Parks v. Comm'r of Internal Revenue
| Decision Date | 24 April 1990 |
| Docket Number | 13496-88.,Docket Nos. 23041-87 |
| Citation | 94 T.C. 654,94 T.C. No. 38 |
| Parties | RUTH B. PARKS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Ruth B. Parks, pro se in docket No. 13496-88.
Paul M. Kohlhoff, for the respondent.
Respondent determined deficiencies in petitioner's Federal income tax and additions to tax as follows:
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¦ ¦ ¦Additions to tax ¦
+------+------------+------------------------------------------------¦
¦ ¦ ¦___________________________________________ ¦
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¦Year ¦Deficiency ¦Sec. 6653(b)(1)1 ¦Sec. 6653(b)(2) ¦Sec. 6661 ¦
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¦1983 ¦$16,310 ¦$8,155.00 ¦50% of the ¦$4,078 ¦
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¦ ¦ ¦ ¦interest on ¦ ¦
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¦ ¦ ¦ ¦$16,1012 ¦ ¦
+------+------------+------------------+-----------------+-----------¦
¦1984 ¦4,147 ¦2,073.50 ¦50% of the ¦--- ¦
+------+------------+------------------+-----------------+-----------¦
¦ ¦ ¦ ¦interest on ¦ ¦
+------+------------+------------------+-----------------+-----------¦
¦ ¦ ¦ ¦$4,147 ¦ ¦
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Petitioner is represented by counsel in docket No. 23041-87 and is pro se in docket No. 13496-88. The two docket numbers were consolidated because the issues are substantially identical, differing primarily in that docket No. 23041-87 pertains to taxable year 1983 and docket No. 13496-88 pertains to taxable year 1984. Respondent concedes that petitioner substantiated itemized deductions in the amount of $3,150 for the year 1983.
The issues remaining for decision are: (1) whether cash deposits and expenditures made by petitioner during 1983 and 1984 constituted unreported income from an unidentified source; (2) whether Petitioner is liable for the additions to tax for fraud for the years 1983 and 1984; and (3) whether petitioner is liable for a section 6661 addition to tax for a substantial understatement of income tax for the taxable year 1984.
Some of the facts in this case are stipulated and are so found. The stipulations of fact and accompanying exhibits are incorporated by this reference. Petitioner resided in Memphis, Tennessee, at the time of filing her petitions in this case.
During 1983 and 1984, petitioner was employed by the Internal Revenue Service at the Memphis Service Center. All of petitioner's wages were paid to her in the form of checks. Those checks were deposited to petitioner's bank accounts and reported as income on her Federal income tax returns for the years in issue. Petitioner's monthly take-home pay amounted to approximately $800. Petitioner reported no other source of wage or salary income, other than minimal interest income, in 1983 and 1984.
During the years in issue, petitioner was divorced from James W. Parks. Petitioner and Mr. Parks had one daughter. During their marriage Mr. Parks beat petitioner several times, threatened to kill both petitioner and their child, and shot at petitioner. In 1975, petitioner fired shots at Mr. Parks during a domestic dispute, for which Petitioner was arrested. A divorce was granted to petitioner in 1975 on the grounds that Mr. Parks' cruel and inhumane conduct made cohabitation unsafe. Pursuant to the divorce decree, Mr. Parks was required to pay $10 per week in child support to the Clerk of the Circuit Court of Shelby County, Tennessee. Mr. Parks was delinquent in his child support payments, forcing petitioner to petition the Shelby County Circuit Court for an order garnishing Mr. Parks' wages early in 1976. Pursuant to the garnishment order, Mr. Parks paid $290 in child support through the Clerk's office during the remaining portion of 1976. In all subsequent years, including the years in issue, Mr. Parks made no further child support payments through the Clerk's office. The parties stipulate that no checks from Mr. Parks were deposited in any of petitioner's bank accounts during 1983 and 1984. There is no evidence that Mr. Parks ever made cash child support payments.
In his determination of deficiency, respondent used the bank deposits and cash expenditures method of reconstructing income. During 1983, petitioner wrote no checks to cash. However, in addition to her wages from the Internal Revenue Service petitioner made cash deposits in 1983 in the amount of $11,635 to four bank accounts. In transactions unrelated to the cash deposits to her bank accounts, on October 4, 1983, and October 5, 1983, petitioner purchased six separate cashier's checks made payable to Bud Davis Cadillac. Each cashier's check was issued by a different branch of one of two banks. The total amount of the six cashier's checks was $12,575. By so purchasing cashier's checks in small amounts at several different bank branches, petitioner avoided the filing of a Currency Transaction Report. Currency Transaction Reports are prepared when customers conduct single cash transactions with banking institutions in amounts of $10,000 or greater.
Petitioner used the cashier's checks to make a $12,575 down payment on a 1984 Cadillac Fleetwood Brougham. Petitioner financed the balance of the purchase price of the Cadillac through General Motors Acceptance Corporation (GMAC). Petitioner's monthly payments to GMAC were $418.69, an amount more than half of petitioner's monthly take-home pay.
In transactions again unrelated to any deposits of cash to her bank accounts, on December 9, 1983, petitioner purchased additional cashier's checks in the amount of $12,000. Petitioner used those cashier's checks and cash withdrawn from a revocable trust account established for the benefit of her daughter to pay off the balance she owed GMAC on the Cadillac. Neither the cash deposits nor the cash with which petitioner purchased cashier's checks were reported as income on petitioner's Federal income tax return for 1983.
During 1984, petitioner made cash deposits to two bank accounts in the amount of $8,585, purchased one cashier's check in the amount of $571, and paid doctors' bills totalling $1,925 in cash. However, petitioner wrote no checks to cash from her checking account and withdrew no cash from savings accounts under her control during 1984. Neither the cash deposits, the cash used to purchase the cashier's check, nor the cash used to pay doctor's bills were reported as income on petitioner's 1984 Federal income tax return.
During the initial audit of her tax returns, petitioner stated that she received no child support in 1983 and 1984. 3 Petitioner's tax returns for 1983 and 1984 were subsequently audited by the Criminal Investigation Division (CID) of the Internal Revenue Service. After referral of her case to CID, petitioner invoked the Fifth Amendment and refused to answer questions or cooperate in any other way with respondent's examiners or with CID agents. CID terminated its investigation in December 1987, without recommendation. Respondent has not identified a likely source of the cash in issue.
OPINIONRespondent argues that petitioner had unreported cash income from an unidentifiable source for the years before the Court. Petitioner is, contends respondent, liable for the tax on such income. We agree. Respondent determined unreported income through the use of the bank deposits and cash expenditures method of reconstructing income. It is well established that when a taxpayer's method of accounting does not clearly reflect income, respondent may recompute such income. Sec. 446(b); Holland v. United States, 348 U.S. 121, 130-132 (1954). We approve of respondent's use of the bank deposits and cash expenditures method of recomputing income. Nicholas v. Commissioner, 70 T.C. 1057, 1065 (1978); Estate of Mason v. Commissioner, 64 T.C. 651, 653 (1975), affd. 566 F.2d 2 (6th Cir. 1977). Indeed, bank deposits are prima facie evidence of the receipt of income. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).
Petitioner argues that respondent has the burden of proving a deficiency by showing that her cash deposits and expenditures represented unreported income and of proving the source of such...
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