was in part payment of the management or consulting expense. Precious Metals transferred $ 51,769.41 to TIC, $ 4,300.00 to Group Legal Plan, and $ 10,000.00 to TIC Office Account.  The profit and loss statement groups all Precious Metals' expenses other than interest, depreciation, rent, and repairs as miscellaneous operating expenses.  The attached records indicate that the operating expenses were paid by an open account.  In addition, TIC transferred $ 16,229.62 to Precious Metals to open a bank account which is shown as an account payable to TIC.  We conclude that the $ 66,069.41 transferred from Precious Metals is an advance for payment of Precious Metals' operating expenses and is not taxable receipts to petitioners. The Central Ohio Trust Trial Balance as of December 31, 1979, does not reflect an account receivable from TIC or Orlando Advertising at December 31, 1979.  Thus, we conclude*117  that if the $ 10,900 transferred during 1979 to TIC and Orlando Advertising were loans, they were not outstanding at the end of 1979.  Petitioners have not submitted checks or other documentary evidence proving a transfer from TIC and Orlando Advertising to Central Ohio Trust either as an original loan or a loan repayment. The loss reported on the Central Ohio Trust financial statements ($ 61,592.19) is not as great as that reported on the fiduciary tax return ($ 174,087) which compels the conclusion that all of the expenses were not recorded on the financial statements.  These financial statements are unreliable and do not conclusively prove anything.  Accordingly, we conclude that the $ 10,900 transferred during 1979 constitutes taxable gross receipts. The $ 138,528.95 transferred from Lake Middlebourne consists of $ 137,328.95 to TIC and $ 1,200.00 to TIC Office Account.  During 1979, a restaurant was being constructed for Lake Middlebourne.  In a letter to Lake Middlebourne investors dated August 9, 1980, TIC's vice president Curt Kittle stated that the construction costs of the restaurant were paid in cash.  The transfers to TIC most likely represent repayment of those construction*118  costs.  Accordingly, we conclude that these transfers are in the nature of loan repayments and are not taxable receipts. The financial records submitted to corroborate the losses shown on the Casa Serena I and II Trust returns are incomplete.  We are unable to determine from these financial records whether or not any of the transfers from Casa Serena during 1979 were recorded as asset purchases, loans, or expenses.  In a letter to clients dated August 15, 1979, Mr. Fry stated that in July 1979, he used $ 110,500 of Casa Serena I funds to purchase 61 acres of land for a new mobile home park to be operated by Casa Serena II in a joint venture with Casa Serena I, Mr. Fry, and his father.  However, we are unable to find a single deposit of $ 110,500 in respondent's schedules.  Further, we do not find a cashier's check purchased in July. That letter also states that Casa Serena I was a tax shelter in 1979 due to construction of the Casa Serena Mobile Home Park and invites clients to invest in Casa Serena Trust II.  A "Fact Sheet" regarding Casa Serena II accompanied Mr. Fry's letter, and states that $ 100,000 is to be paid to Mr. Fry and his father as a design, planning, and organization*119  fee.  While it is reasonable to infer that some of the transfers from the Casa Serena trusts repaid construction costs of the mobile home park, there is no evidence in this record for us to determine the amount. The transfer of $ 59,300 in to the MLJ Trust particularly concerns this Court because the MLJ Trust is Mr. Fry's personal trust.  Mr. Fry has not established that he has a legal obligation to repay the $ 59,300 transfer and has absolute dominion and control over these funds.  Further, if in fact the $ 59,300 constituted a loan, we see nothing to prevent Mr. Fry from later reclassifying the account receivable as payment of the design management and consulting fee because Mr. Fry has complete accounting control over the Casa Serena Trusts.  A cash basis taxpayer must include income the earlier of actual or constructive receipt.  Sec. 1.451-1(a), Income Tax Regs. We therefore conclude that $ 59,300 of the Casa Serena transfers is taxable gross receipts and $ 196,950 is in the nature of loan repayments. Petitioners are deemed, under Rule 142(a), to concede the following bank deposits are taxable gross receipts (See table, supra p. 20.): BANK ACCOUNTFamily Health & Improvement Society$ 27,222.50Law Book Store10,405.20TIC (BONB)40,126.02TIC (VNB)939.30Total$ 78,693.02*120 Cashier's checksPetitioners have not documented the source of funds to purchase or the purpose for the $ 5,000.00 cashier's check purchased April 20, 1979, or the $ 129,515.00 cashier's check purchased December 10, 1979.  See infra p. 88.  We find no purpose or explanation of either of these checks in the record before us.  However, we are satisfied that Mr. Fry was acting as a conduit purchasing syndication assets with the other cashier's checks listed. The check purchased on December 10th was co-endorsed by attorneys and from the record as a whole we infer that Mr. Fry purchased property with this check.  However, we are unable to identify the property or the source of the funds.  The check lists Mr. Fry as payee and, in absence of contrary evidence, we conclude that this check represents taxable receipts.  Accordingly, petitioners had $ 134,515.00 of additional taxable receipts in 1979 from cashier's checks.  Based upon the foregoing, we conclude that petitioners had total taxable gross receipts in 1979 as summarized on the following table. Deposit SourceTotal Taxable ReceiptsNontaxable receiptsUndocumented$ 1,103,719.46$ 1,103,719.46- -   TIC (QCNB)46,814.44- -   $ 46,814.44Law Book Store4,250.00- -   4,250.00TIC Office Account19,480.00- -   19,480.00FHIS9,040.00- -   9,040.00Tall Timbers5,785.41- -   5,785.41Freedom Fuel Corp27,852.0527,852.05- -   Leverage Leasing18,200.00- -   18,200.00Hamilton Rd.2,588.62- -   2,588.62La Oficina15,000.0015,000.00- -   Lake Estates8,000.008,000.00- -   Precious Metals66,069.41- -   66,069.41Central Ohio Trust #110,900.0010,900.00- -   Lake Middlebourne138,528.95- -   138,528.95Casa Serena I70,000.00Casa Serena II186,250.0059,300.00196,950.00Subtotal$ 1,732,478.34$ 1,224,771.51$ 507,706.83Cashier's checks496,691.11134,515.00362,176.11Other deposits78,693.6278,693.62- -   Total$ 2,307,863.07$ 1,437,980.13$ 869,882.94*121 1980After tracing petitioners checks to respondent's deposit schedules, we find the source of deposits to petitioners' accounts during 1980 to be as shown on the following page. The undocumented deposits are income.  The deposits listed above with TIC(QCNB), MLJ Trust, and MLJ/ML as their source are considered nontaxable transfers to prevent double inclusion of income. Petitioners argue that the $ 260,000 transferred from petitioners' Valley National Bank account to the MLJ/Merrill Lynch account should be removed from taxable receipts to avoid double counting because the money was transferred from one entity to a related entity, and, alternatively, because the Valley DepositGroupOrlandoTIC OfficeSource:Legal PlanAdvertisingAccountUndocumented$ 2,421.37$ 19,030.07- -   TIC (QCNB)27,133.0412,755.0012,165.14MLJ Trust- -   - -   - -   MLJ/ML1,455.227,600.00- -   Phillip Fry (VNB)- -   - -   - -   Capital Appreciation Trust- -   - -   - -   Freedom Fuel Corp- -   21,100.002,000.00Leverage Leasing700.0020,250.0032,723.55Sports Paradise R V Park- -   - -   - -   Hamilton Rd. Pshp.- -   - -   - -   Central Ohio Trust #1- -   - -   - -   Jordan Estates- -   - -   - -   Orchard Lakes- -   - -   - -   Lake Middlebourne- -   - -   - -   La Oficina- -   - -   - -   Tall Timbers- -   10,000.00- -   Tradewinds Trust- -   - -   - -   Fantasyland Trust- -   - -   - -   Casa Serena- -   - -   - -   Energy Lodging Trust- -   - -   - -   Interest Earned- -   - -   - -   Other Deposits- -   - -   - -   Error Adjustments- -   - -   - -   Total$ 31,709.63$ 90,735.07$ 46,888.69*122 1980BANK ACCOUNTSDepositMLJ MLJ/ MerrillTIC Source:Trust Lynch(QCNB)Undocumented$ 61,474.68$ - -   $ 675,864.56TIC (QCNB)4,360.00- -   - -   MLJ Trust- -   105,000.00- -   MLJ/ML74,800.00- -   180,150.93Phillip Fry (VNB)- -   260,000.00- -   Capital Appreciation Trust82,500.00- -   - -   Freedom Fuel Corp44,700.00140,000.0033,975.00Leverage Leasing125,564.9930,000.0050,700.00Sports Paradise R V Park- -   25,000.0016,000.00Hamilton Rd. Pshp.22,000.00- -   9,750.00Central Ohio Trust #11,760.76- -   - -   Jordan Estates38,570.00- -   - -   Orchard Lakes55,832.00- -   - -   Lake Middlebourne951.95- -   4,000.00La Oficina2,500.00- -   - -   Tall Timbers1,558.00- -   2,181.20Tradewinds Trust660.00- -   42,750.00Fantasyland Trust159,700.00- -   - -   Casa Serena15,000.00- -   - -   Energy Lodging Trust50,000.00- -   - -   Interest Earned- -   10,284.00- -   Other Deposits290,039.77529,305.97- -   Error Adjustments30,000.0020,724.00- -   Total$ 1,061,972.15$ 1,120,313.97$ 1,015,371.69DepositTICGuernseySource:(BONB)Lumber Co.TotalUndocumented$ 52,018.90$ 23,572.44$ 834,382.02TIC (QCNB)6,000.0059,010.54121,423.72MLJ Trust- -   10,000.00115,000.00MLJ/ML- -   4,750.00268,756.15Phillip Fry (VNB)- -   - -   260,000.00Capital Appreciation Trust- -   - -   82,500.00Freedom Fuel Corp- -   - -   241,775.00Leverage Leasing- -   - -   259,938.54Sports Paradise R V Park- -   - -   41,000.00Hamilton Rd. Pshp.- -   2,112.3633,862.36Central Ohio Trust #1- -   1,508.023,268.78Jordan Estates- -   - -   38,570.00Orchard Lakes- -   - -   55,832.00Lake Middlebourne- -   - -   4,951.95La Oficina- -   - -   2,500.00Tall Timbers- -   - -   13,739.20Tradewinds Trust- -   - -   43,410.00Fantasyland Trust- -   - -   159,700.00Casa Serena- -   - -   15,000.00Energy Lodging Trust- -   - -   50,000.00Interest Earned- -   - -   10,284.00Other Deposits- -   - -   819,345.74Error Adjustments- -   - -   50,724.00Total$ 58,018.90$ 100,953.36$ 3,525,963.46*123  National Bank account was not part of respondent's notice of deficiency.  Petitioners submitted checks from the Valley National Bank to prove the source of funds transferred into the Merrill Lynch account.  However, they did not prove the source of those same funds taxable or otherwise deposited in their Valley National account.  Respondent did not allow the checks representing the $ 260,000 as a transfer on the MLJ/Merrill Lynch account, so we find the deposit amount was included as income in the notice of deficiency.  We find that the $ 260,000 is properly included in petitioners taxable receipts because petitioners did not prove a nontaxable source for the initial deposit into the Valley National account.  Our allowance of the MLJ Trust transfer to the MLJ/Merrill Lynch account as a nontaxable transfer prevents double inclusion of this income. The $ 82,500 received from Capital Appreciation Trust was in payment of a management, consulting, and organization fee for organizing that syndication. We find that this was properly included in petitioners' income. As noted in our discussion of 1979, the Freedom Fuel Corporation tax return for fiscal year ending September 30, 1989, expensed*124  $ 405,073 as a management and consultant fee.  We find the deposits from Freedom Fuel Corporation are taxable receipts.  Also as noted in our discussion of 1979, we consider the transfers from Leverage Leasing to be loans. Sports Paradise Recreational Vehicle Park (SPRVP) differed from the majority of the other syndications in the respect that Mr. Fry did not reserve a management fee for organizing, operating, and managing the trust.  Instead, the SPRVP syndication documents contain a lease for the syndication to lease the land upon which the recreational vehicle park was to be built from Mr. Fry at a rate of $ 2,500 per year.  The fiduciary tax return expensed $ 25,000 in distributorship fees and $ 2,500 as rent.  We find that the $ 25,000 deposited in the MLJ Trust account was in payment of a prepaid ground lease and income to Mr. Fry.  Sec. 61; sec. 1.61-8, Income Tax Regs.There is no documentary explanation in the record of why $ 16,000 was transferred from SPRVP to TIC.  The yearend financial statements show a $ 44,267.02 balance in the cash account while a notation states the actual check book balance was $ 971.02.  In short, the financial statements are unreliable.  The *125  recreational vehicle park was not constructed at the time this trust was syndicated and the trust had no other assets.  In this instance we are able to trace the $ 16,000 transfer to syndication funds which, at the end of 1980, Mr. Fry has a duty to repay.  Accordingly, we view the $ 16,000 transfer as nontaxable receipts. The transfer from the Hamilton Road Partnership to the MLJ Trust was in the form of a $ 22,000 check made payable to the MLJ Trust.  The Hamilton Road Partnership charged this payment against Mr. Fry's capital account in the partnership to the extent of $ 16,092.92, and the remaining $ 5,907.08 was charged against the balance of the account payable owed to TIC.  Thus, the $ 5,907.08 is not income.  Our discussion of Hamilton Road Partnership for 1979 states how Mr. Fry had a loss in excess of his capital account and how that capital account was restored.  The original deposits were included in TIC's income, so when Hamilton Roads recorded the expenses TIC paid as a capital contribution, Mr. Fry may be viewed as having made an economic contribution to the partnership. Accordingly, when the Hamilton Road Partnership made the above distribution, it was a return of*126  capital to Mr. Fry and not income.  The $ 9,750.00 transfer was a loan repayment and is a nontaxable receipt. The Hamilton Road Partnership records reflect that the partnership expensed the amounts transferred to Guernsey Lumber Company as repairs and maintenance expense.  According to Mr. Fry's accountant, the transfers from Hamilton Road Partnership and Central Ohio Trust to Guernsey Lumber Company would be sales receipts to Guernsey Lumber Company.  We have no reason to doubt Mr. Snook's veracity and therefore conclude that the $ 2,112.36 transfer from Hamilton Road and the $ 1,508.02 transfer from Central Ohio Trust to Guernsey Lumber Company are taxable gross receipts. The balance sheet of Central Ohio Trust at December 31, 1979, does not reflect an account payable to the MLJ Trust.  Petitioners have not introduced any documentary evidence of a transfer from the MLJ Trust either as an original loan or a loan repayment. We therefore conclude that the $ 1,760.76 transfer was not a loan and represents taxable gross receipts. The "Fact Sheets" and offer memoranda for the Jordan Estates and Orchard Lakes Estates syndications provide for a management, consulting, and organization*127  fee payable to Mr. Fry in the amounts of $ 50,000 and $ 80,000 respectively.  The Orchard Lakes Balance Sheet at December 31, 1980, has an account payable for consulting fees in the amount of $ 27,710.00, which means the consulting fees were not paid all at once.  The Jordan Estates financial records for 1980 reflect a $ 55,000 consulting fees expense but do not reflect an account payable for those consulting fees. We therefore conclude that the consulting fees were paid.  Because the MLJ Trust was Mr. Fry's personal trust, and the transfers from these syndications were deposited to that trust, we find that the $ 38,570 and $ 55,832 were part payment of the management and consulting fee and therefore properly characterized as taxable receipts. Of the $ 4,951.95 transferred from Lake Middlebourne, $ 951.95 was drawn on the Lake Middlebourne payroll account.  The inescapable conclusion is that $ 951.95 represents taxable wages.  The check for the $ 4,000 transfer was written on another account, presumably the business account, made payable to TIC, and charged against the account payable to TIC.  Petitioner has proven to our satisfaction that the $ 4,000 transfer to TIC was more likely*128  than not a loan repayment. The partial financial statements for La Oficina include a balance sheet for 1979 that does not reflect an account payable to the MLJ Trust at the end of 1979.  Petitioners have not substantiated a transfer to La Oficina from MLJ during 1980, so we conclude that the $ 2,500 transfer was not a loan repayment. These La Oficina financial statements also include a 1980 profit and loss statement showing a loss ($ 15,192.91) different from that reported ($ 39,175) on the tax return filed by Mr. Fry.  A balance sheet at the end of 1980 is not included.  From petitioners' failure to include the balance sheet, we infer that it would not reflect a loan to MLJ Trust.  Accordingly, we conclude that the $ 2,500 transferred is not a loan and constitutes taxable gross receipts. The financial records of the Tall Timbers Trust show the $ 1,558.00 and the $ 2,181.20 transfers were charged to the "Distributed Earnings" account.  Because these transfers were charged on the books to the distributed earnings account and not a receivable or payable account, we conclude that these transfers were not loans or loan repayments. Mr. Fry made no initial capital contribution to this*129  syndication so these transfers are not a return of capital.  We therefore conclude that they are taxable receipts. The $ 10,000 transfer from Tall Timbers to Orlando Advertising was drawn on a different bank checking account which is not reflected on the financial statements.  Throughout 1980, the records of general ledger activity do not record this transfer as a loan or a loan repayment. Accordingly, we conclude the $ 10,000 transfer represents taxable receipts. The records of general ledger account activity reflect the $ 660.00 transferred from Tradewinds Trust as distributed earnings, not as loans or loan repayments. Mr. Fry made no economic contribution to Tradewinds Trust.  We conclude that the $ 660.00 transferred is properly included in taxable gross receipts. The $ 42,500 transferred repaid TIC for the cashier's check purchased December 28, 1979. By the end of 1980, Mr. Fry was actively developing an amusement park called Paradise Lake Amusement Park. A TIC letter dated September 19, 1980, announced that the amusement park would be open to investors through a new trust named Fantasyland.  The Fantasyland Trust Agreement states that the trust was formed to purchase *130  38 percent of Fantasyland, which covers 50 acres of Mr. Fry's 2,000-acre amusement park. The financial statements indicate that $ 733,625 of the $ 1,520.000 capital solicited purchased 18.34 percent of the amusement park assets.  The general ledger activity records an initial account payable to the MLJ Trust amounting to $ 733,600 (18.34 percent of 4 million dollars).  The trust paid $ 640,196.75 leaving a balance of $ 93,403.25 remaining in the account payable to the MLJ Trust.  We conclude that the deposits to the MLJ Trust were for the purchase of the amusement park assets and are properly included in taxable gross receipts. We are not able to precisely determine the purpose of the transfers from Casa Serena to the MLJ Trust during 1980 on the record before us.  Mr. Fry deposited the $ 15,000 in his trust and it is more likely than not that the check was issued in payment of the design, management, and consulting fee. Nevertheless, petitioners have argued the $ 15,000 transferred constitutes loans and they bear the ultimate burden of persuading this Court.  They have failed to do so, and we conclude that the amount is properly included in taxable gross receipts. The records *131  submitted to corroborate the Energy Lodging Trust tax return consist of a profit and loss statement, a schedule distributing the loss to the "trust beneficiaries", and page 3 of the general ledger activity schedule.  We are unable to find any documentation of a loan from Energy Lodging to the MLJ Trust from these documents.  Petitioners have failed to introduce any documentary evidence of an original loan transfer, so we conclude the $ 50,000 Energy Lodging transfer was not repayment of a loan to the MLJ Trust.  Mr. Fry deposited the $ 50,000 transferred in his personal trust, and has not established a legal obligation to repay those funds.  Petitioners have simply not persuaded us that the $ 50,000 transferred should be treated as nontaxable receipts. The deposits listed as "Other Deposits" under the MLJ Trust column consists of a single deposit made on May 23, 1980.  Petitioners produced the deposit slip for that deposit at the trial of this case.  The deposit consists of three amounts, $ 142,651.00, $ 141,674.48, and $ 5,714.29.  The exact same dollar amount was transferred from the MLJ Trust account to the MLJ/Merrill Lynch account on May 22, 1980 -- a day before the amount was*132  even deposited in the MLJ Trust account. Mr. Fry testified that the source of these funds was from investors in the Innovative Investors Trust Syndication. The cost of a share of beneficial interest in this trust was $ 5,714.29.  The first two amounts shown on the deposit slip are not equally divisible by 5,714.29.  The partial financial reports state $ 291,429.00 was invested in this trust during 1980.  A representative trust agreement introduced into evidence dated August 5, 1980, for the purchase of one unit of beneficial interest for $ 5,714.29 when added to the May 23, 1980, deposit clearly exceeds the $ 291,429.00 capitalization. In short, we do not believe Mr. Fry's testimony that the total amount of the deposit consists of investors' funds.  It is inconceivable to this Court how Mr. Fry could know exactly how many investors would wire a specific amount of money on a particular date to purchase an interest in a syndication the day before the actual transfers.  The third item in the amount of $ 5,714.29 shown on the deposit slip is conceivably an investor's contribution and the portion of the deposit constituting income is to be reduced accordingly. The MLJ/Merrill Lynch*133  account "Other Deposits" amount shown above contains two deposits. Mr. Fry assertedly received the deposit amounts of $ 126,361.66 and $ 402,944.31, as a straw man in an alleged tax-free section 1031 exchange from the sale of the Worthington Arms Mobile Home Park.  Mr. Fry owned 10 percent and his father owned 90 percent of this mobile home park.  Loan closing documents and a receipt from Merrill Lynch submitted by petitioners support the source of the funds for the two deposits. As a straw man in the alleged tax free exchange, 10 percent of the receipts attributable to Mr. Fry's ownership are taxable receipts.  We need not decide whether the alleged tax free exchange is meritorious. 15 We are satisfied that 90 percent of the proceeds from the mobile home park sale should be attributed to Mr. Fry's father.  Accordingly, $ 52,930.60 represents taxable receipts to petitioner. *134  Petitioners are deemed, under Rule 142(a), to have conceded the following bank deposits are taxable gross receipts (See table, supra p. 20.): BANK ACCOUNTSFamily Health & Improvement Society$  17,678.06TIC (VNB)18,980.00Increasing Innovative Income Magazine22,547.53Amusement Concepts42,500.00Total$ 101,705.59Cashier's Checks It appears from the endorsements on several of the cashier's checks that Mr. Fry purchased amusement rides costing $ 87,587.85.  See infra p. 99.  According to Mrs. Fry's schedules, $ 29,000 came from Freedom Fuel Corporation, but the transfer is not corroborated by a cancelled check.  We find no further evidence of the source of the transfer or that the transfer represents a bona fide loan.  It would be consistent with Mr. Fry's prior practice to expense amounts paid on his behalf by FFC as a management fee.  In the absence of any credible evidence to the contrary, we conclude that the $ 29,000 is properly included in taxable gross receipts. Of the other $ 58,587.85, Mrs. Fry's schedules reflect that $ 27,000 came from Fantasyland, $ 15,000 came from Amusement Concepts, and the remainder ($ 16,587.85) came from "related syndications" *135  and is not substantiated by documentary evidence.  Petitioners have not substantiated the source of funds used to purchase other cashier's checks totalling $ 34,463.87, one of which is a $ 5,000 check made payable to Mrs. Fry. As discussed above, Mr. Fry sold 18.34 percent of a portion of his amusement park to the Fantasyland syndication. We view the $ 27,000 transferred from Fantasyland as part of the purchase price paid to Mr. Fry and should be included in taxable gross receipts. Petitioners deposited $ 42,500 in the Amusement Concepts bank account which is included in respondent's bank deposits analysis.  The $ 15,000 from Amusement Concepts used to purchase the cashier check must be removed to prevent double inclusion of income.  Based upon the foregoing, we conclude that petitioners received additional taxable receipts of $ 107,051.72 in 1980 which they used to purchase cashier's checks. Deposit Source:Total DepositsTaxable ReceiptsNontaxable receiptsUndocumented$ 834,382.02$ 834,382.02  - -TIC (QCNB)121,423.72- -$ 121,423.72  MLJ Trust115,000.00- -115,000.00MLJ/ML268,756.15- -268,756.15Phillip Fry (VNB)260,000.00260,000.00- -Capital Appreciation82,500.0082,500.00- -TrustFreedom Fuel Corp241,775.00241,775.00- -Leverage Leasing259,938.54- -259,938.54Sports Paradise RV41,000.0025,000.0016,000.00ParkHamilton Rd. Pshp.33,862.362,112.3631,750.00Central Ohio Trust #13,268.783,268.78- -Jordan Estates38,570.0038,570.00- -Orchard Lakes Estates55,832.0055,832.00- -Lake Middlebourne4,951.95951.954,000.00La Oficina2,500.002,500.00- -Tall Timbers13,739.2013,739.20- -Tradewinds Trust43,410.00660.0042,750.00Fantasyland Trust159,700.00159,700.00- -Casa Serena15,000.0015,000.00- -Energy Lodging50,000.0050,000.00- -Interest Earned10,284.0010,284.00- -Other deposits819,345.74337,256.08482,089.66Deposit scheduletotal *$ 3,475,239.46$ 2,133,531.39    $ 1,341,708.07    Other bank accounts101,705.59101,705.59- -Cashier's checks131,325.16107,051.7224,273.44Total receipts$ 3,708,270.21$ 2,342,288.70    $ 1,365,981.51    *136 We find that petitioners had taxable gross receipts in 1980 in the amount of $ 2,342,288.70 as shown on the preceding table.  In summary, we have determined the amount of gross receipts separately for all years at issue to be as follows: YearGross Receipts1977$ 226,615.991978$ 1,187,544.211979$ 1,437,980.131980$ 2,342,288.70EXPENSESShortly before the trial of this case, petitioners provided copies of the 1978 and 1979 workpapers to respondent's agents in support of their claim of deductible expenses.  The income portions of the workpapers were blackened obscuring the income figures.  Petitioners also produced, for the first time, detailed ledger cards, schedules, and cancelled checks in support of their claimed expenses.  Mrs. Fry prepared and provided schedules for each expense*137  category in each year supported by cancelled checks and ledger cards.  While petitioners provided documentation pertaining to the expenses of their own activities, they provided no underlying documentation for the syndicated entities which would support deductions for syndication expenses for the years 1978, 1979, or 1980. Revenue Agent Anderson allowed the majority of the claimed deductions.  Certain expenditures were capitalized and depreciated.  Other expenditures were disallowed for lack of substantiation, duplication, or because they were non-deductible personal expenses.  All of petitioners' personal family and living expenses were paid from the business checking accounts. After concessions, the expenses, other than depreciation and syndicated trust losses, that are disputed by the parties are as follows. Expense Category:19771978 19791980 Automobile$ 402$ 4,864$ 5,264$ 242Indep. Contractors- -- -$ 75,244- -Reimbursed Expenses- -- -- -$ 1,500Travel- -- -$ 10,390$ 7,776Legal Fees- -- -$ 8,340- -Bad Debts- -$ 154,706$ 179,804$ 185,546Petitioners assert they are entitled to a 60-percent business usage*138  of their automobiles instead of the 50 percent allowed by respondent.  They have failed to present any credible evidence to support the increased usage.  Accordingly, we sustain respondent's allowance of automobile expenses for 1977, 1978, and 1979.  Petitioners produced receipts for gasoline purchases dated in 1980 totaling $ 800.83.  In keeping with respondent's allowance of 50 percent, petitioners are entitled to automobile expenses totaling $ 400.42 for 1980. Respondent disallowed independent contractor expense in the amount of $ 56,651.00 for lack of substantiation and $ 18,593 for duplication of expense already allowed.  Petitioners have failed to substantiate additional independent contractor expenses.  Therefore, we sustain respondent's determination. Respondent disallowed 1979 travel expenses as personal ($ 483), for duplication ($ 9,859), and for lack of substantiation ($ 48).  He disallowed 1980 travel expenses of $ 7,776 as personal expenses.  Petitioners have failed to present any credible evidence to disturb respondent's determination of such expenses. Respondent disallowed $ 6,340 in legal expense for lack of substantiation and a $ 2,000 transfer to GLP.  Petitioners*139  have failed to present evidence to substantiate these claimed expenses. Petitioners claim they are accrual method taxpayers and entitled to a bad debt expenses they calculated by deducting 16 percent of TIC's gross sales for the year.  The amounts claimed as bad debts were not actual payments under the TIC guarantee of results but were an accounting estimate based upon Mr. Fry's best estimate of how much TIC would ultimately repay clients.  Rather than the direct charge-off method, petitioners claim to use the reserve method of accounting for bad debts. Expenses must be determined on the same method of accounting as is used for determining taxable income.  Sec. 461(a).  Respondent determined petitioners' income on the cash basis by use of the bank deposits method.  Petitioners have failed to produce reliable books and records kept on the accrual basis from which we may determine their accrual basis income.  Moreover, the expenses claimed by petitioners are technically more in the nature of an anticipated warranty expense reserve rather than a bad debt reserve.  The section 166(c) bad debt reserve is therefore inapplicable by definition. The depreciation expense is in dispute due*140  to disagreement on the cost basis of equipment purchased during 1978 and 1979. 16 Respondent concedes adjustments to the depreciable basis for some equipment purchased.  Petitioners failed to substantiate other equipment purchases.  We therefore find the depreciation expenses on equipment to be as follows: 17YearDepreciationDepreciation Expense   Basis1977197819791980Pre-1977$ 36,053$ 6,448$ 5,094$ 3,647$ 3,0341977$ 26,4617,5615,4003,8582,7891978$ 163,675  - -37,14736,14925,8211979$ 96,890- -- -27,68419,7741980$ 45,774- -- -- -13,078Total$ 14,009$ 47,641$ 71,338$ 64,496In addition to depreciation and the above scheduled expenses, petitioners claim entitlement to syndicated trust*141  losses.  The MLJ Trust held beneficial interest in almost all of the syndicated entities formed and promoted by Mr. Fry.  Some of the trust returns introduced into evidence were incomplete in that the beneficial interests reported on the Schedules K-1 did not equal the total beneficial interest in the trust.  In other cases, the amount distributed exceeded the net loss reported on the return. Respondent did not allow the syndicated trust losses because the losses are not identifiable from petitioners' returns; petitioners have not substantiated the expenses and refused to allow respondent to examine the syndications' books and records; petitioners have not substantiated that they had sufficient tax basis to permit deduction of their distributive share of the losses; and the syndications losses are due, in part, to bogus Freedom Fuel Corporation license deductions. Petitioners' share of syndicated trust losses shown on the syndication trust returns are shown on the following page.  1979Form 1041 lossFry SharePrecious Metals Holding Co.$    83,888$  42,974Casa Serena Trust I & II121,26715,461Central Ohio Trust #1434,942196,164Hamilton Rd. Ptnrshp., A Trust72,92341,019La Oficina Trust119,99619,196Lake Estates, A Trust450,981180,385Lake Middlebourne Estates, A Trust98,05310,187Tall Timbers Trust101,14431,520Tradewinds Trust118,43613,028Total claimed in 1979$ 1,601,630$ 549,9341980Precious Metals Holding Co.$    45,136$  37,536Casa Serena Trust I & II349,16711,724Central Ohio Trust #1174,08777,643Hamilton Rd. Ptnrshp., A Trust34,01219,132La Oficina Trust39,17510,185Lake Estates, A Trust195,66275,134Lake Middlebourne Estates, A Trust142,00714,769Tall Timbers Trust108,89733,927Tradewinds Trust85,2209,347Capital Appreciation Trust276,86746,514Columbus Game Arcade, A Trust24,94016,616Energy Lodging Trust144,95857,983Fantasyland Trust I338,8230.00Innovative Investor Trust22,0018,800Jordan Estates, A Trust112,81222,562Orchard Lakes Estates142,99222,879Sports Paradise R. V. Park27,5000.00Total Claimed in 1980$ 2,264,256$ 464,751*142  The above syndication trust losses include deductions for Freedom Fuel Corporation distributorship license agreements.  Petitioners concede the deductions for the license agreements but claim entitlement to remaining trust losses, exclusive of FFC deductions, in the amounts of $ 324,164 and $ 366,037 for 1979 and 1980, respectively. Petitioners submitted partial financial statements and fiduciary income tax returns (Forms 1041) to support their claimed syndication loss deductions.  The financial statements consisted of a profit and loss statement and the portion of the balance sheet showing the liabilities and capital.  Almost all of the balance sheets presented did not contain the assets section. Respondent is not bound to accept a taxpayer's return at face value.  Holland v. United States,348 U.S. 121">348 U.S. 121, 99 L. Ed. 150">99 L. Ed. 150, 75 S. Ct. 127">75 S. Ct. 127 (1954); Harper v. Commissioner,54 T.C. 1121">54 T.C. 1121, 1129 (1970). Petitioners never provided respondent's agents with any original source documentation in support of the claimed deductions for the syndicated trust activities.  Instead, they rely on partial financial statements which are incomplete, unreliable, and insufficient to substantiate the*143  claimed trust losses. 18 Because petitioners have failed to substantiate the syndication trust losses they claim to this Court, we hold they are not entitled to any deductions from the syndicated activities. *144  In summary, we find and hold that petitioners are entitled to total expenses as shown below.  The categories of expenses are detailed in appendix D and include all allowed expenses and adjustments in accordance with the foregoing discussion.  YearTotal Expenses1977$   138,3771978$   666,8341979$ 1,125,9201980$ 1,530,960FRAUDRespondent has the burden to prove fraud under section 6653(b) by clear and convincing evidence. Sec. 7454(a); Rule 142(b).  To meet this burden, respondent must show that there is some underpayment of tax and that petitioner engaged in conduct intended to conceal, mislead, or otherwise prevent the collection of taxes known to be owing. Stoltzfus v. United States, 398 F.2d 1002">398 F.2d 1002, 1004 (3d Cir. 1968); Wedvik v. Commissioner, 87 T.C. 1458">87 T.C. 1458, 1468-1469 (1986); Rowlee v. Commissioner, 80 T.C. 1111">80 T.C. 1111 (1983). The existence of fraud is a question of fact to be resolved upon consideration of the entire record.  Gajewski v. Commissioner, 67 T.C. 181">67 T.C. 181, 199 (1976), affd. without published opinion 578 F.2d 1383">578 F.2d 1383 (8th Cir. 1978); Estate of Pittard*145  v. Commissioner, 69 T.C. 391">69 T.C. 391 (1977). Fraud is not to be imputed or presumed. Beaver v. Commissioner, 55 T.C. 85">55 T.C. 85, 92 (1970); Otsuki v. Commissioner, 53 T.C. 96">53 T.C. 96 (1969). However, fraud may be proven by circumstantial evidence because direct proof of the taxpayer's intent is rarely available. Rowlee v. Commissioner, 80 T.C. 1111 (1983). The taxpayer's entire course of conduct may be examined to establish the requisite fraudulent intent.  Stone v. Commissioner, 56 T.C. 213">56 T.C. 213, 223-224 (1971); Otsuki v. Commissioner, supra at 105-106. The intent to conceal or mislead may be inferred from a pattern of conduct.  See Spies v. United States, 317 U.S. 492">317 U.S. 492, 499, 87 L. Ed. 418">87 L. Ed. 418, 63 S. Ct. 364">63 S. Ct. 364 (1943). A pattern of consistent underreporting of income, especially when accompanied by other circumstances showing an intent to conceal, justifies the inference of fraud. Holland v. United States, 348 U.S. 121">348 U.S. 121, 137, 99 L. Ed. 150">99 L. Ed. 150, 75 S. Ct. 127">75 S. Ct. 127 (1954). However, the mere failure to report income is not sufficient to establish fraud. Merritt v. Commissioner, 301 F.2d 484">301 F.2d 484, 487 (5th Cir. 1962). *146 Fraud may not be found under circumstances which at the most create only suspicion.  Davis v. Commissioner, 184 F.2d 86">184 F.2d 86, 87 (10th Cir. 1950). Badges of fraud which may be taken into account include: (1) The making of false and inconsistent statements to revenue agents, Grosshandler v. Commissioner, 75 T.C. 1">75 T.C. 1, 20 (1980); (2) the filing of false documents, Stephenson v. Commissioner, 79 T.C. 995">79 T.C. 995, 1007 (1982), affd.  748 F.2d 331">748 F.2d 331 (6th Cir. 1984); (3) understatements of income; (4) inadequate records; (5) failure to file tax returns; (6) implausible or inconsistent explanations of behavior; (7) concealment of assets; and (8) failure to cooperate with tax authorities.  Bradford v. Commissioner, 796 F.2d 303">796 F.2d 303, 307 (9th Cir. 1986), affg. a Memorandum Opinion of this Court. Petitioners' returns show a consistent pattern of underreporting their income.  For the 1974, 1975, and 1976 taxable years, petitioners reported a net operating loss.  After respondent examined the income tax returns for those years, petitioners were found to have deficiencies in tax.  Petitioners admitted these deficiencies*147  in a previously docketed case.  We have found petitioners have also underreported their income for 1977, 1978, 1979, and 1980. Another consistent pattern that emerges when petitioners' returns are examined is that they filed "one-line returns" or returns which list minimal amounts of information.  We view this as further evidence of petitioners' attempting to conceal the presence and source of their income. Petitioners claimed bogus Freedom Fuel Corporation deductions on their returns indirectly by claiming syndicated trust losses.  They further claimed syndicated trust losses for which they had no economic loss.  It is well settled that a fraudulent understatement of income can be accomplished by an overstatement of deductions.  Drobny v. Commissioner, 86 T.C. 1326">86 T.C. 1326, 1349 (1986); Hicks Co. v. Commissioner, 56 T.C. 982">56 T.C. 982, 1019 (1971), affd.  470 F.2d 87">470 F.2d 87 (1st Cir. 1972); Neaderland v. Commissioner, 52 T.C. 532">52 T.C. 532, 540 (1969), affd.  424 F.2d 639">424 F.2d 639 (2d Cir. 1970). In determining the presence of fraud we may consider the native ability and the training and experience of the party involved.  73 Iley v. Commissioner, 19 T.C. 631">19 T.C. 631, 635 (1952); Plunkett v. Commissioner, 465 F.2d 299">465 F.2d 299, 303 (7th Cir. 1972). This includes a party's educational background.  Drobny v. Commissioner, supra at 1349.The evidence shows that Mr. Fry was well educated and was mature, sophisticated, and shrewd in business matters.  He also authored and sold several books on tax planning strategies.  We think he knew what he *148  was doing and what he attempted to accomplish during the years in issue, which was the evasion of tax on substantial income. A finding that a taxpayer acted fraudulently may also be supported by the fact that he was evasive, uncooperative, or dilatory during the course of the Commissioner's examination.  Such conduct tends to indicate an effort to conceal the true facts concerning the taxpayer's financial affairs.  Powell v. Granquist, 252 F.2d 56">252 F.2d 56, 60-61 (9th Cir. 1958); Estate of Beck v. Commissioner, 56 T.C. 297">56 T.C. 297, 365 (1971). Mr. Fry's uncooperative attitude concerning respondent's examination is well documented in our findings and need not be repeated here. Accordingly, we find and hold*149  that Mr. Fry was fraudulent for all years in issue and is therefore liable for the additions to tax under section 6653(b). Fraud is not imputed from one spouse to another.  In the case of a joint return, respondent must prove fraud as to each spouse charged for the addition to tax.  Sec. 6653(b); Hicks Co. v. Commissioner, supra at 1030; Stone v. Commissioner, supra at 227-228. Respondent has not proven overt acts of Mrs. Fry sufficient to justify imposing the section 6653(b) addition to tax against her and, accordingly, has not carried his burden in proving her fraudulent intent. STATUTE OF LIMITATIONIn light of our holding that a part of petitioners' underpayment of tax for all years in issue was due to fraud with the intent to evade tax, it necessarily follows that the assessment of the deficiencies for those years is not barred by the statute of limitations. 19Sec. 6501(c)(1). *150 SELF-EMPLOYMENT TAXRespondent determined petitioners were liable for self-employment tax in the amounts of $ 1,303.00, $ 1,434.00, $ 1,855.00, and $ 2,098.00 for 1977 through 1980, respectively.  This self-employment tax was based on Mr. Fry's self-employment income. On brief, petitioners admit to having income in 1977 and 1978, but argue any income in these years is offset by net operating losses incurred in 1979 and 1980.  In essence, petitioners argue they had no self-employment income for the years in issue. Section 1401 imposes a tax, in addition to other taxes, on the "self-employment income" of every individual.  Generally, self-employment income is the net income derived from carrying on a trade or business.  Sec. 1402.  Mr. Fry's net earnings from self-employment appear to exceed the Social Security wage and contribution base, and we therefore sustain respondent's determination subject to the parties' Rule 155 computation. Sec. 6654(a) ADDITIONS TO TAXSection 6654(a) imposes an addition to tax for underpayment of estimated tax.  During the years in issue section 6654(d) provided four exceptions to imposition of the section 6654(a) addition to tax.  In general, *151  those exceptions applied if the amount of estimated tax paid exceeded (1) the tax shown on the individual's prior year's return, if such return showed a tax liability and the prior year was a 12-month period; (2) 80 percent of the current year's tax; (3) 90 percent of the tax computed, at current year's rates, on the basis of actual income and actual self-employment income for the months in the taxable year ending before the month in which the installment is to be paid, and if such months constituted the taxable year; and (4) tax computed at current year's rates on the prior year's income. Petitioners received taxable income during all years in issue but did not make any estimated tax payments.  Therefore, none of the above exceptions apply and petitioners are liable for the section 6644(a) addition to tax. Petitioners argue that 1979 and 1980 net operating losses offset prior years' income so that there is no underpayment for any year at issue.  Alternatively they argue that, if this Court finds they underpaid their estimated tax liability, then such underpayment triggered no addition under section 6654 because they incurred no tax liability for the previous year.  Petitioners *152  cite section 6654(e)(2) as their authority. Petitioners did not have a net operating loss for their 1979 and 1980 taxable years.  They stipulated to a decision admitting they owed $ 740.47 in income tax, not including any additions to tax, for their 1976 taxable year.  Moreover, petitioners may not take advantage of the section 6664(e)(2) exception because that section was added to the Internal Revenue Code in 1984, effective for taxable years beginning after 1984.  Deficit Reduction Act of 1984, Pub. L. 98-369, secs. 411-412, 98 Stat. 494, 788-793. Petitioners' also argue that even if this Court determines that they underpaid their tax and no other exception applies, the underpayment was due to reasonable cause, i.e., "petitioners' reasonable belief they were spending more in business deductions than they were receiving in gross income," and that imposition of the addition would be against equity and good conscience.  Sec. 6654(e)(3). Section 6654(e)(3) was enacted by section 411 of the Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat. 788, 790 for taxable years beginning in 1984.  Prior to 1984, the provisions of 6654(a) were mandatory and extenuating circumstances were *153  irrelevant.  Estate of Ruben v. Commissioner, 33 T.C. 1071">33 T.C. 1071, 1072 (1960); Toner v. Commissioner, T.C. Memo 1990-539">T.C. Memo 1990-539. Furthermore, the "equity and good conscience language refers to underpayments caused "by reason of casualty, disaster, or other unusual circumstances." Sec. 6654(e)(3)(A).  Petitioners have not offered such proof.  Accordingly, the section 654(e)(3) exception does not apply to excuse petitioners' underpayment of estimated tax. To reflect our findings and conclusions herein and the concessions made by the parties, Decision will be entered under Rule 155. APPENDIX A AGREEMENT AS TO SCOPE OF SERVICES AND FEE 1.  SCOPE OF SERVICES.  Tax information Center will provide a written analysis of the financial tax situations of     to determine: 1) that alternatives may exist to reduce federal income taxes, state and local income taxes, federal death taxes, and probate administration expenses; 2) how to replace high cost cash value life insurance with low cost term insurance; and 3) how to increase investment income yield and investment capital appreciation. The client shall receive a written report which will recommend such*154  alternatives and explain such alternatives.  Once the client has chosen which alternatives he (she) wishes to implement, Tax Information Center will assist the client in obtaining a capable attorney to implement any steps which need the assistance of a capable attorney.  Tax Information Center will reimburse the client for the fees charged by such attorney or, if the client so initials his approval here (    yes, please pay attorney fees direct), pay the attorney directly -- provided that Tax Information Center specifically agrees in this contract to pay the particular lawyer, law firm, or group legal plan selected by the client.  Client prefers to use the following lawyer: []    [] Group Legal Plan of Family Health and Improvement Society.  Client(s) applies for membership at no cost to client(s) in the Family Health and Improvement Society.  Membership entitles client(s) to participate in the Group Legal Services Plan of Family & Health Improvement Society. Client's signature Client's signature Tax Information Center will do all federal, state and local income tax returns which reflect tax planning done by Tax Information Center for the year *155    , and will handle federal tax audit for such year if client is audited by I.R.S., at no cost to client. To make federal and state income tax and death tax laws more understandable to client(s), Tax Information Center will provide to client(s) at no additional fee, and client agrees to read or participate in: a) Philip Fry's books, Pay No Income Taxes Without Going To Jail, How to Disinherit The I.R.S. & Probate Court, Blood Taxes At Harvest Time, I.R.S. Code Made Understandable, and How to Find And Profit From Real Estate Bargains: b) client reference manuals on how to use the various tax-planning entities selected by client(s); c) Tax Information Center's monthly tax-serving magazine TAXING TIMES; d) attendance at one of Tax Information Center's two-day weekend seminars (20 hours long on Saturday and Sunday).  The seminars are held monthly at one of the following Tax Information Center offices: Seattle, Washington,; California; Phoenix, Arizona; Columbus, Ohio; or Cambridge, Ohio. 2.  TERM OF CONTRACT.  The duration of this contract is one year beginning the date of this Agreement on Page Two.  Tax planning, tax returns, and tax audits for the next two subsequent years*156  are available to client, at the option of the client, at an annual percent of the first year fee provided for in paragraph four of this Agreement. 3.  GUARANTEE OF RESULTS.  Tax Information Center guarantees to save the client at least ten times the fee specified in paragraph four of this agreement plus any additional fees paid for tax planning, tax returns, and tax audits done by Tax Information Center in the two years following Client(s)' Initials:    the initial year in federal, state, and local income taxes for the years    ,    , and    , and file insurance premiums reduced for the same three years, and in gains in client investment income and capital appreciation due to Tax Information Center Investment guidance, plus projected savings of federal and state death taxes and probate administration at the death of client and client's spouse.  Within six months after the end of the third year mentioned in this paragraph above, Tax Information Center agrees to refund pro-ratably (up to 100 percent of its fee) fees paid to Tax Information Center if necessary to enable client to have a ten times benefit under this GUARANTEE OF RESULTS -- provided that the client*157  implements at least 90 percent of all suggestions recommended by Tax Information Center, and that Tax Information Center does all tax planning, tax returns, and handles the audit defense for the three years specified in this paragraph, and that client pays all fees to Tax Information Center in full without any collection effort by Tax Information Center. 4.  FEE.  The client agrees to pay Tax Information Center an analysis and implementation fee of     ($    ) which is the sum total of the tax planning options selected by client on the attached Schedule A, "Determination of Client Fee," which is hereby made an integral part of this Agreement.  If client decides, after the date of this Agreement, to implement options not previously selected, client agrees to pay the fees for those additional options as specified in the attached Schedule A.  Renewal fees for each of the first two years following the first year shall be as specified in the attached Schedule A.  Any governmental fees such as filing costs, franchise fees paid by corporations, etc. will be paid by client directly.  MAKE YOUR CHECK PAYABLE TO "PHILLIP S. FRY, PRESIDENT OF TAX INFORMATION CENTER." PLEASE DO NOT PAY*158  IN CASH OR CURRENCY.  Mail all payments, including renewal fee, after the signing of this contract, only to Tax Information Center, Rt. 1, New Concord, Ohio 43762. If client fails to pay the fee in full, client(s) signing this Agreement herein agrees to pay all reasonable attorneys fees and court costs and collection agency fees incurred by Tax Information Center in collecting its fes, but such collection costs shall not exceed 50 percent of the amount due from client(s) signing this agreement.  Client(s) understands and agrees that the fee charged by Tax Information Center is refundable only under the express provisions of paragraph three of this Agreement. 5.  COVENANT NOT TO REVEAL TAX PLANNING IDEAS TO OTHERS.  Tax Information Center has developed and perfected a number of tax-saving concepts and agreement wordings for client and client's selected attorney to use as examples for successful tax planning and estate planning. Client(s) signing this agreement specifically recognize that the ideas and agreement wordings communicated by Tax Information Center to client(s) attorney and client(s) are only for the use of the parties specified in paragraph one of this agreement.  If *159  client(s) should ever show or share such idea or agreements with someone or entity other than client(s)' lawyer, accountant, tax collectors, or parties specified in paragraph one of this Agreement and their immediate families, client(s) agrees to pay Twenty-Five Thousand Dollars ($ 25,000.00) per person or entity communicated with as a fee to Tax Information Center and to pay all attorney fees and court costs incurred in collecting said fee from client(s). 6.  REFERRAL FEE.  IF client is satisfied with the analysis and implementation by Tax Information Center and knows taxpayers who could also benefit from such analysis and implementation by Tax Information Center, client should refrain from violating the covenant of paragraph five above (Covenant Not To Reveal Tax Planning Ideas To Others), but, rather inform in writing the National Sales Manager of Tax Information Center (Rt. 1, New Concord, Ohio 43762) of such referrals. Client referrals are entered in a register of referrals with a notation of the client who made the referrals. If such referral in fact becomes a client of Tax Information Center, Tax Information Center will pay a five percent (5%)-of-fee-collected referral fee*160  to the client making the referral. 7.  COVERED SERVICES.  Tax Information Center agrees to provide only those services specifically provided for in writing in this contract. 8.  SOURCE OF STATE LAW.  This Agreement is a full statement of the terms of Agreement between Tax Information Center and client(s).  Should there be a question as to the meaning of this Agreement, such questions shall be resolved based on the contract laws of the State of Ohio.  The client(s) agrees that any litigation of any kind between Tax Information Center and the client(s) shall take place in the Common Pleas Court of Guernsey County, Ohio.  Client(s) agrees to by subject to the jurisdiction of the Common Pleas Court of Guernsey County, Ohio for any litigation between the parties. This agreement was entered into on this     day of    , 19  TAX INFORMATION CENTER by its President Philip S. Fry CLIENT CLIENT APPENDIX B 1977ItemCheckCheckPayor/ No.NumberDateDrawer PayeeAmount104-1556 6/09/77Law Book StoreTIC* $ 520.00104-2623 6/21/77Law Book StoreTIC65.00104-3559 5/31/77Law Book StoreMLJ100.00104-41086 5/22/77TICMLJ20.00104-51048 2/17/77TIC (VNB)LBS300.00104-61050 2/17/77TIC (VNB)LBS300.00104-71176 9/02/77TIC (VNB)LBS500.00104-81821 7/14/77Orlando Adv.LBS110.00*161 1978 ItemCheckCheckPayor/ No.NumberDateDrawer PayeeAmount105-1#1 10/10/78Phillip FryTIC$ 9,500.00105-2#2 10/20/78Phillip FryTIC450.00105-3229 10/17/78MLJ TrustTIC9,000.00105-4142  8/12/78F.H.I.S.* 1,300.00105-51600  2/15/78TICMLJ300.00105-600604  7/12/78TICMLJ700.00105-700635  7/26/78TICMLJ300.00105-800768  8/22/78TICMLJ300.00105-900818  8/31/78TICMLJ200.00105-1000867  9/12/78TICMLJ300.00105-11127  3/14/78F.H.I.S.Orl.Adv.450.00105-1200272  4/11/78TICFHIS* 2,900.00105-13DM  9/28/78TICFHIS* 350.00105-1400591  7/07/78TICCASH8,222.00105-1501838 12/14/78TICQCNB10,000.00105-1601041 10/27/78TICQCNB1,760.00*162 1979ItemCheckCheckPayor/ No.NumberDateDrawer PayeeAmount106-11264/08/79 Hamilton Rd. PshpTIC$ 2,588.62106-21019/07/79 Casa Serena No. IITIC16,900.00106-310811/09/79 Casa Serena No.IITIC25,000.00106-41149/14/79 Central Ohio No. 1TICx 10,000.00106-53554/20/79 Lake MiddlebourneTIC1,297.50106-6DM6/08/79 Lake MiddlebourneTIC40,000.00106-7DM3/26/79Precious MetalsTICTOA20,000.00106-8#3 2/13/79 Casa SerenaP. Fry10,000.00106-9#5 2/20/79 Casa SerenaP. Fry25,000.00106-10-- 12/10/79 Tall TimbersTIC5,785.41106-113564/26/79 Lake MiddlebourneTIC5,000.00106-1210310/10/79 Casa Serena No. IITIC10,000.00106-131221/09/79 TIC Office AccountTIC* 9,000.00106-141581/16/79 TIC Office AccountTIC* 6,000.00106-15#7 2/28/79 Casa SerenaTOA25,000.00106-16DM3/26/79Precious MetalsTIC10,000.00106-17CM3/26/79Precious MetalsTOA10,000.00106-181926/27/79 Lake MiddlebourneTOA1,000.00106-19011303/08/79 TICTICx 2,000.00106-20DM6/18/79 TICTOAx 1,000.00106-21DM11/01/79 Casa Serena No. IIMLJ59,000.00106-22#10019/26/79 TICMLJ* 380.00106-231574/15/79 FHISS. Fry500.00106-24013454/20/79 TICS. Fry* 200.00106-25013825/03/79 TICS Fry* 400.00106-261231/09/79 TIC Office AccountMLJ* 100.00106-27DM5/06/79 TICMLJ* 400.00106-28CM11/01/79 Casa Serena &Leverage LeasingMLJ77,500.00106-29DM11/01/79Leverage LeasingMLJ18,200.00106-30#6 2/28/79 Casa SerenaOrl.Adv.5,000.00106-31029059/27/79 TICOrl.Adv.1,000.00106-320298010/08/79 TICOrl.Adv.1,000.00106-331498/09/79Precious MetalsGLP4,300.00106-340327811/29/79 TICGLP* 750.00106-35CM9/04/79 TICGLP* 414.44106-36#4 2/20/79 Casa SerenaQCNB45,000.00106-371263/25/79Precious MetalsEP Realty5,000.00106-381315/18/79 Lake MiddlebourneQCNB30,000.00106-39DM12/28/79 Tradewinds TrustQCNB88,750.00106-400311711/06/79 TICQCNB2,995.20106-410337612/12/79 TICQCNB6339.04*163 1980ItemCheckCheckPayor/ No.NumberDateDrawer PayeeAmount107-110011/18/80 Tradewinds TrustTIC$ 24,000.00107-210021/25/80 Tradewinds TrustTIC18,750.00107-35897/11/80 Lake MiddlebourneTIC2,000.00107-437610/17/80 Hamilton Rd. PshpTIC9,750.00107-5CM11/24/80 Fantasyland TrustTICx 26,500.00107-66237/29/80 Lake MiddlebourneTIC2,000.00107-7532/25/80MLJ TrustTIC20,000.00107-85432/29/80MLJ TrustTIC* 40,000.00107-976810/03/80MLJ TrustTICx 10,000.00107-1088411/20/80MLJ TrustTICx 18,000.00107-111225/15/80 Fry, (VNB) Az.TICx 10,000.00107-1210096/03/80 Sports ParadiseTIC6,000.00107-13DM2/22/80MLJ TrustTIC10,000.00107-14DM5/12/80 Sports ParadiseTICx 5,000.00107-1510486/04/80Freedom Fuel Corp.TIC9,000.00107-1610152/07/80Freedom Fuel Corp.TIC14,000.00107-1710977/30/80Freedom Fuel Corp.TIC2,600.00107-1811189/16/80Freedom Fuel Corp.TIC4,425.00107-191325/02/80Leverage LeasingTIC9,000.00107-201505/30/80Leverage LeasingTIC5,000.00107-211707/21/80Leverage LeasingTIC10,000.00107-221717/25/80Leverage LeasingTIC14,000.00107-2320210/15/80Leverage LeasingTIC6,500.00107-241253/07/80Leverage LeasingTIC6,200.00107-25050623/28/80 TICTOA* 1,600.71107-26050844/10/80 TICTOA* 1,905.60107-27050924/04/80 TICTOA* 2,103.88107-28052855/14/80 TICTOAx 2,000.00107-29053625/23/80 TICTOAx 2,000.00107-30056026/20/80 TICTOAx 1,500.00107-310445510/05/80 TICTOAx 500.00107-32043299/09/80 TICTICx 3,200.00107-33043559/12/80 TICTOAx 2,500.00107-340367010/03/80 TICTOAx 1,000.00107-350373911/10/80 TICTOAx 1,000.00107-36059897/22/80 TICTOAx 1,650.00107-37036119/24/80 TICTIC1,600.00107-38016009/16/80 TICTIC1,200.00107-39DM7/11/80Leverage LeasingTOAx 2,000.00107-40DM7/15/80Leverage LeasingTOAx 500.00107-41DM7/11/80Leverage LeasingTOAx 3,000.00107-42DM8/15/80Leverage LeasingTOAx 2,700.00107-431315/01/80Leverage LeasingTOA3,450.00107-441566/12/80Leverage LeasingTOA4,000.00107-451778/04/80Leverage LeasingTOA4,509.90107-461798/07/80Leverage LeasingTOA6,000.00107-471888/25/80Leverage LeasingTOA1,000.00107-481928/28/80Leverage LeasingTOA1,000.00107-4921911/06/80Leverage LeasingTOA6,263.65107-50DM7/11/80Leverage LeasingTOA2,000.00107-51DM7/31/80Leverage LeasingTOA500.00107-5210807/08/80Freedom Fuel Corp.TOA2,000.00107-534284/18/80 Tall TimbersMLJ2,181.20107-54101-A9/24/80 FantasylandMLJ20,000.00107-5510712/26/80 FantasylandMLJ30,000.00107-5636610/05/80 Hamilton Rd. PshpMLJ22,000.00107-579738/24/80 Lake MiddlebourneMLJ156.95107-589348/27/80 Lake MiddlebourneMLJ795.00107-59168110/27/80 Central Ohio TrustMLJ1,760.76107-6036611/03/80 Tradewinds TrustMLJ330.00107-612978/28/80 Tradewinds TrustMLJ330.00107-625658/28/80 Tall Timbers TrustMLJ1,558.00107-6310211/03/80 Orchard LakesMLJ20,000.00107-6413210/10/80 La OficinaMLJ2,500.00107-651187/25/80 Casa Serena IIMLJ4,000.00107-66#5 11/20/80 Jordan EstatesMLJ20,000.00107-67#6 11/21/80 Jordan EstatesMLJ18,570.00107-681197/29/80 Casa Serena IIMLJ11,000.00107-6910110/03/80 FantasylandMLJ10,000.00107-7010511/03/80 FantasylandMLJ29,700.00107-7110612/08/80 FantasylandMLJ27,000.00107-7210410/24/80FantasylandMLJ70,000.00107-7310311/14/80 Orchard LakesMLJ35,832.00107-7410112/08/80Amusement ConceptslMLJ15,000.00107-751636/25/80 TICS. Fry500.00107-76043779/17/80 TICMLJ* 3,160.00107-77060758/08/80 TICMLJ* 200.00107-78056977/02/80 TICMLJ* 500.00107-79112610/07/80Freedom Fuel Corp.MLJ15,000.00107-801697/10/80Leverage LeasingMLJ40,000.00107-811727/28/80Leverage LeasingMLJ20,000.00107-8220010/16/80Leverage LeasingMLJ30,000.00107-8321110/29/80Leverage LeasingMLJ15,000.00107-8424312/04/80Leverage LeasingMLJ20,564.99107-8510027/03/80 Sports ParadiseMLJ/ML25,000.00107-86DM2/08/80MLJ TrustMLJ/MLx 30,000.00107-876215/22/80MLJMLJ/ML290,039.77107-887619/24/80MLJMLJ/MLx 20,000.00107-8977010/03/80MLJMLJ/MLx 22,000.00107-90DM3/07/80Freedom Fuel CorpMLJ/ML40,000.00107-91DM1/15/80Freedom Fuel CorpMLJ/ML100,000.00107-921647/03/80Leverage LeasingMLJ30,000.00107-93DM1/29/80Leverage LeasingMLJ/MLx 63,000.00107-9410011/22/80 Tall TimbersOrl.Adv.10,000.00107-95036129/24/80 TICOrl.Adv.* 1,000.00107-960384111/29/80 TICOrl.Adv.* 825.00107-970395712/12/80 TICOrl.Adv.* 2,130.00107-98043819/17/80 TICOrl.Adv.* 1,500.00107-990448410/09/80 TICOrl.Adv.* 1,000.00107-1000455710/24/80 TICOrl.Adv.* 1,500.00107-101048092/23/80 TICOrl.Adv.200.00107-10210424/23/80Freedom Fuel Corp.Orl.Adv.3,100.00107-103DM2/04/80Freedom Fuel Corp.Orl.Adv.10,000.00107-10410091/11/80Freedom Fuel Corp.Orl.Adv.5,000.00107-1051959/02/80Leverage LeasingOrl.Adv.2,500.00107-10620710/24/80Leverage LeasingOrl.Adv.1,500.00107-10721010/27/80Leverage LeasingOrl.Adv.3,000.00107-10821511/03/80Leverage LeasingOrl.Adv.4,500.00107-10922011/12/80Leverage LeasingOrl.Adv.4,500.00107-11022511/14/80Leverage LeasingOrl.Adv.3,000.00107-11124212/02/80Leverage LeasingOrl.Adv.1,250.00107-112035301/24/80 TICGLP* 700.00107-113035321/11/80 TICGLP* 750.00107-1140366910/03/80 TICGLP* 2,200.00107-1150370110/30/80 TICGLP* 1,719.22107-1160376511/14/80 TICGLP* 1,544.22107-1170378511/22/80 TICGLP* 1,625.49107-1180395912/12/80 TICGLP* 2,538.89107-1190402912/24/80 TICGLP* 1,700.00107-120041097/24/80 TICGLP* 700.00107-121041978/22/80 TICGLP* 800.00107-122043289/09/80 TICGLP* 350.00107-1230452-10/16/80 TICGLP2,155.22107-124047862/22/80 TICGLP* 700.00107-125050664/03/80 TICGLP* 700.00107-126051034/07/80 TICGLP* 1,000.00107-127051544/18/80 TICGLP* 700.00107-128053945/29/80 TICGLP* 700.00107-129055046/12/80 TICGLP* 700.00107-130056716/26/80 TICGLP* 700.00107-131057797/11/80 TICGLP* 700.00107-132060728/07/80 TICGLP* 900.00107-133060888/22/80 TICGLP* 1,500.00107-1341927/14/80 TICGLP700.00107-135CM5/16/80 TICGLP700.00107-1361305/01/80Leverage LeasingGLP700.00107-137168810/31/80 Central Ohio TrustGLC530.31107-13837510/17/80 Hamilton Rd. PshpGLC755.69107-13938910/31/80 Hamilton Rd. PshpGLC1,047.27107-14039111/14/80 Hamilton Rd. PshpGLC309.40107-141163510/17/80 Central Ohio TrustGLC977.71107-14288911/21/80 TICGLC* 10,000.00107-1430366810/03/80 TICGLC* 4,700.00107-1440367210/30/80 TICGLC* 1,000.00107-1450371010/31/80 TICGLC* 4,784.41107-1460380811/17/80 TICGLC* 4,331.34107-1470386511/28/80 TICGLC2,000.00107-1480391212/08/80 TICGLC* 5,394.77107-1490396012/12/80 TICGLC* 15,000.00107-1500399912/17/80 TICGLC* 1,500.00107-1510400112/17/80 TICGLC10,162.78107-1520401012/22/80 TICGLC5,000.00107-1530406112/26/80 TICGLC* 10,400.00107-154041998/22/80 TICGLC* 5,800.00107-155043909/18/80 TICGLC* 4,300.00107-1560450110/15/80 TICGLC* 2,315.77107-1570454510/17/80 TICGLC* 2,405.57107-158060788/08/80 TICGLC* 7,000.00107-159060969/14/80 TICGLC* 1,600.00107-1600374011/12/80 TICGLC1,000.00107-16186411/14/80 TICGLC* 3,500.00107-16210033/07/80 Tradewinds TrustLev.Lsg.x 3,000.00107-1632103/05/80Precious MetalsLev.Lsg.x 19,702.00107-16426710/15/80Precious MetalsLev.Lsg.x 29,000.00107-16511110/30/90 Columbus Game ArcadeQCNB3,694.00107-1661616/30/80Leverage LeasingQCNB7,273.44*164 In addition to the transfers denoted above by an asterisk, respondent, on brief, allowed the following transfers. CheckPayorDateDrawerPayeeAmount10/11/77LBSOrl.Adv.$ 600.001/05/78TICFHIS650.0012/11/78MLJP. Fry48.503/27/79FHISTOA3,000.0012/30/80TICGLP1,600.00We have taken these transfers into account where we were able to identify the deposit. The check written on December 30, 1980, does not appear on the 1980 GLP deposit schedule.  We conclude the check was deposited in 1981. APPENDIX C The details of respondent's bank deposits analysis work paper schedules are reproduced below.  All checks contained in petitioners' Exhibits 104 through 107, as numbered in appendix B, are listed by a notation under the "APPENDIX B ITEM NO." column of the relevant schedule in this appendix. The description for items annotated under the "Transfer From" *165  and "Other Annotation" columns appear on respondent's work paper schedules.  Our summary and discussion follows the deposit schedules. CASHIER'S CHECKS 1977APPENDIX BITEMDATEPAYEEAMOUNTNOTATIONNUMBER12/28/77Phillip Fry1,000.00Net Cashier's ChecksMLJ TRUST Quaker City National Bank a/c 084-507-3 1977 Deposits APPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.02/08/776,979.2502/28/7759.9503/14/77150.0004/29/7738.5005/27/7720.00 TICCk 1086104-306/03/77100.00 LBSCk 559104-4$ 7,347.70 Total Deposits0.00 Transfers$ 7,347.70 Deposits per notice of deficiencyTAX INFORMATION CENTERQuaker National Banka/c 099-273-5 1977 Deposits APPENDIX BDATEDEPOSITTRANSFER FROM:OTHER ANNOTATIONITEM NO.01/10/77$ 2,100.0001/13/773,876.9001/21/77176.2001/24/77213.5001/26/77246.5001/27/77150.5502/14/77149.6703/03/77452.0004/04/77207.0004/04/77346.2505/13/77800.0005/17/7791.3405/19/77167.2005/20/77481.1305/23/77104.0005/23/77306.3405/23/77356.0005/25/7724.2505/26/771,952.5085232.8506/09/77520.00104-106/22/77240,84104-207/05/7799.5009/06/7726.7509/08/77431.7509/12/77345.5009/12/771,000.4009/13/77325.2009/13/777,248.2409/14/77776.2009/15/7763.0009/16/77101.5509/16/77214.3709/16/771,150.0009/20/77222.0809/20/77441.2409/23/77168.4009/23/77269.2009/23/77651.7509/26/77620.6809/27/7752.2509/29/7740.0009/30/7754.2509/30/774,817.2510/04/77339.2010/05/774,130.0010/07/7739.5010/07/77364.1610/11/77220.0010/11/77366.2510/11/771,213.5010/11/771,941.7510/14/771,239.7510/17/772,500.0010/17/772,591.6510/26/77489.0210/27/772,372.2010/28/77893.2010/31/771,500.0011/02/771,140.4511/04/771,520.2211/07/77200.2511/07/773,204.3511/07/7710,406.7511/10/77187.7511/10/77214.5011/14/77165.8911/14/77925.0011/15/7774.7511/16/77508.4011/18/77842.7511/18/772,103.3211/21/77403.3511/21/773,596.4111/23/77720.6511/25/77114.7511/28/77139.1011/28/77531.5011/29/7746.2012/02/77115.7512/05/7744.4512/06/771,753.9512/07/7773.2512/09/77154.6212/12/7717.7512/12/77147.3312/13/776,280.8412/14/771,013.0012/14/771,500.3012/19/77102.5812/19/773,663.8012/19/775,174.0012/22/77180.0012/22/772,967.4512/23/77120.1512/27/771,327.50$ 104,197.57 Total deposits0.00 Transfers$ 104,197.57 Deposits per notice of deficiency*166 "LET THE PEOPLE KNOW"LAW BOOK STORE Central National Banka/c 044102611977 Deposits01/13/77247.0003/18/77* 3.7507/04/77313.75 01/15/77706.5003/19/77385.0006/04/77585.00 01/15/77136.4903/23/77* 802.0006/05/77680.00 01/17/77115.0003/24/77171.0006/06/77237.75 01/19/77534.3903/25/7785.7006/07/77590.00 01/23/77282.0003/27/77348.4506/01/77565.00 01/24/77322.5003/27/77497.5807/07/77* 6.60 01/28/771,480.0003/28/7737.2506/08/77195.50 01/28/771,036.5003/28/77380.1606/05/771,171.0 01/31/77110.4503/29/77* 226.0006/04/771,680.00 02/01/77509.4103/30/77* 41.5006/09/771,875.00 02/02/77490.5503/31/77* 530.5005/02/7741.50 02/03/77206.7504/01/77292.0006/03/77* 53.60 02/04/77153.5004/04/77* 40.0006/10/77974.00 02/04/77475.0004/06/77871.7506/10/771,247.75 02/05/77184.0004/06/771,140.0006/10/77* 122.65 02/07/77345.0004/09/771,235.9906/11/77119.25 02/11/77607.7704/09/77115.0006/11/7747.25 02/12/77353.4504/12/77* 170.7006/11/77179.75 02/12/77175.0004/13/7715.0006/15/77273.50 02/13/7756.9504/13/77158.0006/15/77105.00 02/14/77283.3004/14/77236.5006/17/77* 82.40 02/15/77353.5004/15/77* 950.0006/17/77455.00 02/17/77184.0004/15/77* 642.5506/17/7760.50 02/17/77513.9504/18/77* 422.1806/20/77* 1,774.15 02/17/77366.0004/18/77119.5006/27/77110.00 02/18/77227.6504/20/77* 526.5006/27/77* 75.45 02/20/77223.5004/20/77202.5006/24/77234.25 02/20/7743.0904/23/7754.0006/24/7746.50 02/22/77342.5004/22/77122.4006/24/7775.45 02/23/77* 544.3004/27/771,419.9506/27/77* 1,469.25 02/23/7777.0004/25/77147.5006/29/77431.00 02/25/77261.5704/27/772,641.7006/29/77133.50 02/26/77102.5703/08/77100.0006/29/77100.00 02/28/77357.7704/27/77383.7807/02/77200.50 02/28/7756.4504/28/7777.5007/13/7791.01 02/28/7715.0004/29/7782.0007/02/77314.25 03/02/7789.8405/02/77* 581.2507/05/7765.75 03/03/77941.5005/05/771,253.0007/06/7742.75 03/04/77921.1405/05/7760.0007/08/77512.25 03/04/7741.5005/05/77135.0107/08/77377.25 03/06/771,174.3505/06/77* 348.4807/08/77223.64 03/07/77470.0005/07/77250.1507/10/77317.20 03/08/77272.0005/08/77* 611.0007/11/77246.80 03/09/77140.0005/11/7711.7507/11/7767.50 03/09/77141.5905/13/77432.0407/13/77136.00 03/11/77* 123.5005/16/77* 115.0007/13/7775.30 03/12/77232.0505/17/7756.2507/13/7728.25 03/14/77167.0005/17/77426.7007/13/7789.00 03/15/7749.5105/20/7747.0007/14/77n1 956.00 03/15/77* 500.5005/26/771,983.0007/15/7711.50 03/16/80* 35.8005/31/77405.0007/15/7752.50 03/17/77150.0005/31/77600.0007/15/7788.55 03/22/7715.5005/31/77419.1507/18/77* 527.16 03/21/7756.0006/02/77139.5007/21/77* 898.01 03/18/77123.5006/03/77* 105.9507/20/77* 14.33 07/23/77113.4308/18/7762.0010/04/7767.50 07/24/771,805.0008/19/77296.7710/07/77177.50 07/24/7750.0008/19/77* 4,000.0010/08/7770.75 07/22/7756.5008/16/772,190.0010/;08/77583.50 07/19/7720.0008/23/7717.7210/10/77597.00 07/25/77* 228.0008/22/77230.9010/11/77980.00 07/28/77* 207.2508/24/77283.9510/14/77475.75 07/27/77* 46.0008/26/7741.4010/15/77188.50 07/27/7736.7508/29/77659.5010/20/77113.50 07/27/7710.5008/29/77226.5010/21/77652.95 07/29/77* 2,155.0008/29/77* 302.3510/25/77162.00 08/01/77709.7508/29/7777.0010/24/77315.00 08/01/7745.2508/31/7716.7510/28/77965.00 07/29/7716.5009/01/77* 80.7510/28/771,242.50 08/03/77122.0009/01/7726.5011/02/77118.75 08/08/7716.7509/02/77* 509.4511/04/77859.75 08/08/77* 183.5009/02/7717.0011/05/7776.00 08/09/77* 170.0009/03/77150.0011/09/77138.75 08/10/7725.0009/06/77* 59.0211/17/77300.00 08/10/77* 160.0009/06/7761.7511/18/77497.75 08/11/77240.0009/06/77215.5011/28/77282.25 08/11/7735.5009/08/77* 640.0011/29/7741.00 08/11/7725.5009/14/77134.5011/30/77162.25 08/12/7764.0009/14/77218.2511/30/7770.25 08/05/77* 108.1509/16/7732.2512/03/77223.75 08/12/77* 216.7509/20/77214.0012/11/77198.50 09/08/77103.7509/22/77548.7512/12/77210.00 09/08/7785.0009/23/771,046.7512/15/77528.50 08/15/77160.0009/26/7749.5012/20/7799.00 08/15/772,610.7509/28/77160.5012/28/77570.50 09/30/7794.0012/30/77221.75 Deposits$ 96,909.15 * Cash not deposited 7,195.00 Total Receipts $ 104,104.15 Addition errors (net) (12.00)Deposits per notice  of deficiency $ 104,092.15 *167  The net addition errors amount shown above reconciles the sum of deposits listed above to the amount of deposits shown on respondent's schedule. ORLANDO ADVERTISINGQuaker City National Banka/c 089-810-61977 DepositsAPPENDIX BDATEDEPOSITTRANSFER FROM:OTHER ANNOTATIONITEM NO.01/04/77600.0001/04/77600.0001/24/77600.00 LBSCk. 13602/04/77250.00 LBSCk. 17002/16/77125.75 LBSCk. 201; $ 106.0002/17/77120.0002/24/77200.0003/03/7765.0003/14/775.3903/16/77340.00 LBSCk. 24503/24/77150.00 LBSCk. 26704/14/7790.0005/03/7760.5805/03/77159.8005/09/77175.00 LBSCk. 51405/23/77100.0005/23/77125.0005/31/77500.00 LBSCk. 52406/03/77800.00 LBSCk. 53206/09/77300.00 LBSCk. 55606/16/77500.00 LBSCk. 59906/27/77500.00 LBSCk. 63508/22/771,000.00 LBSCk. 79909/07/7760.00 LBSCk. 80909/13/77100.0009/19/77500.0009/26/771,200.00 LBSCk. 84510/05/77600.00 LBSCk. 85310/11/77300.0010/11/77600.0010/17/771,200.0010/31/77200.00 LBSCk. 86711/14/77130.0011/21/77250.0011/30/77300.0012/05/77412.00$ 13,218.52 Total Deposits0.00 Transfers$ 13,218.52 Deposits per notice of deficiency*168 ORLANDO ADVERTISING AGENCY Quaker City National Bank a/c 089-810-61978 DepositsAPPENDIXDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.01/17/78400.00 LBSCk 89602/03/781,094.00 02/27/78125.00 03/06/78500.00 03/13/78265.00 LBSCk 116; $ 25003/16/78450.00 105-1103/22/781,000.00 LBSCk 10303/28/78793.00 03/31/78810.00 LBSCk 10904/04/78[497.80]Cr payment stopped on Ck #184305/03/78500.00 05/08/781,000.00 05/11/781,000.00 LBSCk 15605/15/781,000.00 TIC05/22/78237.39 06/02/786.80 06/15/78500.00 LBSCk 16907/03/7822.10 07/07/78200.00 08/15/781,200.00 08/31/781,000.00 TICCk 81408/31/784,000.000 TIC Ck 81909/15/781,500.00 TIC  Ck 87009/15/78[127.50]RE06/15/78[127.50]RE09/15/78400.89 10/02/78800.00 TICCk 94810/10/78600.00 TICDebit Memo10/16/7853.99 10/23/781,000.00 TICDebit Memo10/27/78[81.60]Cr payment stopped10/27/782,096.81 TIC Ck 1042; $ 2,00011/15/7820.00 11/17/7830.05 11/20/7843.26 12/11/78525.50 TICCk 1824; $ 500$ 23,173.79 Total Deposits16,456.81 Transfers$ 6,716.98 Deposits per notice of deficiency*169  Items in brackets [] are not included in the total. FAMILY HEALTH & IMPROVEMENT SOCIETY Quaker City National Banka/c 065-513-51978 DepositsAPPENDIXDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.01/05/78650.00*01/09/78500.0001/10/78500.0001/23/781,000.0001/31/7825.0002/03/7825.0002/08/781,000.0003/02/7825.0003/03/78150.0003/08/78575.0003/08/78800.0003/23/78325.0003/23/78175.0004/06/7825.0004/11/782,900.00105/1204/24/78325.0005/01/7825.0005/08/78150.0006/02/7875.0006/09/7875.0006/15/781,600.0007/21/78300.0008/04/78175.0008/04/781,375.0008/07/78450.0008/14/78200.0008/25/78475.0008/31/78200.0009/05/78200.0009/11/78525.0009/19/78175.0009/25/78650.0009/30/78350.00105-1310/10/78200.0010/16/782,200.0010/27/78125.0010/30/78225.0011/13/78325.0011/13/78676.0012/20/78150.00$ 19,901.00Total Deposits0.00Transfers$ 19,901.00Deposits per notice of deficiency*170 MLJ TRUSTQuaker City National Banka/c 084-507-31978 DepositsAPPENDIXDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.02/17/78300.00 105-502/22/78150.00 02/27/786,843.00 03/13/7835.00 04/26/78150.00 05/11/78170.00 LBSCk 15705/23/78150.00 07/03/78150.00 07/12/78700.00 105-607/18/7850.00 07/26/78300.00 105-708/14/781,300.00 105-408/22/78300.00 105-808/30/7829.63 08/31/78200.00 105-909/08/7815.63 09/13/78300.00 105-1009/22/78138.54 10/03/78300.00 TICCk 96210/10/78150.00 10/18/789,000.00 11/09/7837.00 11/22/7850.00 TICCk 170812/11/781,048.50 TICCk 1828; 1,000*79,950.00 Lake MiddlebourneCk #3$ 101,817.30 Total deposits(1,520.27)Transfers and transposition error$ 100,297.03 Deposits per notice of deficiencyCASHIER'S CHECKS1978APPENDIX BITEMDATEPAYEEAMOUNTNOTATIONNUMBER07/08/78Phillip Fry* $ 8,222.00 105-1408/09/78Phil Fry/MLJ20,542.99 - Deposit Only/MLJ10/27/78Susan Fry1,760.00 - Pay to IBM Corp.105-1612/01/78Arizona Bank1,000.00 12/14/78Phillip Fry* 10,000.00 105-15$ 41,524.99 Total checks(22,302.99)   - Checks with documented source$ 19,222.00    Cashier's check per notice ofdeficiency*171 TAX INFORMATION CENTER Quaker City National Bank a/c 099-273-51978 Deposits01/03/78$ 308.5003/17/78821.5005/19/78449.2501/04/78112.2203/20/781,067.2505/19/782,175.5001/04/78527.5003/21/78460.0005/22/7816,218.1501/04/781,000.0003/21/783,105.9505/23/789,806.7501/06/78103.2503/22/7883.7505/23/7810,000.0001/09/7825.5003/22/784,025.0005/24/7850.7501/09/782,135.2503/23/78250.0005/26/78583.1501/10/783,306.8603/24/7870.7505/30/78154.5001/11/781,544.0003/24/781,087.7006/01/7812,921.7501/11/788,000.0003/28/781,830.9506/02/781,607.3301/12/78117.0003/28/782,936.9306/02/784,200.0001/13/78521.0003/30/781,129.3506/05/783,702.0001/16/78117.0203/31/7810,019.6206/05/7811,351.7501/16/78236.7504/03/78533.4406/06/781,093.2001/17/7880.0004/03/782,556.4306/06/783,500.0001/19/78715.0004/05/7829.0006/09/7813,702.0501/19/783,166.0004/05/7830.5006/12/781,712.2601/23/782,000.0004/05/78250.0006/13/78500.0001/23/784,000.0004/05/78386.1506/14/781,206.8901/27/7858.5004/05/787,197.8106/15/781,900.0001/27/78195.0004/06/78771.7006/15/782,612.9001/30/78379.0004/10/78410.0006/19/7858.0001/30/782,536.6004/11/78103.2506/19/784,722.2501/31/78182.5004/11/781,268.0006/19/789,562.5002/01/789,914.6604/11/785,175.3206/22/781,309.0002/03/782,354.1004/13/78152.1206/23/7810,021.9502/06/78123.7004/13/78300.0006/26/783,801.3502/06/78165.4504/14/78100.0006/29/784,922.0002/08/784,336.6304/14/78656.1006/30/78214.1602/09/78221.5004/17/78374.9307/03/781,041.7002/10/782,582.0504/17/78801.2507/06/782,521.8602/13/78136.0004/17/78906.0907/06/784,731.5002/14/783,136.2504/17/781,000.0007/10/782,500.0002/15/78334.7504/18/782,676.0007/10/784,874.5002/16/7848.5004/19/781,803.9007/10/7810,501.2502/17/78336.4504/21/784,518.8907/11/781,574.7502/21/78117.5004/24/7881.7507/12/78410.5002/21/782,328.0004/24/78399.0907/14/78339.0002/23/78583.0004/26/78115.2007/17/78500.6802/23/78583.0004/26/78115.2007/17/78500.6802/23/782,358.6004/27/78568.7507/18/78318.2502/24/782,761.0004/28/781,030.5007/21/782,713.3002/27/783,125.7504/28/782,591.2207/25/781,048.5002/28/789,251.7505/01/782,112.7507/26/78889.3503/02/783,162.5405/03/784,176.7507/26/785,022.0003/03/78137.2505/04/78288.3107/28/782,746.7503/06/781,255.9505/05/784,335.3507/31/78981.7503/06/781,902.1505/08/78938.1408/01/786,714.5003/07/78294.7505/08/781,633.3608/04/78621.2503/08/782,548.5005/10/78544.1008/04/783,800.0003/09/782,166.7505/11/78101.0508/07/783,031.5003/10/781,930.9605/11/78368.7508/09/782,615.2503/13/78542.6105/11/782,500.0008/11/787,000.0003/13/78140.9605/15/78449.7008/14/781,592.5003/13/78* 8,650.0005/15/78637.9608/14/783,530.7503/14/781,125.2505/16/782,979.8008/15/786,071.4503/15/78141.2505/17/80278.2508/17/786,221.2503/16/781,520.7505/19/78319.5008/18/782,708.6508/21/782,411.5010/12/783,249.7211/17/7816,746.20 08/21/7816,400.4010/16/78518.2511/20/782,164.55 08/22/78263.1010/16/781,243.7511/20/785,067.75 08/23/781,969.0010/16/7812,395.0011/22/785,554.38 08/30/788,965.2410/18/78n2 9,825.2011/24/787,297.75 08/31/782,300.0010/19/782,214.2511,24.7856,171.00 08/31/787,750.0010/20/78n3 1,574.4311/27/785,902.95 09/05/78200.0010/23/78954.0011/28/789,896.52 09/08/785,110.5010/23/781,950.0011/30/785,769.00 09/08/78425.4010/24/782,070.7511/30/7812,086.30 09/08/783,000.0010/24/784,520.2012/04/784,510.00 09/11/78236.2810/26/781,214.3812/04/7810,020.95 09/12/786,448.6510/27/78183.5012/05/788,606.25 09/13/785,510.5010/27/781,031.0012/07/784,224.54 09/15/782,872.28* 10/30/781,000.0012/11/781,047.54 09/18/78462.9510/30/783,000.0012/11/784,597.00 09/18/78515.5010/31/7822,490.5012/13/784,301.00 09/19/78230.0011/02/782,746.5012/13/786,012.00 09/19/782,833.8611/03/78189.3812/15/7810,623.05 09/22/78380.6711/06/782,530.4512/18/783,000.00 09/22/783,579.7911/06/782,689.4512/18/784,412.00 09/25/7810,097.7511/07/7818,000.0012/18/785,072.50 09/26/786,388.7511/09/78204.0012/20/78140.00 09/29/781,681.1511/09/7829,675.0012/20/7817,321.18 09/30/7874.1711/10/787,671.0412/21/783,500.75 10/02/7810.437.2511/10/7811,540.7512/26/78110.00 10/03/787,201.4011/13/7810,679.7012/26/784,399.50 10/05/7811,386.0011/13/7818,275.0012/27/782,500.00 10/10/78728.7511/14/783,960.0012/27/7814,059.00 10/10/781,700.2511/15/783,287.7712/29/7814,527.60 10/10/78n1 9,000.0011/17/783,547.5012/30/781,500.00 12/30/7825,000.00 Total Deposits $ 998,258.62 Transfers (4,000.00)Addition Errors (2,307.72)Deposits per schedule $ 991,950.50 Unexplained variance 0.40 Deposits per notice of  deficiency $ 991,950.90 *172 [Footnotes 1, 2, 3 Not on Original]. ORLANDO ADVERTISING AGENCYQuaker City National Banka/c 089-810-6 1979 Deposits APPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.02/02/79[RE 300.00]02/05/79500.00 TICCk 113802/09/79250.00 LBSCk 64402/20/79900.00 03/02/795,000.00 106-3003/20/795,000.00 03/27/794,000.00 TIC Office Acct04/06/79[5,000.00]Cr. Check Returned04/09/79288.80 05/04/7969.15 05/07/79123.35 05/18/791,000.00 TICCk 146105/21/79114.48 05/23/799.78 06/04/791,000.00 TICCk 229806/06/79213.10 06/18/7961.56 07/03/79[RE 16.57]07/03/79[RE 22.52]07/05/79[RE 15.68]07/05/79[RE 21.24]07/06/79300.00 TIC07/09/796.00 07/20/794.52 07/30/7958.54 08/06/79609.19 08/27/796.67 08/29/79200.00 TICCk 268609/07/791,000.00 TICCk 274409/13/79200.00 09/14/79400.00 TICCK 279609/28/791,000.00 106-3110/09/791,000.00 106-3210/17/79900.00 Central Ohio #1Ck 12810/31/792,800.00 Freedom Fuel11/13/793,000.00 TICCk 312811/16/794,000.00 11/20/795,000.00 TICCk 324211/27/793,000.00 TICCk 325412/07/793,000.00 TICCk 334812/13/792,000.00 Freedom Fuel12/21/793,000.00 Freedom FuelCk 100412/24/793,000.00 Freedom Fuel Ck 1003$ 53,015.14 Total Deposits(33,450.00)Transfers$ 19,565.14 Deposits per deficiency notice*173  Amounts in brackets [] are not included in totals. GROUP LEGAL PLANQuaker City National Bank a/c 069-195-6 1979 DepositsAPPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.04/05/792,000.00 FHISCk 15606/28/794,500.00 TICCk 234107/12/793,350.00 TICCk 240107/27/793,000.00 TICCk 114; $ 2,00008/03/791,000.00 FHISCk 17508/03/791,000.00 FHIS Ck 17708/10/79600.00 FHISCk 17808/10/794,300.00 106-3309/04/79414.44 106-3412/03/79750.00 106-3512/12/79700.00 TICCk 337712/21/79700.00 TICCk 3447$ 22,314.44 Total deposits(16,850.00)Transfers allowed by respondent$ 5,464.44 Deposits per notice of deficiencyTIC OFFICE ACCOUNTQuaker City National Banka/c 100-181-7 1979 Deposits APPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.02/01/79263.90 02/02/793,000.00 TICCk 202202/06/79 2,675.00 02/09/794,000.00 LBSCk 64003/02/7925,000.00106-1503/21/795,000.00 Casa Serena Debit memo03/21/795,800.00 TICCk 10103/26/79 1,417.53 03/26/7910,000.00 Precious Metals106-7, -1703/27/79 3,000.00 *03/27/79720.75 03/31/791,739.50 05/21/79 1,000.00 TICCk 146206/18/79[1,000.00]Credit memo 06/27/791,000.00 Lake MiddlebourneCk 192106-1808/07/79 200.00 Lake MiddlebourneCk 28008/15/79500.00 TIC 08/24/79100.00 TIC08/27/79600.00 TICCk 2672$ 66,016.68 Total Deposits (15,000.00)Transfers allowed by respondent$ 51,061.68 Income per notice of deficiency*174 MLJ TRUST Quaker City National Bank a/c 084-507-31979 Deposits APPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.01/10/79100.00 106-2602/05/79135.45 02/07/791,000.0002/28/79500.00 TICCk 117704/16/79500.00 FHISCk 157106-2304/26/79200.00 106-2405/01/7950.00 05/04/79400.00 106-2505/07/79400.00 106-2705/15/79100.00 06/07/79756.74 06/21/79223.00 07/06/79330.00 07/16/79300.00 TICCk 244107/20/79360.00 07/27/79461.58 08/03/791,474.80 08/24/79130.00 08/27/79120.69 09/06/79104.82 09/11/79300.0009/17/79200.00 TICCk 280709/24/79640.00 FHISCk 19109/26/7945.00 09/26/79380.00 106-2210/04/79220.50 10/12/7926.05 10/19/79300.00 FHIS11/01/7977,500.00 Casa Serena ($ 59,300)106-21, -28, -29Leverage Leasing (18,200)11/02/79170.00 11/05/79300.00 11/16/79300.00 11/21/79400.00 12/04/79146.54 12/10/7972.00 12/10/79150.00 12/12/79595.17 12/14/79299.40 12/24/791,137.58 $ 90,829.31 Total Deposits(2,440.00)Transfers allowed by respondent$88,389.31 Income per notice of deficiency*175 TAX INFORMATION CENTER Quaker City National Bank a/c 099-237-51979 Deposits01/04/79$ 10,000.0004/23/79n7 10,000.0007/05/7921,223.2501/10/79A 9,000.0004/24/799,509.7507/06/79173.1101/17/79B 6,000.0004/25/79482.0007/06/795,000.0001/22/7911,711.6504/26/794,800.0007/06/7915,575.0010/31/7976,340.5304/27/7996.4607/09/792,157.0002/05/79175.2504/27/79856.7507/09/792,839.2502/05/7915,470.0004/30/79153.5007/10/79500.0002/06/791,274.8604/30/79257.0007/12/791,829.0002/07/791,569.0005/01/79n8 20,815.0007/12/79n13 11,200.0002/07/79n1 12,052.9505/04/791,115.0007/13/796,129.7502/09/7910,299.2505/04/794,578.5707/16/79533.0002/12/79536.7505/04/7910,330.0007/17/791,055.0002/13/7917,307.2505/07/79202.5007/17/792,886.0002/15/79696.5005/07/792,284.9007/19/792,500.0002/16/79310.0005/08/79380.0007/19/796,000.0002/20/79800.0005/01/793,627.9707/20/79150.0002/20/792,576.4505/09/79722.7507/20/79637.5002/21/79411.5805/09/791,163.8407/23/791,783.0002/21/7925,053.0005/11/796,750.0007/23/792,161.3402/23/79680.5005/11/7912,161.9707/25/791,260.7902/26/792,677.0305/14/79185.5007/25/793,622.5002/26/7917,462.0005/14/7912,479.0407/27/79379.0002/27/794,237.0005/15/792,290.0007/27/79n14 10,000.0002/28/791,650.0005/16/792,618.0007/30/791,074.5003/02/791,109.7505/17/79345.0007/30/792,543.0003/07/798,750.0005/18/79525.7507/30/79n15 20,099.5003/09/799,030.7505/21/79245.0008/01/798,271.0003/12/7939.0005/21/796,595.7508/02/7944.0003/15/791,162.7405/22/798,059.2708/03/796,505.5003/15/79n2 9,159.4105/23/79500.0008/03/796,168.7503/19/79n3 1,379.2505/23/79n9 11,427.1708/06/791,705.2503/21/79n4 5,050.0005/25/799,386.3008/07/79229.5003/21/796,253.6005/25/799,817.8008/07/791,036.0003/26/79n5 10,000.0005/31/79352.7908/10/7987.5003/27/794,311.0006/01/79n10 40,000.0008/10/79150.0003/28/791.5006/04/7973.0008/10/79209.0004/02/791,272.8406/04/79568.5008/10/79260.0004/02/796,267.7006/04/791,237.5008/10/79685.0004/05/791,705.0006/04/796,143.5008/10/79n16 8,149.7504/09/793,917.1206/05/792,233.5008/15/79n17 4,000.0004/09/79n6 4,659.5006/05/795,380.5008/17/79212.7504/10/79518.7506/06/79656.7508/17/79219.0004/40/795,000.0006/06/79683.5008/17/79n18 3,000.0004/11/7962.5006/06/79984.0008/20/79379.7504/13/79232.5506/06/792,163.0008/21/795,068.0004/13/791,117.0006/07/791,250.0008/24/79127.8004/13/793,090.0006/08/793,058.5008/24/79180.2504/16/79716.5006/08/79n11 40,000.0008/24/799,118.7604/17/79346.25* * * 06/09/79 through08/27/79  10,871.0004/18/791,500.0006/25/79 are missing * ** * * 08/28/79 through04/18/797,990.3406/27/79145.5010/22/79 are missing * *04/19/7950.0006/27/79399.0010/23/79806.7504/19/79206.0006/27/795,000.0010/23/791,645.4704/20/79161.5006/28/79n12 10,052.5010/24/79844.3504/23/7967.2506/29/79897.5010/24/795,041.5004/23/791,297.5007/05/79540.0010/24/7913,374.5004/23/797,588.0307/05/795,000.0010/26/794,556.2510/29/798,674.9511/16/792,558.5012/07/798,930.0010/29/7918,548.0011/16/7912,539.7012/07/7911,206.0010/30/792,653.0011/20/796,424.0012/07/7912,232.7510/31/791,011.0011/23/798,952.6812/10/795,785.4111/01/793,947.0011/26/795,132.2612/10/7913,765.3011/02/793,007.0011/27/798,511.7512/10/7939,168.5011/05/792,608.3011/27/7915,000.0012/12/7977.8011/05/797,146.2511/28/797,586.7512/12/795,176.9511/06/794,044.5911/30/7915,339.2512/14/7912,426.0011/06/797,117.2512/03/793,212.5012/18/7913,076.5511/08/79n19 12,052.0512/03/79n21 5,000.0012/18/7960,888.2511/09/79463.0012/03/795,043.7512/19/79  1,000.0011/13/79409.7712/03/798,100.0012/21/7914,912.4511/13/7921,899.3012/04/792,542.0012/21/7928,214.2011/13/79n20 25,000.0012/04/797,424.80* * *12/22/79 through11/13/7964,811.5012/05/798,051.3112/28/79 are missing * *11/16/792,137.5012/06/795,563.6512/29/799,858.5012/29/794,623.7512/31/791,401.16Total Deposits  $ 1,385,402.77*176  Add: "Distributions from trusts, partnerships, etc. not reflected in the deposits but verified by credit documents." Appendix BItem No.Lake Middlebourne06/15/79Debit Memo20,000.00 106-2Casa Serena II09/07/79Ck. 10116,900.00 Casa Serena I09/07/79Ck. 10910,000.00 Casa Serena I09/14/79Ck. 11410,000.00 Lake Estates10/02/79Ck. 1088,000.00 La Oficina10/08/79Ck. 10115,000.00 106-12Casa Serena II10/10/79Ck. 10310,000.00 Central Ohio #110/12/79Ck. 12610,000.00 Casa Serena II10/18/79Debit Memo15,000.00 Subtotal$ 1,500,302.77 Transfers(13,000.00) Income per Deposit    Schedule $ 1,487,302.77  Unexplained variance (.01) Income per notice of    Deficiency $ 1,487,302.76 The following transfers, as numbered below, were included in the deposit above at the corresponding number.  The deposits were considered income distributions from the respective trusts to petitioners because the funds were used to pay the personal and business expenses of their proprietorships. APPENDIXNO.DRAWERANNOTATIONITEM NO. 1Lake MiddlebourneCk. 109; $ 2,031.452Precious MetalsCk. 1213Precious MetalsCk. 124; $ 610.004Casa Serena IIDebit Memo5Precious MetalsDebit Memo106-7, -16, -176Hamilton Rd. Pshp.Ck. 126; $ 2,588.62106-17Casa SerenaDebit Memo8Precious MetalsCk. 130; $ 20,000.009Lake MiddlebourneCk. 139; $ 10,000.0010Lake MiddlebourneCredit Memo11Lake MiddlebourneDebit Memo106-612Lake MiddlebourneCk. 194; $ 5,000.0013Lake MiddlebourneCredit Memo14Casa Serena ICk. 10115Casa Serena ICk. 102; $ 15,000.0016Precious MetalsCk. 150; $ 8,000.0017Precious MetalsCk. 15318Lake MiddlebourneCk. 30319Freedom FuelCk. 10420Casa Serena ICk. 108 106-321Freedom FuelCk. 105*177  From the checks petitioners presented, we have identified the following additional checks deposited in petitioners' accounts. APPENDIX BDATETRANSFERRED FROMTRANSFERRED TOAMOUNTITEM NUMBER1/09/79TIC Office AccountTIC$ 9,000.00106-131/16/79TIC Office AccountTIC6,000.00106-142/13/79Casa SerenaFry/TIC10,000.00106-8 2/20/79Casa SerenaFry/TIC25,000.00106-9 4/20/79Lake MiddlebourneTIC1,297.50106-5 4/26/79Lake MiddlebourneTIC5,000.00106-1112/10/79Tall TimbersTIC5,785,41106-10CASHIER'S CHECKS 1979 APPENDIX BITEMDATEPAYEEAMOUNTNOTATIONNUMBER02/21/79Phillip Fry45,000.00 *Co-endorsed byF.M., Atty.106-3603/02/79EP Realty5,000.00 +106-3704/20/79Arizona Bank5,000.00 05/18/79Phillip Fry30,000.00 +Down Payment onKIKO acreage106-3811/06/79IBM Corp.2,995.20 +106-4012/07/79Phillip Fry134,000.00 +Down Payment on TallTimbers Mobile Home Park12/10/79Phillip Fry129,515.00 Co-endorsed byE & B, Attys.12/13/79Phillip Fry7,180.91 *12/28/79DW Trust A/c138,000.00 +106-39$ 496,691.11  Total cashier's checks(.01) Unexplained variance$ 496,691.10  Income per notice of deficiency*178 GUERNSEY LUMBER COMPANY Quaker City National Bank A/c 069-872-01980 DepositsAPPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.08/08/807,000.00 107-15808/22/805,800.00 107-15409/15/80* 4,750.00 MLJ/MLCk. 22109/15/801,600.00 107-15909/19/804,300.00 107-15510/03/804,700.00 107-14310/15/802,315.77 107-15610/17/805,160.82 10/31/801,000.00 107-14410/31/808,053.94 11/14/809,646.72 11/18/804,331.34 11/26/8010,000.00 107-14212/12/8015,000.00 107-14912/15/805,394.77 107-14812/17/801,500.00 107-15012/29/8010,400.00 107-153$ 100,953.36 Total deposits* (4,750.00)Transfers allowed by respondent$ 96,203.36 Income per notice of deficiencyMLJ/MERRILL LYNCH ACCOUNT1980 DEPOSITSAPPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.01/15/80$ 100,000.00 107-9102/22/80126,361.66 03/07/8040,000.00 Freedom FuelDebit memo107-9005/14/80230,000.00 Fry, Az. accountCk 12005/20/8030,000.00 Fry, Az. accountCk 15305/22/80* 290,039.77 107-8707/03/8025,000.00 Sports paradiseCk 1001107-8507/03/8030,000.00 Leverage LeasingCk 164107-9207/11/8040,000.00 MLJ TrustCk 67107/28/804,000.00 MLJ Trust Ck 68207/29/8020,000.00 MLJ Trust Ck 68607/30/8011,000.00 MLJ TrustCk 68608/05/80402.944.31 10/06/8030,000.00 MLJ TrustCk 801* (290,039.77)5/22/80 Deposit reversed out20,724.00 10/27/80 Deposit omitted$ 1,110,029.97 Total deposits excluding interest(405,000.00)Less transfers allowed by respondent$ 705,029.97 Income per notice of deficiency10,284.00 Interest earned$ 715,313.97 Total income deposits*179 GROUP LEGAL PLAN OF FHIS Quaker City National Bank a/c 069-195-61980 DepositsAPPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.01/14/80$ 750.00 107-11301/25/80700.00 107-11202/08/80700.00 TICCk 471802/22/80700.00 107-12403/07/80700.00 TICCk 490103/21/80700.00 TICCk 500204/07/80700.00 107-12504/18/80700.00 107-12705/02/80700.00 Leverage LeasingCk 130107-13605/14/80221.37 05/16/80700.00 TIC107-13505/30/80700.00 107-12806/16/80700.00 107-12906/30/80700.00 107-13007/11/80700.00 107-13107/15/80250.00 107-13407/25/80700.00 107-12008/08/80900.00 107-13208/22/80800.00 107-12109/05/801,455.22MLJ/Merrill LynchCk 22209/09/80350.00 107-12209/19/802,200.00 10/03/802,200.00 107-11410/16/802,155.22 107-12310/31/801,719.22 107-11511/14/801,544.22 107-11611/26/801,625.49 107-11712/12/802,538.89 107-11812/29/801,700.00 107-119$ 31,709.63 Total deposits(4,255.22)Transfers allowed by respondent$ 27,454.41 Income per notice of deficiencyORLANDO ADVERTISINGQUAKER CITY NATIONAL BANKa/c 089-810-61980 DepositsAPPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.01/02/80$ 3,000.00 TICDebit memo01/14/805,000.00 Freedom FuelCk. 1009107-10401/15/80380.37 01/21/8079.80 01/21/8010,000.00 Tall TimbersCk 1001107-9402/01/80177.12 02/04/8010,000.00 Freedom Fuel Debit memo107-10302/06/80200.00 TIC Ck 4089107-10103/10/803,000.00 Freedom FuelCk 103403/24.805,000.00 MLJ/Merrill LynchCk 7804/04/805,000.00 04/08/8095.73 04/14/8010,000.00 04/23/803,100.00 Freedom FuelCk 1042107-10204/28/8021.78 05/20/8027.49 06/16/801,900.00 MLJ/Merrill LynchCk 14806/20/8075.33 07/15/80108.81 07/15/80297.18 07/21/80700.00 MLJ/Merrill LynchCk 18008/05/80382.22 09/02/802,500.00 Leverage LeasingCk 195107-10509/17/801,500.00 107-9809/24/801,000.00 107-9510/10/801,000.00 107-9910/17/801,516.07 10/21/801,500.00 107-10010/24/801,500.00 Leverage LeasingCk 207107-10610/27/803,000.00 Leverage LeasingCk 210107-10711/03/804,500.00 Leverage LeasingCk 215107-10811/12/804,500.00 Leverage LeasingCk 220107-10911/14/803,000.00 Leverage LeasingCk 225107-11011/18/8020.22 11/21/80533.36 11/25/80825.00 107-9612/02/801,250.00 Leverage LeasingCk 242107-11112/11/802,130.00 107-9712/22/8020.22 12/22/80218.25 12/30/8076.12 12/31/801,600.00 TIC$ 90,735.07 Total deposits(31,900.00)Transfers allowed by respondent$ 58,835.07 Income per notice of deficiency*180 TIC OFFICE ACCOUNTQuaker City National Bank a/c 100-181-7 1980 Deposits APPENDIX BDATEDEPOSITTRANSFER FROM:OTHER ANNOTATIONITEM NO.03/18/80$ 2,000.00 TICCk 496103/24/801,047.80 TICCk 498803/31/801,600.71 107-2504/08/802,103.88 107-2704/14/801,905.60 107-2640/18/803,507.15 TICFrom individual credit items05/01/803,450.00 Leverage LeasingCk 131107-4306/12/804,000.00 Leverage LeasingCk 156107-4407/08/802,000.00 Freedom Fuel CorpCk 1080107-5207/31/805,000.00 Leverage LeasingDebit Memo107-51 *08/04/804,509.90 Leverage LeasingCk 177107-4508/07/806,000.00 Leverage LeasingCk 179107-4608/20/801,500.00 Leverage LeasingDebit Memo107-5008/25/801,000.00 Leverage LeasingCk 188107-4708/28/801,000.00 Leverage LeasingCk 192107-4811/06/806,263.65 Leverage LeasingCk 219107-49$ 46,888.69 Total deposits(8,554.95)Less Transfers allowed by respondent$ 38,333.74 Subtotal.10 Unexplained variance$ 38,333.84 Income per Notice of DeficiencyMonthly statements for February, May,June, July, August, September, October,November, and December were missing.*181 TAX INFORMATION CENTERQUAKER CITY NATIONAL BANK a/c 099-273-5 1980 DEPOSITS APPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO. * * * * * *January 1 through January 28 are missing * * * * * * 01/29/802,882.07 02/01/8010,000.00 02/01/8015,153.50 02/04/805,416.00 02/04/807,154.50 02/05/081,250.00 02/06/8085.50 02/06/80171.50 02/06/807,500.00 02/07/803,567.00 02/07/8013,700.00 Freedom Fuel CorpCk 1015; $ 14,000107-1602/08/802,601.75 02/11/801,387.50 02/12/80192.00 02/13/8011,277.75 02/19/80769.96 02/19/8012,890.00 02/20/809,909.25 02/22/80366.00 02/22/8026,579.95 MLJ/Merrill LynchPer credit memo02/25/8010,000.00 107-1302/25/8016,970.58 02/26/8024,625.42 107-702/27/801,885.00 02/28/801,560.75 02/29/80185.00 02/29/801,071.40 02/29/8040,000.00 107-803/04/801,015.00 03/04/8011,723.78 03/07/809,436.25 $ 6,200107-2403/10/801,769.50 03/10/808,075.00 03/11/804,547.00 03/14/804,118.75 03/17/801,980.47 03/17/8010,093.33 03/18/804,294.00 03/19/80901.25 03/19/801,000.00 03/21/80229.60 03/21/801,040.75 03/24/801,905.25 03/24/802,945.13 03/24/8026,970.33 03/25/801,025.00 03/27/803,137.84 03/28/801,080.10 03/28/80[3,616.20]Credit memo -- not included in total03/31/805,712.00 03/31/808,131.63 03/31/8030,811.16 MLJ/Merrill LynchCk 77; $ 25,000.04/01/802,655.99 04/03/801,031.68 04/07/80510.00 04/07/804,268.22 04/08/802,067.00 04/09/80985.00 04/09/803,765.00 04/11/8010,917.50 MLJ/Merrill LynchCk 81; $ 5,000.04/14/80687.50 04/14/805,000.00 04/15/801,020.00 04/15/801,500.00 04/16/8019,186.72 04/18/802,510.00 04/18/804,000.00 04/18/805,564.20Tall Timbers TrustCk 428; $ 2,181.2004/18/8010,000 MLJ/Merrill LynchCk 103; $ 10,000.04/21/80304.84 04/21/801,121.43 04/21/801,791.25 04/21/803,611.85 04/22/804,051.50 04/23/801,000.00 04/23/802,980.50 04/23/804,900.00 04/23/805,000.00 04/25/804,754.00 04/28/80119.25 04/28/80203.52 04/28/802,755.09 04/28/803,314.46 * * * * * *  4/29 through 5/27 missing* * * * * *  05/28/805,894.00 05/28/806,700.00 05/28/806,709.21 05/31/80303.00 05/31/801,825.00 05/31/805,000.00 Leverage LeasingCk 150; $ 5,000.1Q7-2006/02/803.943.50 06/03/805,291.75 06/03/808,560.75 Sports ParadiseCk 1009; $ 6,000107-1206/04/801,975.00 06/05/80175.24 06/05/80905.00 06/05/804,250.00 Freedom FuelCk 1048; $ 4,25006/05/8011,125.00 $ 9,000107-1506/06/806,950.00 06/09/802,125.00 06/09/802,360.00 06/10/802,845.08 06/12/8010,000.00 06/13/80984.25 06/13/8020,000.00 06/16/8017,488.06 MLJ/Merrill LynchCk 146; $ 10,00006/17/80500.00 06/19/806,293.25 06/19/806,809.13 06/20/8017.00 06/20/80979.50 06/20/802,250.00 06/23/803,002.59 06/23/803,500.00 06/23/8012,568.75 06/24/802,864.47 06/25/802,587.00 06/27/801,006.00 06/27/8010,000.00 06/30/809,400.00 06/30/8016,562.50 07/01/805,698.97 07/02/802,490.00 07/02/807,062.76 07/02/8021,126.50 MLJ/Merrill LynchCk 165, 169;$ 20,00007/07/80536.50 07/07/807,551.00 07/08/803,060.99 07/10/804,301.83 07/11/801,500.00 07/11/802,293.33 $ 2,000107-307/14/801,106.30 07/14/801,062.50 07/15/80507.00 07/15/80567.36 07/16/805,119.00 07/16/8020,133.64 MLJ/Merrill LynchCk 178; $ 20,00007/18/806,257.98 07/21/801,500.00 07/21/803,125.00 07/21/804,208.52 07/21/804,339.25 07/21/8010,000 Leverage LeasingCk 170; $ 10,000107-2107/22/802,160.32 07/24/802,146.00 07/25/80500.00 07/25/801,040.00 07/25/8014,000.00 Leverage LeasingCk 171; $ 14,000107-2207/28/806,424.42 07/28/8011,686.74 07/29/809,031.63 $ 2,000107-607/31/80358.13 07/31/805,670.98 Freedom FuelCk 1097; $ 2,600107-1708/01/801,885.50 08/04/808,255.47 08/05/801,500.00 08/05/806,763.85 MLJ/Merrill LynchCk 187; $ 3,570.9808/07/801,035.00 08/07/802,756.23 08/08/806,657.00 08/11/801,987.66 08/12/801,598.00 08/15/803,542.75 08/15/806,648.55 08/18/8029,186.52 08/19/804,250.00   * * * Deposits from 8/26 through 12/3108/21/804,096.00   were missing * * *08/22/80579.13 08/25/809,216.35 $ 942.946.69 Deposit subtotal*182 Add: distributions from trusts, partnerships, and corporations not reflected herein, but respondent verified by credit documents. APPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.01/18/80$ 24,000.00 Tradewinds TrustCk 1001107-101/25/8018,750.00 Tradewinds TrustCk 1002107-205/02/809,000.00 Leverage LeasingCk 132107-1909/16/804,425.00 Freedom Fuel Corp.Ck 1118107-1810/15/806,500.00 Leverage LeasingCk 202107-2310/20/809,750.00 Hamilton Rd. PshpCk 376107-4$ 1,015,371.69 Income subtotal(128,395.98)Less transfers allowed by respondent(4,425.00)Less FFC transfer$ 882,550.71 Income per notice of deficiencyMLJ Trust Quaker City National Bank a/c 084-507-3 1980 Deposits APPENDIX BDATEDEPOSIT TRANSFER FROM:OTHER ANNOTATIONITEM NO.01/04/80$ 11,250.00 01/15/80126.90 02/06/80844.15 02/08/8030,000.00 MLJ/Merrill Lynch107-8602/20/8011,110.95 02/22/804,500.00 02/22/8014,800.00 MLJ/Merrill Lynch02/26/8020,000.00 MLJ/Merrill Lynch03/04/8040,000.00 MLJ/Merrill Lynch03/12/80644.60 03/17/806,578.00 03/24/80102.12 04/01/8094.96 04/03/80203.90 04/21/803,013.95 04/28/80126.63 05/20/8025.50 05/20/80395.61 05/21/806.38 05/21/80324.90 05/23/80290,039.77 06/02/80110.77 06/10/80100.00 06/20/8029.63 06/26/80500.00 TICCk 163107-7507/02/80210.00 07/02/80500.00 107-7807/08/802,608.90 07/10/8040,000 Leverage LeasingCk 169107-8007/28/804,000.00 Casa SerenaCk 118107-6507/29/8021.19 07/29/8085.05 07/29/8020,000 Leverage LeasingCk 172107-8107/31/8011,000 Casa SereneCk 119107-6808/05/80200.00 08/08/80208.96 TIC$ 200.00107-7708/11/80411.92 08/19/8072.00 08/26/8044.11 08/26/80156.95 Lake MiddlebourneCk 973107-5708/27/80795.00 Lake MiddlebourneCk 934107-5808/29/804,087.60 Tall Timbers TrustCk 565; $ 1,558107-62Tradewinds TrustCk 297; $ 330107-6109/05/ 80104.22 09/05/80273.00 09/15/80100.00 09/15/803,160.00 107-7609/17/80416.37 09/22/801,500.00 09/25/8020,000.00 Fantasyland TrustCk 101-A107-5410/01/804,575.00 10/02/8010,000.00 Fantasyland TrustCk 101107-6910/02/80100.00 10/06/8022,000.00 Hamilton Rd. PshpCk 366107-5610/07/802,708.90 10/07/8015,000.00 Freedom Fuel Corp.Ck 1126107-7910/10/802,131.00 10/14/802,500.00 La Oficina TrustCk 132107-6410/14/8013.50 10/17/8030,000.00 Leverage LeasingCk 200107-8210/24/8070,000.00 Fantasyland TrustCk 104107-7210/28/801,784.10 107-5910/29/8015,000.00 Leverage LeasingCk 211107-8311/03/8020,200.00 $ 20,000107-6311/04/80330.00 Tradewinds TrustCk 366107-6011/04/8029,700.00 Fantasyland TrustCk 105107-7011/10/80127.36 11/14/80750.00 11/14/801,511.25 11/14/8035.832.00 107-7311/21/8018.570.00 Jordan EstatesCk 6107-6711/21/8020,000.00 Jordan EstatesCk 5107-6612/04/8020,564.99 Leverage LeasingCk 243107-8412/05/80213.46 12/11/804,700.00 Freedom Fuel Corp.Ck 115612/22/80132.00 12/22/801,144.60 12/29/8050,000.00 Energy LodgingCk 103, 104Trust12/29/8055,000.00 Fantasyland TrustCk 107107-55Freedom Fuel Corp.Ck 116212/30/8082.500.00 CapitalAppreciation$ 1,061.972.15 Total Deposits(110,000.00)Transfers allowed by respondent4,700.00 Add back FFC transfer$ 956,672.15.00 Income per notice of deficiency27,000.00 Transfers which did not show up as deposits27,000.00 Fantasyland TrustCk 106107-7115,000.00 Amusement ConceptsCk 101107-74*183 TAX INFORMATION CENTER Banc Ohio National Banka/c 0000124661980 DepositsAPPENDIX BDATEDEPOSITTRANSFER FROM:OTHER ANNOTATIONITEM NO.01/09/80$ 773.8201/11/801,289.0001/11/50754.5001/14/8094.5001/15/801,120.7802/21/8040.0001/21/801,953.0001/28/801,646.1302/01/801,853.5002/05/80489.2502/05/80939.0002/08/8065.0002/12/802,061.2502/15/80873.0003/03/804,099.0203/07/80720.8703/18/801,762.5003/20/8087.0003/31/80914.3004/04/801,732.0804/07/801,185.8204/16/802,115.1704/21/80899.4204/24/801,241.8905/06/80947.5005/19/80637.0105/20/80797.7506/09/80799.4206/18/80400.5006/20/801,318.5006/24/8054.2507/22/80312.5008/15/80292.5008/20/801,124.2509/09/803,200.00107-3209/15/80192.2509/15/80663.7509/16/801,200.00107-3809/24/80444.2509/29/801,600.00107-3710/08/80658.0010/14/80941.2010/21/801,138.2510/29/8090.0011/03/80291.5011/10/801,143.4211/12/801,269.30The January and December bank statements11/19/80467.35were missing, but individual deposit slips11/28/80911.61were available.12/05/802,419.0812/05/801,100.0012/15/801,001.2512/17/802,992.7112/31/80900.00$ 58,018.90Income per notice of deficiency*184 CASHIER'S CHECKS1980APPENDIX BITEMDATEPAYEEAMOUNTNOTATION/REMITTERNUMBER01/03/80Old Natl Bank11,679.00 03/07/80Susan Fry * 532.30 W/drawn from TIC#409203/12/80Allegheny Bank * 6,355.00 W/drawn fromIncreasingInnovative Income03/31/80United Bank * 24,411.78 Precious Metals03/10/80VNB Arizona * 10,755.00 Precious metals06/30/80Putnam Transfer+ 7,273.44 107-16609/16/80Bank One * 47,933.17 $ 50,000.00withdrawnfrom MLJ/ML-Ck 21009/18/80Y&F Auction * 12,500.00 MLJ/ML #23510/03/80Y. Trk Sales14,990.72 10/03/80S Purcipile27.50 10/03/80S Purcipile * 2,750.00 W/drawn from MLJ/ML#25210/16/80Columbus Trlr. * 1,567.50 W/drawn from MLJ/ML#25810/24/80Phillip Fry * 62,080.00 MLJ Trust10/24/80D. Transfer252.28 10/24/80Booklet Publ.2,514.37 10/24/80Curt Kittle * 2,500.00 MLJ Trust10/29/80Lwyrs Abstract * 15,000.00 MLJ Trust10/30/80H Mini Golf * 3,694.00 Columbus Game Arcade107-16512/04/80Phillip Fry5,000.00 For Deposit-PlaylandAmusement Park12/04/80Phillip Fry1,000.00 For Deposit-PlaylandAmusement Park12/04/80Phillip Fry1,000.00 For Deposit-PlaylandAmusement Park12/04/80Phillip Fry1,000.00 For Deposit-PlaylandAmusement Park12/04/80Phillip Fry1,000.00 For Deposit-PlaylandAmusement Park12/08/80Phillip Fry58,587.85 Full Payment-14107-74ridesPlayland Ocean City107-51+ ($ 42,000 substantiated)12/26/80Susan Fry5,000.00 $ 319,403.91 Subtotal(190,078.75)* Respondent considered nontaxableon deposit schedules2,000.00 Unexplained Variance$ 131,325.16 Income per notice of deficiency*185  APPENDIX D The following summaries of operating expenses, by category, are those to which petitioners are entitled. 1977Expense Category:TICLBSTOTALAdvertising7,6087,44715,055Advertising/Orl. Adv.8,97308,973Automobile192212404Books11,04351211,555Equip. repair390141531Freight3178109Indep. Contractors8,96714,04723,014Insurance73450523Meeting Rooms3,9473,8427,789Office Supplies4,85413,07617,930Postage2,0832472,330Reimbursed expenses4925,1335,625Rent0780780Repairs & Maintenance2,17746952,869Taxes99877976Telephone4,2114,4158,626Travel2,9645,0017.965Utilities1579611,118Legal Fees1,05001,050Miscellaneous40828868Printing1,24901,249Subtotal$ 60,597$ 58,742$ 119,339Depreciation19,038019,038Total$ 79,635$ 58,742$ 138,3771978Expense Category:TICLBSFHIS TOTALAdvertising24,48640549925,390Advertising/Orl. Adv.13,3720013,372Automobile4,865004,865Books2,11556302,678Freight23890112Indep. Contractors267,67713,04919280,745Insurance2,09235302,445Meeting Rooms4,69421304,907Office Supplies80,9060080,906Postage3,41525003,665Rent8,1732,155010,328Repairs & Maintenance73943001,169Taxes1,177001,177Telephone50,338320050,658Travel53,7379513353,965Utilities1,99714902,146Interest3,542003,542Legal Fees62,0190062,019Miscellaneous2,6571,47704,134Subtotal$ 588,024$ 19,548$ 651$ 608,223Depreciation58,6110058,611Total$ 646,635$ 19,548$ 651$ 666,834*186 1979Expense Category:TIC FHIS TOTAL Advertising47,69314247,835Advertising/Orl. Adv.59,789059,789Automobile5,26505,265Books6002,2532,853Freight1,82401,824Indep. Contractors325,9707,106333,076Insurance17,251017,251Meeting Rooms7500750Office Supplies170,8600170,860Postage41041Rent16,613016,613Repairs & Maintenance7540754Taxes11,073011,073Telephone129,6040129,604Travel34,834034,834Utilities6,06706,067Interest19,667019,667Legal Fees74,6561,58276,238Miscellaneous13,341013,341Wages90,138090,138Subtotal$ 1,026,790$ 11,083$ 1,037,873Depreciation88,047088,047Total$ 1,114,837$ 11,083$ 1,125,9201980Expense Category:TIC MLJ IIIM FHIS&GLPTOTAL Advertising90,5905,7404,2931,132101,755Advertising/Orl. Adv.92,14100092,141Automobile040000400Books7,6904943,874012,058Freight1,0730001,073Indep. Contractors497,4793,6544727,924509,529Insurance51,48600051,486Meeting Rooms10,68300010,683Office Supplies21,9431,272017223,387Postage65,04657101,07966,696Employee Expense6,63301701,7728,575Repairs & Maintenance13,00000013,000Taxes2,2793,159005,438Telephone185,039002,515187,554Travel5,50321302,0037,719Utilities13,2291,2990014,528Interest516000516Legal Fees15,24514,8001,00022,97954,024Miscellaneous16,0367376845317,330Wages230,117000230,117Payroll Taxes30,59100030,591Subtotal1,356,31931,67510,57740,0291,438,600Depreciation92,36000092,360Total$ 1,448,679$ 31,675$ 10,577$ 40,0291,530,960*187 Footnotes1. Petitioners were represented by counsel throughout the trial of this case.  Counsel was permitted to withdraw after trial but before post-trial briefs were due.  See Fry v. Commissioner, 92 T.C. 368">92 T.C. 368↩ (1989).2. Unless otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩3. Petitioners resided in a home on the 120-acre property separate from TIC's buildings.  Portions of these 120 acres were later developed by them into an amusement park known as Paradise Lake Amusement Park.↩4. At the time of the trial of this case, Phillip S. Fry was incarcerated at the Federal Correction Facility in Boron, California.  He was convicted upon a guilty plea of conspiracy to defraud the United States in connection with his Freedom Fuel Corporation activities.  See infra↩ p. 13.5. Some of the Fry books were purportedly co-authored by Susan Fry.  The titles of those publications include: "Pay No Income Tax Without Going to Jail"; "How to Disinherit The IRS and The Probate Court"; "Our Lady of Perpetual Deductions"; and "How to Cut Your Taxes in Half by Incorporating Your Job or Business."↩6. A representative agreement is reproduced in appendix A.↩7. Mrs. Fry's maiden name was Orlando, hence the name Orlando Advertising.↩8. Petitioners also operated under the following business names, either as an alter ego or as an owner officer. a.  Discount Quickprint, Inc., a/k/a Discount Development b.  Phillip S. Fry & Associates, Inc.c.  Guernsey Lumber Co. d.  Increasing Innovative Income Magazine, Inc. e.  Lawyers Publishing Company f.  National Council to Eliminate Death Taxes g.  Positive Cash Flow Networkh.  Sports Paradise Family Entertainment Park i.  Talk Magazine j.  Tax Counsel, Inc. k.  The Energy Store, Inc.↩9. The entities Mr. Fry organized are referred to by the parties variously as syndicated trusts, syndications, or syndicated entities. For convenience, we adopt their terminology herein.↩10. The caption on the 1977 MLJ Trust return included losses from partnerships and fiduciaries as one line-item.↩11. Nonsyndication bank accounts refer to the checking accounts of the nonsyndicated entities, i.e., the entities wholly owned by petitioner.↩12. During the investigation of petitioners, Mr. Fry filed suit in District Court against Mr. Melaragno in his capacity as a revenue agent for damages allegedly arising out of Mr. Melaragno's attempt to determine petitioners' tax liability.↩13. For example, one of petitioners' schedules lists "Jordan Estates" as the drawer of checks, drawn and paid by the bank in 1978, which we have listed in appendix B as numbers 105-1 and 105-2.  Jordan Estates was not syndicated until 1980.  Those checks were drawn on a bank account respondent included in his 1978 bank deposits analysis as belonging to Phillip S. Fry.  Further, the account number is different from that shown on checks later identified as drawn on the Jordan Estates checking account during 1980.↩14. The cashier's check ($ 1,000.00), undocumented deposits ($ 1,014,572.21), prepaid rental from Lake Middlebourne ($ 79,950.00), deposits to the Phillip S. Fry account ($ 9,451.50), Law Book Store bank deposits ($ 80,570.50), and Group Legal Plan deposits ($ 2,000.00) total $ 1,187,544.21.↩15. Mr. Fry testified the funds were used to purchase land for the Brentwood Southern Mobile Home Park and 126 acres in Ohio in completing the tax free exchange.  This same Brentwood Southern Mobile Home Park was the subject of Casa Serena Trusts I and II for which the land was purchased in July 1979.↩*. The difference in total deposits shown above ($ 3,475,239.46) and the total deposits shown on the table on page 87 ($ 3,525,963.46) is the error adjustments ($ 50,724.00), which do not constitute taxable income.↩16. The depreciation expense shown in appendix D includes building depreciation which is not in dispute.↩17. Respondent concedes that petitioners are entitled to investment tax credit for equipment purchased during the years in issue.↩18. Even if we were to take the losses shown on the face of the returns and financial statements as correct, petitioners would not be entitled to deduct the claimed losses.  Although the governing instrument cast the entity in the form of a trust, such form is not controlling for Federal income tax purposes, and it is clear that these entities were not "trusts" for income tax purposes.  Morrissey v. Commissioner,296 U.S. 344">296 U.S. 344, 80 L. Ed. 263">80 L. Ed. 263, 56 S. Ct. 289">56 S. Ct. 289 (1935); sec. 301.7701-2, Proced. & Admin. Regs. The parties generally agree that the syndicated entities operated as limited partnerships. The parties have not raised, and we need not decide, whether the syndicated entities were partnerships or associations taxable as corporations.  The distinction is unavailing in either event.  If the syndicated entities were classified as associations taxable as corporations, petitioners did not file a valid subchapter S election to allow the losses to flow through to them.  If the syndicated entities were partnerships, petitioners obtained their interests for past and future services and have not demonstrated a tax basis against which to claim the loss.  See secs. 705, 721, 722, 742, 1011 et seq.  Further, we do not address the issue of whether petitioners received additional income under section 83 for receipt of their interest in the entities they created, which could conceivably supply a partnership basis, because the issue was not raised by the parties.↩19. The period of limitations does not begin to run until a return is filed.  Sec. 6501(a)↩.  Petitioners did not file a return for their 1980 taxable year, so the period of limitations remains open for 1980 even in the absence of fraud.*. Denotes a transfer allowed by respondent on brief.↩*. Denotes a transfer allowed by respondent on brief.↩x. Denotes a transfer not included in respondent's deposits analysis.↩*. Denotes a transfer allowed by respondent on brief.↩x. Denotes a transfer not included in respondent's deposits analysis.↩*. Denotes a transfer allowed by respondent on brief.↩*. Denotes transfer allowed by respondent on brief.↩*. Denotes a transfer allowed by respondent on brief.↩*. Only $ 3,000 of the March 13, 1978 deposit was recognized as an interaccount transfer.↩*. The debit memo dated July 31, 1980, was in the amount of $ 500.00 not $ 5,000.00 as recorded on respondent's schedule.  However, because we treat the transfers from Leverage Leasing as loans, and not income, the amount is not significant.↩