civil fraud - many misdeeds but not criminal fraud

ANDY GOOD, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent .
Case Information:



Sandy Good, pro se.
Horace Crump, for respondent.

David Marvin Swanson d.b.a. Dynamic Monetary Strategies, created the Treasures in a Field Investments

trust organization for petitioner. On November 15,

MEMORANDUM FINDINGS OF FACT AND OPINION

MARVEL, Judge: Respondent determined deficiencies in petitioner's Federal income tax and additions to

tax under sections 6651(a)(2) and (f) and 6654(a) 1 as follows: [*2] Additions to tax Sec. 6651(f) 1

Sec. 6654(a) Year Deficiency  Sec. 6651(a)(2) 2002 $15,889 $3,972 $11,520 $531 2003 16,403 4,101 11,892

423 2004 64,969 16,242 47,103 1,862 2005 44,044 To be determined 31,932 1,767 2006 12,705 To be

determined 9,211 601 1 Alternatively, respondent determined that petitioner is liable for additions to

tax under sec. 6651(a)(1) if we conclude that he is not liable for the additions to tax under sec.

6651(f). 2 The sec. 6651(a)(2) addition to tax is 0.5% of the amount of tax shown on the return, with

an additional 0.5% per month during which the failure to pay continues, up to a maximum of 25%. In the

notice of deficiency respondent did not calculate the amounts of the sec. 6651(a)(2) additions to tax

for 2005-06 because the period necessary to support the assertion of the maximum penalty amount under

sec. 6651(a)(2) had not yet been attained. The issues for decision are: (1) whether and if so to what

extent petitioner had unreported income for the years in issue; (2) whether petitioner is liable for

self-employment tax under section 1401 for the years in issue; (3) whether petitioner was required to

file Federal income tax returns for the years in issue; (4) whether petitioner is liable for additions

to tax under section 6651(f) for fraudulent failure to file Federal income tax returns for the years in

issue; (5) whether petitioner is liable for additions to tax under sections 6651(a)(2) and 6654(a) for

the years in [*3] issue; and (6) whether we should impose a penalty undersection 6673(a)(1). Because

petitioner maintains that as a minister of God he had no income, we will first address whether

petitioner operated a church and whether he was a minister.

FINDINGS OF FACT

Some of the facts have been deemed established for purposes of this case in accordance with Rule 91(f).

2 The deemed facts are incorporated herein by this reference. Petitioner resided in Alabama when he

filed his petition. [*4] I. Background After serving in the U.S. Air Force in Germany and receiving an

honorable discharge in 1976, petitioner attended school and worked at various jobs until 1993, when he

and his wife, Kathi Good, moved to Florida.

Sometime after moving to Florida, petitioner and Mrs. Good built a house at 32210 Bartel Street for

their family. Because of the influx of people moving into the Pensacola area, petitioner and Mrs. Good

decided to build a second house at 32188 Bartel Street. Petitioner and Mrs. Good subsequently moved

into the house at 32188 Bartel Street. On a date not apparent from the record, petitioner and Mrs. Good

also acquired property at 13450 County Road 91. Petitioner initially titled all three properties in his

name.

II. Prepare the Way Ministries

A. Background

In 1999 petitioner founded Prepare the Way Ministries. He did not consult with a certified public

accountant about the tax aspects of operating through Prepare the Way Ministries. Petitioner, however,

performed some research [*5] regarding Federal taxation and also read a book by Joseph N. Sweet 3

regarding ministries and taxation.

In 1999 petitioner also established Treasures in a Field Investments, 4 an unincorporated business

trust organization (UBTO). He used Treasures in a Field Investments to conduct transactions and to make

conveyances. Petitioner, acting through Treasures in a Field Investments, received and deposited funds

into various trust accounts and used funds from trust accounts to pay his business and personal living

expenses. [*6] B. Property Transactions In 1999 petitioner and Mrs. Good transferred the properties at

32210 Bartel Street, 32188 Bartel Street, and 13450 County Road 91 to Treasures in a Field Investments.

5 In 2002 Treasures in a Field Investments granted to petitioner and his family an unrecorded life

estate with respect to the property at 13450 County Road 91. In 2003 Treasures in a Field Investments

sold the property at 32210 Bartel Street. 6 In 2004 Treasures in a Field Investments sold the property

at 32188 Bartel Street to Samuel J. Fitts and Iris K. Fitts for $120,000.

On a date not apparent from the record, petitioner and Mrs. Good began building a house at the 13450

County Road 91 property. After the sale of the property at 32188 Bartel Street in 2004, they lived in

the partially constructed [*7] house at 13450 County Road 91 while they continued its construction. 7

Petitioner and Mrs. Good used the proceeds from the sale of the property at 32188 Bartel Street to fund

construction of the house at 13450 County Road 91.

C. Development of the Ministerial Trust

Until 2004 petitioner operated Prepare the Way Ministries through the Treasures in a Field Investments

UBTO. In 2004 using a plan promoted by Glen Stoll, petitioner reorganized his alleged ministry into a

ministerial trust. 8 Mr. Stoll has since been enjoined from engaging in such promotions. 9 To

accomplish the reorganization, a resolution was prepared purportedly to show that the board of [*8]

trustees of Treasures in a Field Investments took action to terminate the operation of Treasures in a

Field Investments as a UBTO, reorganize the entity as a “Church Ministry Trust”, and change the entity

name to Treasures in a Field. The resolution, which the board allegedly adopted, provided that the

reorganized Treasures in a Field would be consistent with section 508(c)(1)(A) and section 501(c)(3).

During the years in issue petitioner held out Prepare the Way Ministries as a section 501(c)(3)

organization. In 2004 Mrs. Good executed a document allegedly certifying that Prepare the Way

Ministries had a “non-taxable status”. However, Treasures in a Field failed to submit a Form 1023,

Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Instead,

petitioner, on behalf of Prepare the Way Ministries, prepared a Form W-8BEN, Certificate of Foreign

Status of Beneficial Owner for United States Tax Withholding. 10 Petitioner materially altered the Form

W-8BEN by adding an additional box labeled “church” under the portion of the form requesting

identification of the type of beneficial owner. Petitioner used this Form W-8BEN [*9] to hold Prepare

the Way Ministries out as a tax-exempt entity for transactions requiring tShird-party reporting.

D. Bank Accounts

From December 31, 2001, through December 29, 2006, petitioner maintained an account ending in 9269

(account 9269) in the name of Prepare the Way Ministries at Regions Bank. The signature card for

account 9269 showed petitioner, Mrs. Good, Shane M. Good, Julie A. Good, Mr. Dornstadter, and Summer C.

Dornstadter, petitioner's daughter, as authorized signatories. 11 The employer identification number

(EIN) petitioner gave to Regions Bank was 929099107 and was false. Petitioner used this false EIN to

satisfy Region's Bank requirement for establishing an account.

From April 29, 2003, through December 29, 2006, petitioner maintained an account ending in 2952

(account 2952) in the name of Treasures in a Field Investments at AmSouth Bank. 12 Only petitioner and

Mrs. Good were authorized [*10] signatories for account 2952. No EIN was provided to AmSouth Bank. We

refer to account 9269 and account 2952 collectively as the ministry bank accounts. 13

III. Petitioner's Activities and Finances During the Years in Issue During the years in issue

petitioner went on numerous trips, including trips to Europe, which he testified at trial were

missionary trips. 14 Petitioner admitted during his testimony that he also performed carpentry and

landscaping work and trained horses and that he rented space in the 32210 and 32188 Bartel Street

properties to families involved in his purported ministry.

Petitioner did not maintain a personal bank account separate from the ministry bank accounts, and he

made no distinction between his personal finances and the finances of his alleged ministry. Petitioner

deposited funds from his activities, including income he received for performing various services, into

the ministry bank accounts, over which he had total dominion and control. The alleged ministry paid

petitioner's living expenses, including room and board, as [*11] well as petitioner's tax bills on the

property at 13450 County Road 91. Petitioner and Mrs. Good used a check card tied to account 2952 at

restaurants, grocery stores, a veterinarian's office, home improvement stores, gas stations, clothing

stores, Wal-Mart, and Amazon.com. During 2002-04 petitioner and Mrs. Good used funds in account 9269 to

pay their mortgage and their cellular telephone bills. Petitioner and Mrs. Good also used funds in the

ministry bank accounts to pay their American Express credit card bills.

IV. Petitioner's Tax Reporting and the Notices of Deficiency Petitioner failed to file Federal income

tax returns for 2002-06. Accordingly, respondent prepared substitutes for returns (SFRs) for petitioner

for 2002-06 pursuant to section 6020(b). Respondent subsequently mailed to petitioner Letters 950 (so-

called 30-day letters) with attached documents, including the SFRs, relating to 2002-06.

During respondent's examination for petitioner, respondent's revenue agent reconstructed petitioner's

income by analyzing deposits into the ministry bank accounts. The revenue agent determined that

petitioner made total deposits as follows: [*12] Year Account 9269 Account 2952 Total 2002 $37,939 -0-

$37,939 2003 17,256 $37,913 55,169 2004 62,971 59,477 122,448 2005 61,631 87,356 148,987 2006 21,091

30,824 51,915 The revenue agent determined that petitioner made taxable deposits as follows: 15

Year Account 9269 Account 2952 Total 2002 $37,643 -0- $37,643 2003 16,428 $36,113 52,541 2004 58,183

59,013 117,196 2005 61,631 65,058 126,689 2006 21,091 27,767 48,858 [*13] The revenue agent treated the

taxable deposits as income and allocated the income between petitioner's Schedules C and Schedules E as

follows: 16

Schedule C:

         Year        Account 9269             Account 2952          Total
         2002          $24,659                        -0-          $24,659
         2003           12,803                     $34,898          47,701
         2004           57,880                      58,513         116,393
         2005           61,631                      65,058         126,689
         2006           21,091                      27,767          48,858
 Schedule E:
        Year        Account 9269              Account 2952          Total
         2002          $12,984                        -0-          $12,984
         2003            3,625                      $1,215           4,840
         2004              303                         500             803
On March 18, 2010, respondent mailed to petitioner notices of deficiency for the years in issue.

Respondent determined that petitioner had unreported income as follows: 17 [*14] Year Schedule E

Schedule C Total 2002 $12,984 $44,260 $57,244 2003 4,840 54,405 59,245 2004 803 83,440 84,243 2005 -0-

132,990 132,990 2006 -0- 48,859 48,859 Respondent also determined that petitioner had self-employment

income of $44,260, $54,405, $83,440, $132,990, and $48,859, for 2002, 2003, 2004, 2005, and 2006,

respectively, and that petitioner had a short-term capital gain of $114,667 for 2004. 18

V. Petitioner's Tax Court Proceedings After receiving the notices of deficiency, petitioner filed a

petition with this Court contesting respondent's determinations. The Court set this case for trial at

the Mobile, Alabama, trial session.

Following trial we held the record open to allow petitioner the opportunity to produce to respondent

additional evidence, which, if appropriate, could then be [*15] stipulated and submitted as part of the

trial record. The parties did not submit a supplemental stipulation. 19 Consequently, we decide this

case on the trial record.

OPINION

I. Presumption of Correctness and Burden of Proof With Respect to Tax Deficiencies

A. Presumption of Correctness

The Commissioner's deficiency determination ordinarily is entitled to a presumption of correctness. See

Bone v. Commissioner, 324 F.3d 1289, 1293 [91 AFTR 2d 2003-1364] (11th Cir. 2003), aff'g T.C. Memo.

2001-43 [TC Memo 2001-43]. However, when a case involves unreported income, the U.S. Court of Appeals

for the Eleventh Circuit, to which an appeal in this case would lie absent a stipulation to the

contrary,see,sec. 7482(b)(1)(A), (2), has held that the Commissioner's determination of unreported

income is entitled to a presumption of correctness only if the determination is supported by an

evidentiary foundation linking the taxpayer to an income-producing activity, see Blohm v. Commissioner

994 F.2d 1542, 1549 [72 AFTR 2d 93-5347] (11th Cir. 1993), , aff'g T.C. Memo. 1991-636 [1991 TC Memo

¶91,636]. A determination that is unsupported by any evidence is arbitrary and erroneous, see

Weimerskirch v. Commissioner 596 F.2d , [*16] 358, 362 (9th Cir. 1979), rev'g 67 T.C.e required showing is minimal, see Blohm v. Commissioner 994 F.2d at 1549 (citing Carson v. United ,

States, 560 F.2d 693, 697 (5th Cir. 1977)). Once the Commissioner produces evidence linking the

taxpayer to an income-producing activity, the presumption of correctness applies and the burden of

production shifts to the taxpayer to rebut that presumption by establishing that the Commissioner's

determination is arbitrary or erroneous. Id.

Respondent introduced evidence that petitioner directed the operations and financial affairs of Prepare

the Way Ministries, Treasures in a Field Investments, and Treasures in a Field during the years in

issue. Respondent also introduced evidence that, in addition to his alleged ministry work, petitioner

engaged in other secular work in exchange for payment and deposited proceeds from all his activities

into ministry bank accounts. See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986) (holding that bank

deposits evidence receipt of income). Respondent introduced evidence that petitioner, acting through

Prepare the Way Ministries and Treasures in a Field Investments, sold the 32188 Bartel Street property.

Accordingly, we conclude that respondent laid the requisite minimal evidentiary foundation for the

contested unreported income adjustments and that respondent's determinations are entitled to a

presumption of correctness. [*17] Although his argument is not entirely clear, petitioner appears to

contend that respondent's determinations are not entitled to the presumption of correctness because

respondent acted arbitrarily in issuing the notices of deficiency. Petitioner contends that

respondent's determinations constitute a “naked” assessment because respondent has failed to link

petitioner's receipt of income to an income-generating activity.

The presumption of correctness does not apply when the Commissioner fails to make a determination and

issues a “naked' assessment without any foundation whatsoever”. United States v. Janis, 428 U.S. 433,

441 [38 AFTR 2d 76-5378] (1976). As we stated above, however, respondent has introduced substantive

evidence to establish that petitioner, acting through Prepare the Way Ministries, Treasures in a Field

Investments, and Treasures in a Field, received payments, made deposits into various ministry bank

accounts, engaged in income-producing activities during the years in issue, and sold real property in

2004. That evidence is more than sufficient to support respondent's determinations in the notices of

deficiency. Accordingly, we find that the notices of deficiency are not “naked assessments”.

B. Burden of Proof

Generally, the taxpayer bears the burden of proving that the Commissioner's determinations in a notice

of deficiency are erroneous. See Rule 142(a); Welch v. [*18] Helvering, 290 U.S. 111, 115 [12 AFTR

1456] (1933). If, however, a taxpayer produces credible evidence 20 with respect to any factual issue

relevant to ascertaining the taxpayer's tax liability and satisfies the requirements of section 7491

(a)(2), the burden of proof on any such issue shifts to the Commissioner. Sec. 7491(a)(1). Section

7491(a)(2) requires a taxpayer to demonstrate that he or she complied with the substantiation

requirements, maintained all records required under the Code, and cooperated with reasonable requests

by the Secretary 21 for witnesses, information, documents, meetings, and interviews. See also Higbee v.

Commissioner, 116 T.C. 438, 440-441 (2001). The taxpayer bears the burden of proving that all of the

section 7491(a) requirements have been satisfied. Rolfs v. Commissioner, 135 T.C. 471, 483 (2010),

aff'd, 668 F.3d 888 [109 AFTR 2d 2012-828] (7th Cir. 2012).

Petitioner does not contend that section 7491(a)(1) applies, and the record establishes that he did not

satisfy the section 7491(a)(2) requirements. [*19] Consequently, petitioner bears the burden of proof

as to any disputed factual issue. See Rule 142(a).

II. Parties' Arguments Respondent contends that petitioner, a “carpenter”, received taxable income and

deposited that income into the ministry bank accounts. Respondent contends that petitioner is liable

for all taxable income deposited into the ministry bank accounts because petitioner exercised dominion

and control over those accounts. Respondent also contends that petitioner is liable for self-employment

tax with respect to his unreported income. Relying on the determination of unreported income,

respondent further contends that petitioner had sufficient gross income to require him to file Federal

tax returns for the years in issue and that he failed to file such returns. Respondent also contends

that petitioner is liable for a civil penalty for fraudulently failing to file his tax returns and

additions to tax for failing to pay his Federal income tax and estimated tax for the years in issue.

Petitioner contends that he did not receive any taxable income during the years in issue. Petitioner

contends that he was a man of God engaged in the work of God during the years in issue and that

everything he received or acquired belonged to God. He further contends that he is exempt from Federal

taxation because his activities during the years in issue were religious. He contends that [*20] any

assets he acquired were for the purpose of his ministry and any disposition of those assets should not

be taxed to him. Petitioner also contends that he had no obligation to file Federal tax returns because

he did not have sufficient income to require him to file such returns.

We construe petitioner's argument, at least in part, to be that he was a minister entitled to exclude

all income and gain he received and that he was entitled to all benefits under the Code that generally

accrue to ministers and church organizations. Accordingly, we will consider: (1) whether petitioner's

alleged ministry constituted a church, as that term is defined for Federal tax purposes; and (2)

whether petitioner was a minister of the gospel, as that term is defined for Federal tax purposes. 22

A. Whether Petitioner's Alleged Ministry Constituted a Church Section 501(a) provides that certain

organizations, including churches, shall be exempt from Federal taxation. See also sec. 501(c)(3). A

church that qualifies as an exempt organization for purposes of section 501 is not required to file an

application for exemption from taxation. Sec. 508(c)(1)(A);see also sec. 1.508- 1(a)(3)(i)(a), Income

Tax Regs. Neither the Code nor the regulations define the term “church”. See Found. of Human

Understanding v. Commissioner 88 T.C. , [*21] 1341, 1356 (1987). However, as we have stated: “Although

every church may be a religious organization, not every religious organization is a church.”Id. at

1357.

Whether an entity is a church is a fact-specific inquiry. See id. In deciding whether an entity is a

church, this Court primarily considers the entity's religious purposes and “the means by which its

religious purposes are accomplished.” Id. “At a minimum, a church includes a body of believers or

communicants that assembles regularly in order to worship.” Id. (quoting Am. Guidance Found., Inc. v.

United States, 490 F. Supp. 304, 306 [46 AFTR 2d 80-5006] (D.D.C. 1980)).

The Internal Revenue Service (IRS) has articulated criteria that it uses to identify organizations that

qualify for church status. Id. at 1358. The criteria include the following: "(1) a distinct legal

existence;

(2) a recognized creed and form of worship;

672 (1977), but

th
(3) a definite and distinct ecclesiastical government;

(4) a formal code of doctrine and discipline;

(5) a distinct religious history;

(6) a membership not associated with any other church or denomination; [*22] (7) an organization of

ordained ministers; (8) ordained ministers selected after completing prescribed studies;

(9) a literature of its own;

(10) established places of worship;

(11) regular congregations;

(12) regular religious services;

(13) Sunday schools for religious instruction of the young; and

(14) schools for the preparation of its ministers.”

Id. (quoting Internal Revenue Manual 7(10)69, Exempt Organizations Examination Guidelines Handbook

321.3(3) (Apr. 5, 1982)); see also Chambers v. Commissioner, T.C. Memo. 2011-114 [TC Memo 2011-114],

slip op. at 14-15. While we have declined to adopt these criteria as a test, we have found that the

criteria are helpful in deciding whether an entity is a church. See Found. of Human Understanding v.

Commissioner, 88 T.C. at 1358.

Although Mrs. Good testified that petitioner held ministry meetings at his home, the record contains no

evidence regarding the identities of those who attended the meetings and their relationship to

petitioner or whether petitioner held these meetings regularly. Petitioner offered only minimal

testimony regarding his purported ministry activities. He did not call any of his alleged [*23]

parishioners to testify. Furthermore, the record shows that petitioner's purported ministry did not

have a distinct legal existence separate from petitioner. See, e.g., Hughes v. Commissioner, T.C. Memo.

1994-139 [1994 RIA TC Memo ¶94,139]. Petitioner failed to introduce any credible evidence to support a

finding that his purported ministry activity satisfied any of the other criteria outlined above.

Petitioner had the burden of proving that his purported ministry activity qualified as a church, and he

failed to do so. 23 See, e.g., Spiritual Outreach Soc'y v.

Commissioner, T.C. Memo. 1990-41 [¶90,041 PH Memo TC], aff'd, 927 F.2d 335 [67 AFTR 2d 91-611] (8th

Cir. 1991).

B. Whether Petitioner Was a Minister of the Gospel Generally, compensation for services rendered is

includable in gross income. See sec. 61(a)(1). However, section 107 provides that a minister of the

gospel may exclude from gross income a rental value or rental allowance provided to him as part of his

compensation. See also sec. 1.107-1, Income Tax Regs. A minister is an individual “authorized to

administer the sacraments, preach, and conduct services of worship.” Salkov v. Commissioner, 46 T.C.

190, 194 (1966). An individual is a [*24] minister if, acting pursuant to his or her authority as a

minister, he or she performs sacerdotal functions, conducts religious worship, participates in the

maintenance of “religious organizations and their integral agencies”, and performs “teaching and

administrative duties at theological seminars.”Sec. 1.107-1(a), Income Tax Regs.; see also Brannon v.

Commissioner, T.C. Memo. 1999-370 [1999 RIA TC Memo ¶99,370].

While petitioner testified as to his religious education and experience, his testimony alone is

insufficient to convince us that he was a minister within the meaning of section 107. Petitioner failed

to introduce any credible evidence to show that he was a minister or that he performed sacerdotal

functions, participated in the conduct or control of religious boards, societies, or other agencies

related to his religious affiliation, or performed any teaching or administrative duties at religiously

affiliated institutions. Accordingly, we find that petitioner has not established that he was a

minister for Federal tax purposes. See, e.g., Weeks v. Commissioner, T.C. Memo. 1987-198 [¶87,198 PH

Memo TC].

III. Petitioner's Unreported Income for the Years in issue

A. Bank Deposits

1. In General Gross income includes “all income from whatever source derived”. Sec. 61(a). A taxpayer

must maintain books and records establishing the amount of his [*25] or her gross income. Sec. 6001. If

a taxpayer fails to maintain and produce the required books and records, the Commissioner may determine

the taxpayer's income by any method that clearly reflects income. See sec. 446(b); Petzoldt v.

Commissioner, 92 T.C. 661, 693 (1989); sec. 1.446-1(b)(1), Income Tax Regs. The Commissioner's

reconstruction of income “need only be reasonable in light of all surrounding facts and circumstances.”

Petzoldt v. Commissioner, 92 T.C. at 687.

The bank deposits method is a permissible method of reconstructing income. See Clayton v. Commissioner,

102 T.C. 632, 645 (1994); see also Langille v. Commissioner, T.C. Memo. 2010-49 [TC Memo 2010-49],

aff'd, 447 Fed. Appx. 130 [108 AFTR 2d 2011-7254] (11th Cir. 2011). Bank deposits constitute prima

facie evidence of income. See Tokarski v. Commissioner, 87 T.C. at 77. The Commissioner need not show

the likely source of a deposit treated as income, but the Commissioner “must take into account any

nontaxable source or deductible expense of which *** [he] has knowledge” in reconstructing income using

the bank deposits method. See Clayton v. Commissioner, 102 T.C. at 645-646. However, the Commissioner

need not follow any “leads” suggesting that a taxpayer has deductible expenses. DiLeo v. Commissioner,

96 T.C. 858, 872 (1991), aff'd, 959 F.2d 16 [69 AFTR 2d 92-998] (2d Cir. 1992). [*26] After the

Commissioner reconstructs a taxpayer's income and determines a deficiency, the taxpayer bears the

burden of proving that the Commissioner's use of the bank deposits method is unfair or inaccurate. See

Clayton v. Commissioner, 102 T.C. at 645. The taxpayer must prove that the reconstruction is in error

and may do so, in whole or in part, by proving that a deposit is not taxable. See id.

Respondent introduced credible evidence that petitioner did not maintain adequate books and records

with respect to his income. 24 Therefore, we find that it was reasonable for respondent to use an

indirect method, i.e., the bank deposits method, to reconstruct petitioner's income. Accordingly,

petitioner bears the burden of proving that respondent's determinations are arbitrary or erroneous.

Petitioner's sole argument is that the deposits into the ministry bank accounts do , [*27] not

constitute taxable income to him because the deposits are attributable to his ministry and, as

religious funds, are not subject to taxation.

2. Whether Petitioner's Bank Deposits Constituted Taxable Income Section 61(a) defines gross income as

“all income from whatever source derived, including (but not limited to) the following items: (1)

Compensation for services, including fees, commissions, fringe benefits, and similar items; (2) Gross

income derived from business; (3) Gains derived from dealings in property; (4) Interest; (5) Rents”.

The definition is construed broadly and extends to all accessions to wealth, clearly realized, over

which the taxpayer has complete control. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 [47

AFTR 162] (1955). As the Supreme Court explained, a gain “constitutes taxable income when its recipient

has such control over it that, as a practical matter, he derives readily realizable economic value from

it.” Rutkin v. United States, 343 U.S. 130, 137 [41 AFTR 596] (1952).

When the Commissioner reconstructs a taxpayer's income using the bank deposits method, the Commissioner

may include in gross income “deposits into all accounts over which the taxpayer has dominion and

control, not just deposits into the taxpayer's personal bank accounts.” Chambers v. Commissioner, slip

op. at 17-18; see also United States v. Goldberg, 330 F.2d 30, 38 [13 AFTR 2d 938] (3d Cir. 1964);

Davis [*28] v. United States, 226 F.2d 331, 334-335 [47 AFTR 2016] (6th Cir. 1955); Price v.

Commissioner, T.C. Memo. 2004-103 [TC Memo 2004-103], slip op. at 25; Cohen v. Commissioner, T.C. Memo.

2003-42 [TC Memo 2003-42], slip op. at 9; Woods v. Commissioner, T.C. Memo. 1989-611 [¶89,611 PH Memo

TC], aff'd without published opinion 929 F.2d 702 (6th Cir. 1991). A taxpayer has , dominion and

control when the taxpayer is free to use the funds at will. Rutkin, 343 U.S. at 137. Use of funds for

personal purposes indicates dominion and control. Woods v. Commissioner, T.C. Memo. 1989-611 [¶89,611

PH Memo TC].

The Court has extended this general principle to situations where a taxpayer has dominion and control

over an account titled in the name of a church or other religious organization. For example, inWoods,

this Court held that "[a]mounts deposited into bank accounts in the name of the church constituted

income of petitioners because they exercised total dominion and control over those funds and expended

them for their personal living expenses and other personal purposes”. See also Whittington v.

Commissioner T.C. Memo. 2000-296 [TC Memo 2000-296], slip op. at 8-9. , Similarly, in Chambers v.

Commissioner, slip op. at 19-24, this Court held that all deposits into church bank accounts properly

were includable in the taxpayers' gross income because the taxpayers “fully controlled the church

accounts, used money in those accounts at will, including to pay personal expenses, and were not

accountable to anyone in their congregation for their use [*29] of the church funds.” While the

taxpayers inChambers v. Commissioner, slip op. at 23, testified that they used the money for mission

trips and ministry expenses, this Court held that the church bank account funds were includable in the

taxpayers' gross income because they failed to supply any receipts, records, or other evidence to

substantiate the nature and use of the funds.

Petitioner testified that his primary occupation is minister of the gospel. He further testified that

he performed all of his secular work as a volunteer and that any payment he received as a result of

such work constituted a contribution to the ministry. With respect to the purported rental income,

petitionertestified that he made living space in the Bartel Street properties available to families in

his ministry, that the families contributed to Prepare the Way Ministries in exchange for use of the

space, and that he suggested the amount of the monthly contribution.

Petitioner testified that he relied on direct donations from people and other ministries as well as the

funds in the ministry bank accounts to support himself during the years in issue. He testified that he

received no salary and instead received only housing and food in exchange for his services. He further

testified that the money that came into the ministry was distributed to other people. He also testified

that he and Mrs. Good used the money in the ministry bank accounts [*30] to pay for ministry-related

expenses. We do not find this testimony convincing or credible.

Respondent introduced the signature cards for the ministry bank accounts showing that only petitioner

and his family members had signatory authority over the accounts. Respondent also introduced bank

statements for the ministry bank accounts which show that petitioner and Mrs. Good regularly used the

ministry bank accounts to pay their personal expenses. Finally, petitioner testified that he deposited

payments he received for services rendered into the ministry bank accounts and that he used the funds

in the ministry bank accounts to pay his personal expenses.

Petitioner had unfettered access to the funds in the ministry bank accounts. He used the money in the

ministry bank accounts at will, including to pay his personal expenses and those of his family members.

Petitioner did not maintain a separate personal bank account or attempt to separate his personal income

and expenses from the income and expenses of his alleged ministry. Instead, petitioner used the

ministry bank accounts as his own bank accounts and used the funds therein to pay his personal living

expenses, mortgage, property taxes, and home construction costs. [*31] Because petitioner exercised

dominion and control over the ministry bank accounts, all taxable deposits into those accounts are

includable in petitioner's gross income. See Chambers v. Commissioner, T.C. Memo. 2011-114 [TC Memo

2011-114]; see also Burke v. Commissioner, 929 F.2d 110, 113 [67 AFTR 2d 91-824] (2d Cir. 1991)

(holding that rental income the taxpayer deposited into a church account constituted taxable income to

the taxpayer upon receipt), aff'g in part, vacating in part, and remandingT.C. Memo. 1989-671 [¶89,671

PH Memo TC].

3. Reconstructing Petitioner's Income Using the Bank Deposits Method Under the bank deposits method,

the Commissioner may assume that all money deposited into the taxpayer's account is taxable income.

DiLeo v. Commissioner, 96 T.C. at 868. However, as noted supra, the Commissioner must take into account

any nontaxable source of income or deductible expense of which he has knowledge. Id. The Commissioner's

use of the bank deposits method is not invalidated simply because some of the calculations are in

error. See id.

Having decided that respondent acted reasonably in using an indirect method to reconstruct petitioner's

income and having rejected petitioner's sole argument regarding whether such income constituted taxable

income, we now review respondent's calculations of petitioner's taxable income for the years in [*32]

issue. To show the calculation of petitioner's taxable income, respondent introduced only the revenue

agent's workpapers. However, with respect to 2002, 2003, and 2005, in the notice of deficiency

respondent determined that petitioner had taxable income in excess of taxable deposits for those years

as determined by the revenue agent. Respondent has introduced no evidence to show the calculation of

petitioner's taxable income as set forth in the notice of deficiency. Accordingly, we will evaluate

respondent's determination of petitioner's taxable income using the revenue agent's workpapers for the

years in issue.ith respect to 2002, respondent's revenue agent determined that petitioner made taxable deposits into

the ministry bank account of $37,643. The revenue agent determined that the taxable deposits for 2002

consisted of Schedule C gross receipts of $24,659 and Schedule E rental income of $12,984. However, in

the notice of deficiency respondent determined that petitioner had Schedule C gross receipts of $44,260

and Schedule E rental income of $12,984. Respondent has not introduced any evidence to explain the

difference between the revenue agent's calculation of Schedule C gross receipts totaling $24,659 and

the $44,260 gross receipts figure in the notice of deficiency. Furthermore, an analysis of the ministry

bank account statements for 2002 reveals that the revenue agent properly [*33] reconstructed

petitioner's Schedule C gross receipts for 2002. An analysis of the revenue agent's spreadsheet with

respect to petitioner's Schedule E rental income shows that the revenue agent erroneously included in

petitioner's income a number of checks that were drawn on, rather than deposited into, the ministry

bank accounts. The revenue agent erroneously included $4,844 in petitioner's Schedule E rental income.

Accordingly, we find that petitioner had Schedule C gross receipts of $24,659 and Schedule E rental

income of $8,140 for 2002.

With respect to 2003, respondent's revenue agent determined that petitioner made taxable deposits into

the ministry bank accounts of $52,541. The revenue agent determined that the taxable deposits for 2003

consisted of Schedule C gross receipts of $47,701 and Schedule E rental income of $4,840. However, in

the notice of deficiency respondent determined that petitioner had Schedule C gross receipts of $54,405

and Schedule E rental income of $4,840. Respondent has not introduced any evidence to explain the

difference between the revenue agent's calculation of Schedule C gross receipts totaling $47,701 and

the $54,405 gross receipts figure in the notice of deficiency. Furthermore, an analysis of the ministry

bank account statements for 2003 reveals that the revenue agent generally reconstructed petitioner's

Schedule C gross receipts for 2003 properly, with the [*34] following exception. We find that the

revenue agent included the same check for $10 in petitioner's Schedule E rental income for 2002 and in

his Schedule C gross receipts for 2003. Because we consider the $10 check as Schedule E rental income

for 2002, we will eliminate $10 from the revenue agent's calculation of petitioner's Schedule C gross

receipts for 2003. We also find that the revenue agent erroneously tabulated petitioner's Schedule E

rental income. The revenue agent determined that petitioner deposited into the ministry bank accounts

nine checks that constituted Schedule E rental income. The spreadsheet shows that the revenue agent

included in his calculation of petitioner's Schedule E rental income three checks twice. 25 We will

eliminate the duplications from the calculation of petitioner's Schedule E rental income. Accordingly,

we find that petitioner had Schedule C gross receipts of $47,061 and Schedule E rental income of $3,140

for 2003. [*35] With respect to 2004, 26 respondent determined that petitioner had Schedule E rental

income of $803 for 2004. Respondent included in petitioner's rental income a check for $500 from Samuel

J. Fitts and Iris K. Fitts. This check constituted earnest money for the purchase of the real property

at 32188 Bartel Street. Respondent properly included the earnest money as part of the selling price of

the property. Therefore, the $500 check should be excluded from petitioner's 2004 Schedule E rental

income. Accordingly, we find that petitioner had rental income of $303 for 2004.

With respect to 2005, respondent's revenue agent determined that petitioner made total taxable deposits

into the ministry bank accounts of $126,689. The [*36] revenue agent determined that the taxable

deposits for 2005 consisted of Schedule C gross receipts of $126,689. However, in the notice of

deficiency respondent determined that petitioner had Schedule C gross receipts of $132,990. Respondent

has not introduced any evidence to explain the difference between the revenue agent's calculation of

Schedule C gross receipts totaling $126,689 and the $132,990 gross receipts figure in the notice of

deficiency. Furthermore, our analysis of the ministry bank account statements for 2005 confirms that

the revenue agent properly reconstructed petitioner's Schedule C gross receipts for 2005. Accordingly,

we find that petitioner had Schedule C gross receipts of $126,689 for 2005.

In summary, we find that petitioner had Schedule C gross receipts of 24,659, $47,061, $83,440, and

$126,689 for 2002, 2003, 2004, and 2005, respectively. We sustain respondent's determinations regarding

petitioner's gross receipts for 2006. We also find that petitioner had Schedule E rental income of

$8,140, $3,140, and $303 for 2002, 2003, and 2004, respectively. [*37] B. 2004 Capital Gain A taxpayer

must recognize gain from the sale or exchange of property, unless the Code provides otherwise. 27  Sec.

1001(c). Section 1001(a) defines gain from the sale or other disposition of property as the excess of

the amount realized on the sale of property over the adjusted basis of the property sold or exchanged.

See also sec. 1.61-6(a), Income Tax Regs. Section 1011(a) generally provides that a taxpayer's adjusted

basis for determining the gain from the sale or other disposition of property shall be its cost,

adjusted to the extent provided by section 1016. If the taxpayer constructed his own house, the

taxpayer's basis is equal to the cost of building the house, including the amount paid for the

lot.Litterio v. Commissioner , T.C. Memo. 1992-524 [1992 RIA TC Memo ¶92,524], aff'd, 21 F.3d 423 [73

AFTR 2d 94-1649] (4th Cir. 1994); Granger v. Commissioner, T.C. Memo. 1970-155 [¶70,155 PH Memo TC].

The taxpayer has the burden of proving [*38] the basis of property for purposes of determining the

amount of gain the taxpayer must recognize. O'Neill v. Commissioner, 271 F.2d 44, 50 [4 AFTR 2d 5686]

(9th Cir. 1959), aff'g T.C. Memo. 1957-193 [¶57,193 PH Memo TC]; see also Kynell v. Commissioner T.C.

Memo. , 1954-174.

The 2004 capital gain relates to the sale by Treasures in a Field Investments of the real property at

32188 Bartel Street. Petitioner does not dispute that he originally owned the 32188 Bartel Street

property in his own name, that he transferred the property to Treasures in a Field Investments, and

that Treasures in a Field Investments sold the property to Samuel J. Fitts and Iris K. Fitts in 2004

for $120,000. Although not entirely clear, petitioner's only dispute appears to be whether the proceeds

from the sale of the property constitute taxable income to him.

Petitioner testified that all of the buildings, including the house at 32188 Bartel Street, “were

church buildings where church activities occurred.” Mrs. Good testified that she and petitioner resided

in the house at 32188 Bartel Street. She also testified that the ministry sold the house. She further

testified that she and petitioner used the proceeds from the sale of the house at 32188 Bartel Street

to fund construction of their new house at 13450 County Road 91. [*39] Respondent introduced a copy of

a resolution in which the Elder Board of Prepare the Way Ministries agreed to sell the 32188 Bartel

Street property to Samuel J. Fitts and Iris K. Fitts. Respondent also introduced a copy of a purchase

agreement dated February 6, 2004, showing the seller of the property as Treasures in a Field and the

purchase price as $120,000, with a provision for $500 in earnest money. The record shows that

petitioner deposited into account 2952 a $500 check from Samuel J. Fitts and Iris K. Fitts dated

February 6, 2004.

The evidence shows that petitioner used Treasures in a Field Investments to conduct his business and

sales transactions. While petitioner testified that he conducted some ministry activities from the

house at 32188 Bartel Street, he also used the property as his personal residence. We find that

Treasures in a Field Investments held title to and sold the 32188 Bartel Street property as

petitioner's nominee. 28 Accordingly, petitioner must include in gross income gain from the sale of the

32188 Bartel Street property. [*40] In calculating the gain on the sale of the 32188 Bartel Street

property, respondent used the stated sale price of $120,000 and an adjusted basis of zero. Petitioner

failed to introduce any evidence regarding his acquisition and construction costs, if any, for the

32188 Bartel Street property. While it is likely that petitioner incurred costs in acquiring the lot

and building the house on the 32188 Bartel Street property, petitioner did not introduce any credible

evidence regarding his cost basis or adjusted basis in the property. The record adequately supports

respondent's determination that Treasures in a Field Investments, acting as nominee for petitioner,

sold the property to Samuel J. Fitts and Iris K. Fitts for $120,000.

Neither petitioner nor respondent addressed the issue of whether petitioner's gain should be

characterized as long-term or short-term capital gain. In the notice of deficiency respondent

characterized petitioner's capital gain as short term. However, the record contains sufficient evidence

for us to decide whether the gain should be characterized as long-term or short-term gain; accordingly,

we consider this issue tried by consent of the parties. See Rule 41(b).

Section 1222(3) provides that long-term capital gain is “gain from the sale or exchange of a capital

asset held for more than 1 year, if and to the extent such [*41] gain is taken into account in

computing gross income.” While the record does not show when petitioner acquired the 32188 Bartel

Street property, the record does show that in 1999 petitioner transferred the 32188 Bartel Street

property to Treasures in a Field Investments. We infer that petitioner owned the 32188 Bartel Street

property at the time of the 1999 transfer. Accordingly, we find that petitioner's gain from the sale of

the 32188 Bartel Street property should be characterized as long-term capital gain.

We sustain respondent's determination as to the amount of petitioner's 2004 capital gain, but we do not

sustain respondent's determination that the capital gain was short-term gain.

IV. Self-Employment Tax A taxpayer's self-employment income is subject to self-employment tax. Sec.

1401(a) and (b). Self-employment tax is assessed and collected as part of the income tax, must be

included in computing any income tax deficiency or overpayment for the applicable tax period, and must

be taken into account for estimated tax purposes. Sec. 1401; see also sec. 1.1401-1(a), Income Tax

Regs. Self-employment income is generally defined as “the net earnings from self-employment derived by

an individual”. Sec. 1402(b). “The term `net earnings [*42] from self-employment' means the gross

income derived by an individual from any trade or business carried on by such individual, less the

deductions *** attributable to such trade or business”. Sec. 1402(a). Section 1402(c)(4) provides that

the term “trade or business” does not include “the performance of service by a duly ordained,

commissioned, or licensed minister of a church in the exercise of his ministry” if an exemption under

section 1402(e) is effective for the minister. See also Wingo v. Commissioner, 89 T.C. 922, 929 (1987).

If the minister does not file the application for exemption within the prescribed time, the minister is

subject to self-employment tax. Sec. 1402(e); see also Wingo v. Commissioner, 89 T.C. at 929-930.

Petitioner contends that he is not liable for self-employment tax because he is a minister. Petitioner,

however, did not introduce any credible evidence to prove that he was a minister of a church, see supra

p. 24, or that the Schedule C gross receipts determined by respondent were for the performance of

services as a minister. Moreover, the record contains no credible evidence that petitioner submitted a

Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of

Religious Orders and Christian Science Practitioners, for the years in issue that was approved by the

IRS. Accordingly, [*43] petitioner has failed to prove that he was exempt from self-employment tax

during the years in issue. We find that petitioner had self-employment income equal to the amounts of

his Schedule C gross receipts for 2002-05 as found in this opinion, and we hold that petitioner is

liable for self-employment tax with respect to these amounts. We sustain respondent's determination of

self-employment tax for 2006.

V. Obligation To File a Return Petitioner contends that he was not obligated to file returns for the

years in issue because he did not have sufficient income. See sec. 6012(a)(1)(A)(iv). Under section

6012(a)(1)(A)(iv), an individual who is entitled to make a joint return and whose gross income, when

combined with the gross income of his spouse, exceeds the sum of twice the exemption amount and the

standard deduction applicable to a joint return, must file a Federal income tax return. As discussed in

Part III, see supra pp. 32-36, we find that petitioner had unreported income of $32,799, $50,201,

$83,743, $126,689, and $48,859, for 2002, 2003, 2004, 2005, and 2006, respectively. Petitioner's income

for the years in issue exceeded the described threshold and, consequently, petitioner had an obligation

to file Federal income tax returns for those years. [*44] VI. Fraudulent Failure To File Returns

Section 6651(f) imposes an addition to tax of up to 75% of the amount of tax required to be shown on

the return in the case of a taxpayer's fraudulent failure to file a tax return. To prove that a

taxpayer is liable for the penalty, the Commissioner must prove by clear and convincing evidence that

(1) an underpayment of tax exists, and (2) some part of the underpayment is due to fraud. Sec. 7454(a);

Rule 142(b); Clayton v. Commissioner, 102 T.C. at 646. If the Commissioner proves that any part of an

underpayment is attributable to fraud, then the entire underpayment shall be treated as attributable to

fraud unless the taxpayer shows by a preponderance of the evidence that a part was not so attributable.

See, e.g., sec. 6663(b).

        A.      Underpayment of Tax
The Commissioner cannot rely upon the taxpayer's failure to meet the burden of proof on the issue of

the existence of a deficiency to sustain the burden of proving the existence of an underpayment by

clear and convincing evidence. See Parks v. Commissioner, 94 T.C. 654, 660-661 (1990); Otsuki v.

Commissioner, 53 T.C. 96, 106 (1969). However, the Commissioner need only show that there is some

underpayment for each of the years in issue. See Langworthy v. Commissioner T.C. Memo. 1998-218 [1998

RIA TC Memo ¶98,218]. Furthermore, when , [*45] allegations of fraud are intertwined with unreported

and indirectly reconstructed income, the Commissioner may prove the existence of an underpayment by

proving a likely source of income or disproving nontaxable sources alleged by the taxpayer. See Parks

v. Commissioner, 94 T.C. at 661. As noted supra pp. 36, 41 petitioner failed to report income of

$32,799, $50,201, $83,743, $126,689, and $48,859 for 2002, 2003, 2004, 2005, and 2006, respectively,

and failed to report a capital gain of $114,667 for 2004. In proving the existence of petitioner's

underpayments, respondent does not rely solely on petitioner's failure to meet his burden of proof.

Respondent appropriately reconstructed petitioner's taxable income using the bank deposits method, and

the reconstruction demonstrates clearly and convincingly that petitioner had an underpayment of tax for

each of the years in issue. Furthermore, respondent has proven a likely source of petitioner's

unreported income, namely, petitioner's construction, carpentry, and rental activities. Accordingly,

respondent has proven by clear and convincing evidence that petitioner underpaid his Federal income tax

for each of the years in issue.

B. Fraudulent Intent

1. Introduction If fraud is determined for multiple taxable years, the Commissioner's burden “applies

separately for each of the years.” Temple v. Commissioner, T.C. [*46] Memo. 2000-337, slip op. at 24-

25, aff'd, 62 Fed. Appx. 605 [91 AFTR 2d 2003-1806] (6th Cir. 2003). The Commissioner satisfies this

burden by showing that “the taxpayer intended to evade taxes known to be owing by conduct intended to

conceal, mislead or otherwise prevent the collection of taxes.” DiLeo v. Commissioner, 96 T.C. at 874.

Fraud “does not include negligence, carelessness, misunderstanding or unintentional understatement of

income.” United States v. Pechenik, 236 F.2d 844, 846 [50 AFTR 221] (3d Cir. 1956).

The existence of fraud is a question of fact to be resolved upon consideration of the entire record.

See DiLeo v. Commissioner, 96 T.C. at 874. Fraud is never presumed and must be established by

independent evidence of fraudulent intent. See Baumgardner v. Commissioner 251 F.2d 311, 322 [1 AFTR 2d

507] (9th Cir. , 1957), aff'g T.C. Memo. 1956-112 [¶56,112 PH Memo TC]. Fraud may be shown by

circumstantial evidence because direct evidence of the taxpayer's fraudulent intent is seldom

available. See Petzoldt v. Commissioner, 92 T.C. at 699; Gajewski v. Commissioner, 67 T.C. 181, 199-200

(1976), aff'd without published opinion 578 , F.2d 1383 (8th Cir. 1978). The taxpayer's entire course

of conduct may establish the requisite fraudulent intent. See Stone v. Commissioner, 56 T.C. 213, 223-

224 (1971). Any conduct likely to mislead or conceal may constitute an affirmative act of evasion, see

Spies v. United States, 317 U.S. 492, 499 [30 AFTR 378] (1943), and an intent to [*47] mislead may be

inferred from a pattern of such conduct,see Webb v. Commissioner, 394 F.2d 366, 379 [21 AFTR 2d 1150]

(5th Cir. 1968), aff'g T.C. Memo. 1966-81 [¶66,081 PH Memo TC]. However, fraud is not proven when a

court is left with only a suspicion of fraud, and even a strong suspicion is not sufficient to

establish a taxpayer's liability for the fraud penalty. See Olinger v. Commissioner 234 F.2d 823, 824

[49 AFTR 1526] (5th Cir. 1956), , aff'g in part, rev'g in part on another ground T.C. Memo. 1955-9

[¶55,009 PH Memo TC]; Davis v. Commissioner, 184 F.2d 86, 87 [39 AFTR 1012] (10th Cir. 1950); Green v.

Commissioner, 66 T.C. 538, 550 (1976).

2. Badges of Fraud

Because it is difficult to prove fraudulent intent by direct evidence, the Commissioner may establish

fraud by circumstantial evidence, which includes various “badges of fraud” (hereinafter, factors) on

which the courts often rely. See Bradford v. Commissioner, 796 F.2d 303, 307 [58 AFTR 2d 86-5532] (9th

Cir. 1986), aff'g T.C. Memo. 1984-601 [¶84,601 PH Memo TC]; DiLeo v. Commissioner, 96 T.C. at 875.

These factors focus on whether the taxpayer engaged in certain conduct that is indicative of fraudulent

intent, such as: (1) understating income; (2) failing to maintain adequate records;

(3) offering implausible or inconsistent explanations; (4) concealing income or assets; (5) failing to

cooperate with tax authorities; (6) engaging in illegal activities; (7) providing incomplete or

misleading information to the taxpayer's tax [*48] return preparer; (8) offering false or incredible

testimony; (9) filing false documents, including filing false income tax returns; (10) failing to file

tax returns; and (11) engaging in extensive dealings in cash. 29 See Bradford v.

Commissioner, 796 F.2d at 307-308; Parks v. Commissioner, 94 T.C. 654, 664-665 (1990); Recklitis v.

Commissioner, 91 T.C. 874, 910 (1988); Lipsitz v. Commissioner, 21 T.C. 917 (1954), aff'd, 220 F.2d 871

[47 AFTR 370] (4th Cir. 1955); see also Morse v. Commissioner, T.C. Memo. 2003-332 [TC Memo 2003-332],

slip op. at 8-9, aff'd, 419 F.3d 829 [96 AFTR 2d 2005-5814] (8th Cir. 2005). The existence of any one

factor is not dispositive, but the existence of several factors is persuasive circumstantial evidence

of fraud. See Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992); Petzoldt v. Commissioner, 92 T.C.

at 700.

Respondent contends, and our review of the record shows, that the following factors are present in this

case: (1) petitioner underreported his income for the years in issue; (2) petitioner concealed income

and assets during the years in issue; (3) petitioner failed to cooperate with tax authorities regarding

the years in issue; (4) petitioner filed false documents; and (5) petitioner failed to file tax returns

for the years in issue. Respondent also contends that petitioner's reliance , T.C. 202, 211 (1992).

[*49] on frivolous arguments during these proceedings demonstrates his fraudulent intent. We analyze

each factor below. a. Understating Income A pattern of substantially underreporting income for several

years is strong evidence of fraud, particularly if the reason for the understatements is not

satisfactorily explained or is not due to innocent mistake. See Holland v. United States, 348 U.S. 121,

137-139 [46 AFTR 943] (1954); Spies, 317 U.S. at 499; Webb v. Commissioner, 394 F.2d at 379; see also

Green v. Commissioner, T.C. Memo. 2010-109 [TC Memo 2010-109] (finding that a satisfactory explanation

may weigh against a finding of fraud). The U.S. Court of Appeals for the Eleventh Circuit has stated

that “a `[c]onsistent and substantial understatement of income is by itself strong evidence of fraud.”

Korecky v. Commissioner, 781 F.2d 1566, 1568 [57 AFTR 2d 86-839] (11th Cir. 1986) (quoting Merritt v.

Commissioner, 301 F.2d 484, 487 [9 AFTR 2d 1236] (5th Cir. 1962), aff'g T.C. Memo. 1959-172 [¶59,172 PH

Memo TC]), aff'g T.C. Memo. 1985-63 [¶85,063 PH Memo TC].

Petitioner failed to file Federal income tax returns for the five years in issue. He thus failed to

report income of $32,799, $50,201, $83,743, $126,689, and $48,859 for 2002, 2003, 2004, 2005, and 2006,

respectively, and a capital gain of $114,667 for 2004. [*50] Although not entirely clear, petitioner's

contention appears to be that he underreported his income because he believed all of his income was

attributable to his alleged ministry. In the light of the other evidence in the record, we are not

prepared to find that petitioner simply was mistaken regarding his personal obligation to file income

tax returns and report income. Furthermore, as this Court has stated, a taxpayer's “mistaken contention

indicates little about whether *** [the taxpayer] had fraudulent intent.” Chambers v. Commissioner,

slip op. at 35.

Petitioner did not report any income for the years in issue. Given the substantial amounts of

petitioner's unreported income, his pattern of underreporting his income, and his lack of a

satisfactory explanation for the understatements, we conclude that petitioner's understatements are

persuasive evidence of fraudulent intent. See, e.g., Morse v. Commissioner, 419 F.3d at 832; see also

Lain v. Commissioner, T.C. Memo. 2012-99 [TC Memo 2012-99], slip op. at 12. b. Concealing Assets or

Income An intent to evade tax may be inferred by “concealment of assets or covering up sources of

income”. Spies, 317 U.S. at 499; Ruark v. Commissioner, 449 F.2d 311, 312-313 [28 AFTR 2d 71-5831] (9th

Cir. 1971), aff'g T.C. Memo. 1969-48 [¶69,048 PH Memo TC]. A taxpayer's [*51] use of “a complex series

of financial transactions and nominees is a badge of fraud.” Plotkin v. Commissioner, T.C. Memo. 2011-

260 [TC Memo 2011-260], slip op. at 43. This Court has previously held that a taxpayer's use of a UBTO

to conceal income supports a finding of fraud. Simmons v. Commissioner T.C. Memo. 2009-283 [TC Memo

2009-283], slip op. at 10-, 11. The mere existence of a paper trail documenting a taxpayer's income or

expenses does not negate a finding of fraudulent intent. See Evans v. Commissioner, T.C. Memo. 2010-199

[TC Memo 2010-199], slip op. at 16-17. Petitioner concealed his assets through a series of transactions

designed to transfer his assets to various organizations, including Treasures in a Field Investments, a

UBTO. Petitioner later transferred his assets from Treasures in a Field Investments to a ministerial

trust, Treasures in a Field. Despite these transfers, petitioner continued to control the use and

disposition of his assets. Furthermore, petitioner deposited all of his income into accounts titled in

the name of Prepare the Way Ministries and Treasures in a Field Investments.

Petitioner appears to contend that he did not conceal assets because he deposited all proceeds into

ministry bank accounts and recorded all properties that the ministry owned. First, this Court notes

that the mere existence of a paper trail documenting the transfer of assets does not negate a finding

of fraud. Second, petitioner's contention is refuted by the evidence showing that petitioner engaged

[*52] in a series of transactions the purpose of which was tax avoidance. Accordingly, this factor

supports a finding of fraud. c. Failing To Cooperate With Tax Authorities Failure to cooperate with

revenue agents during an investigation is a badge of fraud. See Korecky v. Commissioner, 781 F.2d at

1568; Lord v. Commissioner, 525 F.2d 741, 747-748 [36 AFTR 2d 75-6184] (9th Cir. 1975), aff'g in part,

rev'g in part 60 T.C. 199 (1973); Grosshandler v. Commissioner, 75 T.C. 1, 20 (198). This failure is

persuasive evidence of a taxpayer's guilty knowledge. See Prof'l Servs. v. Commissioner, 79 T.C. 888,

932-933 (1982). A taxpayer's failure to cooperate with the Commissioner and the Court during the

pretrial and trial proceedings also supports a finding of fraud. See Smith v. Commissioner 91 T.C.

1049, 1052, 1059-, 1060 (1988), aff'd, 926 F.2d 1470 [67 AFTR 2d 91-638] (6th Cir. 1991); Rice v.

Commissioner, T.C. Memo. 2003-208 [TC Memo 2003-208], slip op. at 15.

Petitioner failed to cooperate with respondent's revenue agent during respondent's investigation of

petitioner. Accordingly, respondent was forced to subpoena petitioner's ministry bank account records

to reconstruct petitioner's income. Petitio$ner also failed to respond to a summons issued by

respondent.

In addition, petitioner failed to cooperate with respondent's counsel and with the Court in preparing

this case for trial. Petitioner failed to cooperate with [*53] respondent's counsel in preparing a

stipulation of facts as required by our standing pretrial order. He failed to respond properly to

respondent's requests for admissions. At trial petitioner failed to respond to the questions posed by

respondent's counsel, continuing to assert an unidentified privilege. Accordingly, we find that

petitioner failed to cooperate with tax authorities, and this finding supports a finding of fraud. d.

Filing False Documents Fraudulent intent may be inferred when a taxpayer files a document intending to

conceal, mislead, or prevent the collection of tax. See Spies, 317 U.S. at 499. Filing false documents

with the IRS constitutes “an `affirmative act' of misrepresentation sufficient to justify the fraud

penalty.” Zell v. Commissioner, 763 F.2d 1139, 1146 [56 AFTR 2d 85-5128] (10th Cir. 1985), aff'g T.C.

Memo. 1984-152 [¶84,152 PH Memo TC]; see also Ernle v. Commissioner, T.C. Memo. 2010-237 [TC Memo 2010

-237], slip op. at 9. A taxpayer's creation of false documents, see Fairey v. Commissioner, T.C. Memo.

2005-129 [TC Memo 2005-129], slip op. at 24-25, and/or use of a false EIN, see Chambers v.

Commissioner, slip op. at 39, supports a finding of fraud, see also Vetrano v. Commissioner, T.C. Memo.

2000-128 [TC Memo 2000-128].

Petitioner used a false EIN when he opened account 2952 at Regions Bank. He also prepared a materially

altered and false Form W-8BEN. Petitioner [*54] stipulated that he used the materially altered and

false Form W-8BEN to hold out his purported ministry as a tax-exempt entity. We find that he engaged in

this practice of creating and using false documents to evade the payment of Federal tax. Consequently,

this factor supports a finding of fraud. e. Failing To File Tax Returns A taxpayer's failure to file

tax returns is a badge of fraud. See Petzoldt v. Commissioner, 92 T.C. at 701. While a failure to file

returns, even over an extended period, does not establish fraud per se, see Grosshandler v.

Commissioner, 75 T.C. at 19, an extended pattern of failing to file returns may be persuasive

circumstantial evidence of fraud, see Marsellus v. Commissioner, 544 F.2d 883, 885 [39 AFTR 2d 77-595]

(5th Cir. 1977), aff'g T.C. Memo. 1975-368 [¶75,368 PH Memo TC].

Petitioner failed to file returns for 2002-06. Petitioner's extended pattern of failing to file returns

constitutes persuasive circumstantial evidence of fraud. f. Asserting Frivolous Arguments A taxpayer's

assertion of frivolous arguments may provide evidence supporting a finding of fraud. See Kotmair v.

Commissioner 86 T.C. 1253, 1259-, 1261 (1986); Worsham v. Commissioner, T.C. Memo. 2012-219 [TC Memo

2012-219], slip op. at 19; Lain v. Commissioner, slip op. at 14; DeVries v. Commissioner, T.C. Memo.

2011-185 [TC Memo 2011-185], slip op. at 21-22. [*55] During the course of these proceedings,

petitioner repeatedly raised frivolous and groundless arguments. The U.S. Court of Appeals for the

Eleventh Circuit has held similar arguments to be frivolous and without merit. See United States v.

Morgan, 419 Fed. Appx. 958, 959 [107 AFTR 2d 2011-1550] (11th Cir. 2011) (taxpayers' argument that they

were not involved in a “trade or business” was frivolous);United States v. Morse,532 F.3d 1130, 1132-

1133 [102 AFTR 2d 2008-5004] (11th Cir. 2008) (taxpayer's assertion that the IRS had no power over the

taxpayer was meritless). We repeatedly cautioned petitioner against asserting frivolous and groundless

arguments. Despite these admonishments, petitioner continued to assert such arguments. Accordingly,

this factor supports a finding of fraud.

C. Conclusion

Respondent has proven by clear and convincing evidence that petitioner underpaid his tax liabilities

for 2002-06 and that some part of petitioner's underpayment for each year was due to fraud. Petitioner

has not argued or introduced any credible evidence to prove that any portion of his underpayments was

not attributable to fraud. He has not introduced any credible evidence to show [*56] that he acted

without fraudulent intent. Accordingly, we hold that petitioner is liable for the section 6651(f)

fraudulent failure to file additions to tax. 30

VII. Sections 6651(a)(2) and 6654(a) Additions to Tax If the taxpayer assigns error to the

Commissioner's determination that a taxpayer is liable for an addition to tax, the Commissioner has the

burden, under section 7491(c), of producing evidence with respect to the liability of the taxpayer for

the addition to tax. See Higbee v. Commissioner, 116 T.C. at 446-447. To meet his burden of production,

the Commissioner must come forward with sufficient evidence that it is appropriate to impose the

addition to tax. Id. Once the Commissioner meets his burden, the taxpayer must come forward with

evidence sufficient to persuade this Court that the determination is incorrect. Id.

Respondent determined that petitioner is liable under section 6651(a)(2) for additions to tax for

failure to timely pay tax shown on a return.Section 6651(a)(2) imposes an addition to tax for failure

to pay the amount of tax shown on a taxpayer's Federal income tax return on or before the payment due

date, unless such failure is due to reasonable cause and is not due to willful neglect. The section

6651(a)(2) addition to tax applies only when an amount of tax is shown on [*57] a return filed by the

taxpayer or prepared by the Secretary. Sec. 6651(a)(2), (g)(2); Cabirac v. Commissioner, 120 T.C. 163,

170 (2003). When a taxpayer has not filed a return, the section 6651(a)(2) addition to tax may not be

imposed unless the Secretary has prepared an SFR that satisfies the requirements of section 6020(b).

See Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), aff'd, 521 F.3d 1289 [101 AFTR 2d 2008-1696]

(10th Cir. 2008).

Respondent satisfied his burden of production by introducing into evidence SFRs for the years in issue

that satisfy the requirements of section 6020(b). Consequently, petitioner had the burden of

introducing evidence to show that his failure to pay was due to reasonable cause. He did not do so.

Petitioner did not advance any argument regarding the section 6651(a)(2) additions to tax and

introduced no credible evidence to show reasonable cause for his failure to pay tax shown on the

returns. Accordingly, we sustain respondent's determination with respect to petitioner's liability for

the additions to tax under section 6651(a)(2) for the years in issue. 31

Respondent also determined that petitioner is liable for additions to tax for failure to pay estimated

tax under section 6654. Section 6654 imposes an addition [*58] to tax on an individual who underpays

his estimated tax. 32 The addition to tax is calculated with reference to four required installment

payments of the taxpayer's estimated tax liability. Sec. 6654(c) and (d). Each required installment of

estimated tax is equal to 25% of the “required annual payment”. Sec. 6654(d). In general, the “required

annual payment” is equal to the lesser of (1) 90% of the tax shown on the individual's return for that

year (or, if no return is filed, 90% of his tax for such year), or (2) if the individual filed a return

for the immediately preceding taxable year, 100% of the tax shown on that return. Sec. 6654(d)(1)(A),

(B), and (C). A taxpayer has an obligation to pay estimated tax only if he has a “required annual

payment”. Wheeler v. Commissioner, 127 T.C. at 212; see also Mendes v. Commissioner, 121 T.C. 308, 324

(2003).

Petitioner did not make any estimated tax payments for the years in issue. Respondent introduced deemed

stipulations that petitioner failed to file returns for 2002-06. On the basis of this information and

the evidence with respect to petitioner's income for the years in issue, we are able to conclude that

petitioner had required annual payments for 2003-06. However, we are unable to conclude [*59] that

petitioner had a required annual payment for 2002 because respondent failed to introduce any evidence

as to whether petitioner filed a return for 2001. See Wheeler v. Commissioner, 127 T.C. at 211-212.

Accordingly, we reject respondent's determination as to the section 6654(a) addition to tax for 2002

and sustain respondent's determinations as to petitioner's liability for the section 6654(a) additions

to tax for 2003-06. 33VIII. Section 6673 Penalty Section 6673(a)(1) provides that this Court may

require the taxpayer to pay a penalty not in excess of $25,000 whenever it appears to this Court that:

(1) the proceedings were instituted or maintained by the taxpayer primarily for delay, (2) the

taxpayer's position is frivolous or groundless, or (3) the taxpayer unreasonably failed to pursue

available administrative remedies. A taxpayer's position is frivolous or groundless if it is “contrary

to established law and unsupported by a reasoned, colorable argument for change in the law.” Williams

v. Commissioner , 114 T.C. 136, 144 (2000) (quoting Coleman v. Commissioner, 791 F.2d 68, 71 [57 AFTR

2d 86-1420] (7th Cir. 1986)). [*60] During the pretrial proceedings this Court warned petitioner that

if he continued to assert frivolous or groundless positions, this Court would consider imposing a

penalty under section 6673. This Court issued the warning to petitioner in three different orders

before trial. At trial this Court again warned petitioner that if he continued to assert frivolous or

groundless positions, this Court would consider imposing a penalty under section 6673. Despite this

warning, petitioner asserted the same arguments in his posttrial brief.

Respondent did not request that we impose a penalty pursuant to section 6673, and in the exercise of

our discretion we will not impose a section 6673 penalty on petitioner. However, we warn petitioner

that if in the future he maintains groundless positions in this Court, he runs the risk that he will be

sanctioned in accordance with section 6673(a)(1).

We have considered the parties' remaining arguments, and to the extent not discussed above, conclude

those arguments are irrelevant, moot, or without merit.

To reflect the foregoing, Decision will be entered under Rule 155.

1
  Unless otherwise indicated, section references are to the Internal Revenue Code (Code) in effect for

the years in issue, and Rule references are to the Tax Court Rules of Practice and Procedure. Some

monetary amounts have been rounded to the nearest dollar.
1
 
2
  On March 4, 2011, respondent filed a motion to show cause why proposed facts and evidence should not

be accepted as established under Rule 91(f) and attached a proposed stipulation of facts. By order

dated March 8, 2011, this Court ordered that petitioner file a response to respondent's motion in

accordance with Rule 91(f)(2) on or before March 28, 2011. Petitioner failed to file a response to

respondent's motion that complied with Rule 91(f)(2). By order dated April 7, 2011, this Court made the

order to show cause under Rule 91(f) absolute and deemed established the facts and evidence set forth

in respondent's proposed stipulation of facts. On April 12, 2011, petitioner electronically submitted a

document titled “Response to Respondent's Stipulation of Facts”. By order dated April 13, 2011, this

Court granted petitioner leave to file the response out of time because petitioner had attempted to

respond timely. By that same order, this Court vacated its order of April 7, 2011 and ordered the Clerk

of the Court to file petitioner's “Response to Respondent's Stipulation of Facts” as petitioner's

response to the Court's March 8, 2011, order to show cause. By order dated April 26, 2011, this Court

made the order to show cause under Rule 91(f) absolute and deemed established the facts and evidence

set forth in respondent's proposed stipulation of facts.
3
  Mr. Sweet has been permanently enjoined from "[o]rganizing, promoting, marketing, or selling the tax

shelter, plan, or arrangement entitled `GOOD NEWS for FORM 1040 Filers” and from "[o]rganizing,

promoting, marketing, or selling 'Unincorporated Business Trust Organizations' (a/k/a `UBTOs') or any

other abusive tax shelter, plan, or arrangement that incites taxpayers to attempt to violate the

internal revenue laws”. United States v. Sweet, 89 A.F.T.R.2d (RIA) 2002-2189 (M.D. Fla. 2002).

Pursuant to Fed. R. Evid. 201, we take judicial notice of the District Court's order with respect to

Mr. Sweet.
4
  David Marvin Swanson d.b.a. Dynamic Monetary Strategies, created the Treasures in a Field Investments

trust organization for petitioner. On November 15, 2006, the U.S. District Court for the Middle

District of Florida, Tampa Division, permanently enjoined Mr. Swanson from, among other things, “[s]

elling or organizing any type of trust, limited liability company, or similar arrangement, as part of

which Swanson advocates for the noncompliance of the income tax laws or tax evasion, misrepresents the

tax savings realized by using the arrangement, or conceals the receipt of income”.
5
  With respect to at least one of the properties, petitioner effectively transferred the property on

February 2, 1999. However, neither petitioner nor any witness signed the instrument of transfer until

September 13, 2000.
6
  Mrs. Good testified that the children of Samuel J. Fitts and Iris K. Fitts purchased the 32210 Bartel

Street property. The record contains a certificate of trust executed on June 9, 2003, by Shawn

Dornstadter, petitioner's son-in-law. The accompanying papers show that Treasures in a Field

Investments transferred real property to Michael J. Fitts and Doxie H. Fitts. We infer from the record

that Michael J. Fitts and Doxie H. Fitts purchased the 32210 Bartel Street property. The record does

not disclose the amount of the selling price with respect to the sale.
7
  In 2004 Hurricane Ivan struck the house at 13450 County Road 91. Petitioner and Mrs. Good continued

to live in a portion of the house while repairing the remainder using the insurance proceeds they

received. Although Mrs. Good testified that she and petitioner deposited the insurance proceeds into

one of the ministry bank accounts, petitioner did not identify any deposits as deposits of insurance

proceeds and the Court could not identify any such deposits from information in the record.
8
  During the years in issue petitioner engaged in business transactions with Mr. Stoll. In 2008 Mr.

Stoll, acting as trustee of the Work of His Hands Industries, an unincorporated ministerial trust,

conveyed two parcels of land, previously owned by petitioner and Mrs. Good and conveyed to Treasures in

a Field Investments, to Andy and Renee Knott.
9
  The parties stipulated that Mr. Stoll had been enjoined from engaging in the promotion of ministerial

trusts as a tax planning strategy. Pursuant to Fed. R. Evid. 201, we take judicial notice of the

injunction proceeding. United States v. Stoll, 2005 WL 1763617 (W.D. Wash. 2005).
10
  Jason Evans, acting as “steward” for Prepare the Way Ministries, executed the Form W-8BEN.
11
  The record does not identify the relationships among petitioner, Shane M. Good, and Julie A. Good,

but we infer from the record as a whole that Shane M. Good and Julia A. Good are members of

petitioner's family.
12
  From April 29, 2003, through July 31, 2004, account 2952 was held under the name Treasures in a Field

Investments. Beginning in approximately August 2004 account 2952 was held under the name Prepare the

Way Ministries d.b.a. Treasures in a Field Investments.
13
  By collectively referring to the accounts as ministry bank accounts, we are not concluding that

petitioner operated an entity that qualified as a church under the Code. We refer to the accounts as

ministry bank accounts simply for convenience.
14
  He also testified that he conducted church meetings and other events at his home.
15
  With respect to account 2952, the revenue agent tabulated the total deposits, eliminated nontaxable

deposits, allocated taxable deposits between gross receipts from petitioner's Schedules C, Profit or

Loss From Business, and rental income from Schedules E, Supplemental Income or Loss, and tabulated the

results for each year. With respect to account 9269, the record contains a copy of the revenue agent's

spreadsheet showing the individual line items for the account. Although the revenue agent identified

certain deposits as nontaxable deposits, Schedule C gross receipts, and Schedule E rental income,

respondent's revenue agent failed to tabulate the results. Accordingly, for 2002-04 we have calculated

petitioner's total taxable deposits with respect to account 9269 by eliminating from petitioner's total

deposits those deposits the revenue agent identified as nontaxable. For 2005-06, however, respondent's

agent did not eliminate any deposits from account 2969 as nontaxable deposits.
16
  Respondent's revenue agent did not tabulate the total amount of Schedule C gross receipts for 2002-06

with respect to account 9269. On the basis of the spreadsheets, we find that the revenue agent

determined that petitioner had unreported Schedule C gross receipts equal to the total amount of

taxable deposits in account 9269 minus the Schedule E rental income with respect to that account for

each year.
17
  The amounts of unreported income as finally determined in the notices of deficiency do not match in

all respects the reconstruction of income prepared by the revenue agent.
18
  The short-term capital gain of $114,667 was attributable to the sale of the 32188 Bartel Street

property to Samuel J. Fitts ad Iris K. Fitts. On March 22, 2004, Prepare the Way Ministries agreed to

sell the 32188 Bartel Street property to Samuel J. Fitts and Iris K. Fitts for $120,000. Respondent

determined that petitioner incurred fees of $5,323 and had “cost[s]" of $10 with respect to the sale.

Respondent also determined that petitioner had a basis of zero in the property. Accordingly, respondent

determined that petitioner realized gain of $114,667 from sale of the property.
19
  On July 21, 2011, petitioner filed a document, with attached exhibits, titled “Petitioner's Status

Report”.
20
  Credible evidence is evidence the Court would find sufficient upon which to base a decision on the

issue in the taxpayer's favor, absent any contrary evidence. See Higbee v. Commissioner, 116 T.C. 438,

442 (2001).
21
  The term “Secretary” means “the Secretary of the Treasury or his delegate”, sec. 7701(a)(11)(B), and

the term “or his delegate” means “any officer, employee, or agency of the Treasury Department duly

authorized by the Secretary of the Treasury directly, or indirectly by one or more redelegations of

authority, to perform the function mentioned or described in the context”, sec. 7701(a)(12)(A)(i).
22
  Neither party specifically addressed these issues in their post-trial briefs.
23
  Even if we held that petitioner's alleged ministry constituted a church under sec. 501, petitioner

would still have to include in income funds deposited into the ministry bank accounts because he

exercised full control over those accounts and used the funds to pay his personal expenses. See, e.g.,

Chambers v. Commissioner, T.C. Memo. 2011-114 [TC Memo 2011-114], slip op. at 23-24.
24
  Although not entirely clear, petitioner's contention appears to be that the IRS cannot require him to

maintain or produce financial records because the IRS may not regulate religious activities and because

such records are privileged. Sec. 6001 requires that "[e]very person liable for any tax” maintain

records. Petitioner has offered no support for his contention that he personally is exempt from the

recordkeeping requirement of sec. 6001. While exempt organizations are relieved of some recordkeeping

requirements, the Commissioner never recognized Prepare the Way Ministries as an exempt organization

under sec. 501(c)(3). See Church of Scientology v. Commissioner 83 T.C. 381, 452 (1984), aff'd, 823

F.2d 1310 [60 AFTR 2d 87-5386] (9th Cir. 1987). Additionally, while the IRS must comply with specific

procedures set forth in sec. 7611 before it can obtain church records, petitioner has not proven that

he operated a church or that the records sought by respondent qualified as church records. See also

Chambers v. Commissioner, slip op. at 20-21. Accordingly, we reject petitioner's argument.
25
  The revenue agent's spreadsheet shows the erroneous double inclusion of the following checks: (1)

check No. 1001 for $635; (2) check No. 274 for $215; and (3) check No. 1016 for $850.
26
  With respect to 2004, respondent's revenue agent determined that petitioner had Schedule C gross

receipts of $116,393. The revenue agent included in petitioner's income a check for $9,000 that was

deposited into account 9269. Although the bank statement for account 9269 shows that the check was

returned for insufficient funds, respondent's revenue agent failed to exclude the $9,000 check from

petitioner's taxable income.
Despite the revenue agent's error, we will refrain from adjusting petitioner's 2004 Schedule C gross

receipts. Respondent determined in the notice of deficiency that petitioner had Schedule C gross

receipts of $83,440, an amount that is $32,953 lower than the figure calculated by the revenue agent.

The record supports an inference that respondent subtracted from petitioner's totaled Schedule C

deposits amounts that constituted nontaxable income. Because the amount subtracted, $32,953, exceeds

the amount of the check at issue, we find that petitioner is not entitled to an additional reduction in

his Schedule C gross receipts for the value of the check. Accordingly, we will sustain respondent's

determination with respect to petitioner's 2004 Schedule C gross receipts.
27
  Sec. 121(a) allows a taxpayer to exclude from income gain on the sale or exchange of property if the

taxpayer has owned and used such property as his principal residence for at least two of the five years

immediately preceding the sale. Petitioner sold the 32188 Bartel Street property in 2004. Mrs. Good

testified that she and petitioner lived at the 32188 Bartel Street property before the 2004 sale.

However, until 2003 petitioner owned another home, at 32210 Bartel Street. The record does not show

whether petitioner and Mrs. Good moved to the 32188 Bartel Street property before petitioner sold the

32210 Bartel Street property (i.e., before 2003) or immediately after the sale of the property in 2003.

Accordingly, we are unable to determine whether petitioner used the 32188 Bartel Street property as his

principal residence for at least two of the five years preceding the sale of the property in 2004.

Petitioner has not established that he is entitled to exclude any gain from the sale of the property

pursuant to sec. 121(a).
28
  “A nominee is an entity or individual who holds bare legal title to assets owned by another entity or

individual.” Lain v. Commissioner, T.C. Memo. 2012-99 [TC Memo 2012-99], slip op. at 13; see also

Oxford Capital Corp. v. United States, 211 F.3d 280, 284 [85 AFTR 2d 2000-1840] (5th Cir. 2000).
29
  These factors are nonexclusive. See Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).
30
  The amounts of the sec. 6651(f) additions to tax for 2002-05 must be adjusted to reflect the

adjustments to gross receipts calculated in this opinion.
31
  The amounts of the sec. 6651(a)(2) additions to tax for 2002-05 must be adjusted to reflect the

adjustments to gross receipts calculated in this opinion.
32
  Unless a statutory exception applies, the sec. 6654(a) addition to tax is mandatory. See sec. 6654

(a), (e); Recklitis v. Commissioner, 91 T.C. 874, 913 (1988).
33
  The amounts of the sec. 6654 additions to tax for 2003-05 must be adjusted to reflect the adjustments

to gross receipts calculated in this opinion.

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