Blanton v. Commissioner

T.C. Memo. 1997-496

UNITED STATES TAX COURT

LEONARD RAY BLANTON AND BETTY BLANTON, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 2007-85. Filed November 5, 1997.

D. Bruce Shine, and Donald F. Mason, Jr., for

petitioners.

Robert J. Misey, Jr., and John Lancaster, for

respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

PARR, Judge: Respondent determined a $10,078 deficiency in

petitioners' joint Federal income tax for 1978 and a $7,586

addition to tax for fraud pursuant to section 6653(b)1.

1

All section references are to the Internal Revenue Code in

(continued...)

- 2 -

After concessions,2 the issues for decision are: (1)

Whether income petitioner reported as a sale of a partnership

interest was really ordinary income in the form of a $15,000

finder's fee paid to petitioner for using his influence to assist

a constituent in procuring a construction loan. We hold it was.3

(2) Whether petitioner is liable for the section 6653(b) fraud

addition to tax for 1978. We hold he is.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulated facts and accompanying exhibits are incorporated

into our findings by this reference. Petitioners resided in

Adamsville, Tennessee, at the time of filing their petition in

this case. Hereinafter, the term "petitioner" refers to Leonard

Ray Blanton.

1

(...continued)

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure, unless otherwise

indicated. All dollar amounts are rounded to the nearest dollar,

unless otherwise indicated.

2

On brief, respondent concedes that Betty Blanton qualifies

as an innocent spouse, and therefore she is not liable for any

deficiency for 1978.

3

We note that in Blanton v. Commissioner, 94 T.C. 491 (1990),

(Blanton I) we granted partial summary judgment to respondent in

the instant case, holding that petitioner is collaterally

estopped from denying that in 1978 he received income of

$23,334.50 from liquor license sales in violation of the Hobbs

Act, 18 U.S.C. sec. 1951 (1976). Accordingly, we need only

address whether petitioner received and erroneously reported the

$15,000 loan finder's fee for the taxable year in issue.

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Background

For the taxable year 1978, petitioners timely filed a joint

Federal income tax return, Form 1040, showing total income of

$57,560. On March 26, 1980, petitioners filed an amended 1978

Federal income tax return, Form 1040X, showing an additional

$38,334.50 received as the gross sale price for an interest in an

oil and gas partnership. After other adjustments, petitioners'

income increased by $11,914 therefrom.

On October 29, 1984, respondent issued a notice of

deficiency to petitioners, which recharacterized the $38,334.50

as ordinary income. Respondent claims that the $38,334.50 is

actually the sum of a $15,000 finder's fee petitioner received

for assisting a constituent in procuring a construction loan and

a $23,334.50 fee for assisting the same constituent in procuring

a liquor license. Respondent also asserted an addition to tax

for fraud.

Petitioner

From January 1975 through January 1979, petitioner was the

Governor of the State of Tennessee. Prior to being elected

Governor, he served as a member of the Tennessee legislature and

the U.S. House of Representatives. For the taxable year in

issue, petitioner was married to Betty Blanton (Mrs. Blanton).

Sometime after July 1984, petitioner and Mrs. Blanton were

divorced.

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Petitioner herein was the defendant in the criminal case of

United States of America v. Leonard Ray Blanton, et al., Crim.

No. 80-30253 (M.D. Tenn., 1981), which was docketed in the U.S.

District Court for the Middle District of Tennessee. In March

1981, a Federal grand jury in the Middle District of Tennessee

returned an 11-count4 indictment against petitioner, his

assistant, Clyde Edward Hood, Jr., and a third defendant for

conspiracy, mail fraud, and violation of the Hobbs Act, 18 U.S.C.

sec. 1951 (1976).5 Petitioner was found guilty on all 11 counts

and was sentenced to a concurrent 3-year prison term and fined

$1,000.6

Thereafter, the Supreme Court decided McNally v. United

States, 483 U.S. 350 (1987), wherein it held that mail fraud

prohibits only schemes intended to deprive victims of property

such as money and not schemes intended to deprive victims of

intangible rights such as the right to honest Government. Based

4

The grand jury originally returned a 13-count indictment

against petitioner. The last two counts, which charged

petitioner alone with income tax evasion and filing a false tax

return, were severed from the other 11 counts and were

subsequently dismissed. See Blanton I, supra at 492.

5

More specifically, petitioner was indicted for unlawfully,

willfully, and knowingly obstructing, delaying, and affecting

interstate commerce by extorting $23,334.50 from Jack Ham (Ham),

a constituent, representing 20 percent of the profits of a retail

liquor store which Ham agreed to pay petitioner in return for

petitioner's assistance in procuring the liquor license.

6

For a complete discussion of this issue see Blanton I.

- 5 -

on that decision, petitioner moved to have his conviction set

aside. In January 1988, the U.S. District Court for the Middle

District of Tennessee issued a memorandum opinion in which it

applied the McNally decision retroactively and held that

petitioner was entitled to have his mail fraud and conspiracy to

commit mail fraud convictions dismissed. The District Court,

however, left petitioner's conviction for violating the Hobbs Act

and conspiracy to violate the Hobbs Act, undisturbed.

Petitioner's Outstanding Oil and Gas Partnership Loans

In early 1976, petitioner called Ed Nelson (Nelson), the

president of Commerce Union Bank (Commerce Bank or the bank) to

discuss the possibility of financing an oil and gas limited

partnership interest (South Texas Drilling or the oil

partnership). On April 28, 1976, Commerce Bank lent petitioner

$20,000 to finance his acquisition of a 2.4-percent interest in

the oil partnership, with the partnership interest as collateral.

On June 24, 1976, after oil was discovered, Commerce Bank made

petitioner a second loan of $18,353 for the completion of the

wells.

In 1976, the wells produced in excess of 100 barrels a day,

but soon thereafter production rapidly declined to only 10 to 15

barrels a day because the formation was not sufficiently

permeable to let the oil flow through.

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In 1976, petitioner's share of the oil partnership, as

listed on his Schedule K-1, lost $7,324. That year interest

accrued on the $20,000 bank loan of $637 and petitioner paid

$363. On the $18,353 bank loan, $386 of interest accrued and

petitioner paid $344.

In 1977, during an audit of petitioner's 1974, 1975, and

1976 returns, petitioner told Internal Revenue Service (IRS)

Agent Terry McGehee (Agent McGehee) that the oil well was dry and

that he thought he was going to lose his whole investment.

In 1978, petitioner's share of the oil partnership, as

listed on his K-1, earned only $1,009. That year interest

accrued on the $20,000 bank loan of $1,742 and on the $18,353

bank loan of $1,553.

From 1976 through 1978, petitioner had difficulty repaying

the bank loans because the income from the oil wells, $100 to

$200 a month, was insufficient to service petitioner's debts. In

1977 and 1978, the checks did not even cover interest, and as a

result petitioner's bank debt grew.

Jack Ham7

In the 1970's, Jack Ham was in the construction business.

He became acquainted with petitioner through his construction

work and was a major contributor to petitioner's gubernatorial

7

Jack Ham died before trial.

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campaign. Prior to the election, petitioner met with him and

asked for his political support in the upcoming campaign. Jack

Ham told petitioner that he could count on his vote. Thereafter,

he donated $1,000 to petitioner's campaign. Petitioner

discovered that in addition to contributing the $1,000, Jack Ham

and approximately 16 other constituents, had co-signed a note for

$50,000, which went to petitioner's campaign. Moreover, Jack Ham

personally lent the campaign $25,000. After petitioner's

inauguration, Jack Ham visited petitioner in his office at the

State Capitol Building (the Capitol) and the Governor's Mansion.

James Bertram Ham

James Bertram Ham (Bert Ham) is the nephew of Jack Ham

(collectively the Hams). During the year in issue, Bert Ham was

in the construction business. He and a partner owned Redi-Built

Products, Inc. (Redi-Built), a general contractor that built

primary and multifamily housing. Bert Ham was Redi-Built's

president.

Clyde Edward Hood, Jr.8

When petitioner ran for Governor, Clyde Edward Hood, Jr.

(Hood) was his finance chairman for the State of Tennessee, and

after his election Hood served as petitioner's assistant.

Petitioner and Hood not only were comrades, but Hood was "like a

8

Clyde Edward Hood, Jr. died before trial.

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son" to petitioner. Hood and the Hams were the three

participants in a State-sponsored, low-income housing project in

Jackson, Tennessee, known as the Royal Arms Apartment project

(the Royal Arms or the project).

The Royal Arms Apartment Project

In late 1977, the Tennessee Housing Authority (THA) was

going to provide permanent financing for construction of the

Royal Arms. The Hams submitted a construction proposal for the

project to the THA, which was approved in the early part of 1978.

Accordingly, Redi-Built would be the general contractor on the

project. Although the THA provided the permanent financing for

the project, the Hams had to provide their own construction

financing of $2.5 million.

During that time, the banking industry nationwide was

charging interest rates on loans of up to 14 percent. The State

of Tennessee, however, had set a restrictive cap on interest

rates, proscribing banks from making intrastate loans at an

interest rate exceeding 10 percent. As a result, Tennessee banks

were reluctant to make intrastate loans at 10 percent, knowing

that they could go out of State and charge rates as high as 14

percent. Given the industry climate, the Hams found it difficult

to obtain the necessary construction financing. Jack Ham, to no

avail, even offered to pay a man at Merrill Lynch a $15,000

finder's fee if he could help the Hams obtain a construction

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loan. Although Commerce Bank made construction loans, Jack Ham

did not think it would lend him money because of some problems

with the bank in earlier years.

After being turned down for a loan by various banks, Jack

Ham discussed his predicament with Hood, who suggested that he

speak with petitioner about the matter. Thereafter, he and Hood

met with petitioner and offered him a finder's fee if he could

assist Jack Ham in procuring the $2.5 million construction loan

for the Royal Arms project. Sometime thereafter, the Hams and

Hood met at the Capitol to discuss the construction loan's

progress. During that meeting, Hood telephoned petitioner

regarding the lack of results the Hams had in getting the

construction loan. Petitioner, understanding that time was of

the essence, said that he would call Nelson at Commerce Bank to

discuss the matter. Petitioner concedes that he indeed spoke

with Nelson regarding the construction loan for Jack Ham. During

the conversation, Nelson told petitioner to have Jack Ham call

the bank's construction lending department.

After speaking with petitioner, Nelson contacted Chris

McDonald (McDonald), who was in charge of construction lending

for the bank. Nelson told McDonald about the conversation he had

with petitioner and asked McDonald "if he wanted to make a

construction loan." McDonald replied affirmatively, whereby

Nelson responded "if it is a good loan, and you would like to

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make it; make it." Shortly thereafter, Jack Ham telephoned

Nelson, who referred him to McDonald. In late August 1978,

Commerce Bank approved the construction loan. For petitioner's

assistance in procuring the loan, Jack Ham believed he owed a

finder's fee.

When later interviewed by respondent's agents, petitioner

denied having played any role in helping Jack Ham and his

associates obtain the $2.5 million in financing for the Royal

Arms project.

The Oil Partnership Sale Scheme

Before petitioner left office in January of 1979, he needed

to pay off his oil partnership debt at Commerce Bank because he

and Mrs. Blanton wanted to buy a house in Nashville. They did

not have enough money for a downpayment, and petitioner knew that

in order to sign a note for the entire purchase price of a house

he "would have to lower [his] liabilities."

Sometime in the fall or winter of 1978, petitioner contacted

Jack Ham, who owed him money for the liquor license and the

construction loan finder's fee. Petitioner told him that he

could have the oil partnership interest if he paid off

approximately $38,000 in debt that petitioner owed Commerce Bank.

Jack Ham agreed.

Jack Ham had previously invested in oil wells. As he

indicated, however, during a deposition taken before petitioner's

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criminal trial, he did not investigate the oil partnership as he

would have investigated a regular investment because he "did not

consider it an investment." Rather, he purchased the interest

"for one reason, and that was to clear [his] debt" with

petitioner. He never asked petitioner the value of the oil

partnership interest; however, he thought it to be worthless

because South Texas Drilling had no intention of improving its

operations, and there had been no checks coming in on the wells

for quite some time.

In late 1978, petitioner again called Nelson at Commerce

Bank and told him that he wanted to pay off his bank debt because

the "interest was eating him alive". Petitioner indicated that

he had found someone to purchase his interest in the oil

partnership. Nelson was pleased because the cash-flow from the

oil wells was not sufficient to service the debt, and therefore

the bank was concerned about the loan's stability.

On November 20, 1978, Jack Ham met with James D. Harris

(Harris), a commercial loan officer and vice president at

Commerce Bank. Jack Ham told Harris that he and petitioner were

close friends, that he owed petitioner some favors, and, that he

along with some other friends of petitioner, wanted to see

petitioner's debt at the bank cleared up before petitioner left

office. Jack Ham, who knew the debt was around $38,000, told

Harris that he and Redi-Built, his nephew's company, would like

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to pay off the total obligation and that they would be ready to

go through with the transaction on December 4, 1978. Jack Ham

agreed to pay both principal plus accrued interest, which on

December 4, 1978, would total $38,334.50.

Henry Hooker (Hooker), an attorney, who also was a limited

partner in South Texas Drilling, was responsible for preparing

two separate assignments of partnership interest, one from

petitioner to Jack Ham, and the other from petitioner to Redi-

Built for purchase prices of $23,334.50 and $15,000,

respectively. The $38,334.50 total purchase price was paid with

two checks, each made payable to Commerce Bank for the above

stated amounts. Pursuant to the transfer, Jack Ham and Bert Ham

received an interest of 60.87 percent and 39.13 percent,

respectively of petitioner's 2.4 percent interest in South Texas

Drilling. Upon receiving the two checks, Commerce Bank used the

funds to retire petitioner's outstanding oil partnership debt.

On December 27, 1978, Jack Ham assigned his interest in

South Texas Drilling to Bert Ham for $334.50. Jack Ham had

previously told Harris that he would resell the oil partnership

interest to Bert Ham prior to the end of the year at a loss for

tax purposes.

Petitioners failed to report the receipt of the $38,334.50

in 1978 on their original Form 1040. On March 26, 1980,

petitioners filed an amended 1978 Federal income tax return, Form

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1040X, reporting the $38,334.50 as the gross sales price received

on disposition of the interest in South Texas Drilling.

OPINION

Issue 1. Whether Income Petitioner Reported as a Sale of a

Partnership Interest Was Really Ordinary Income in the Form of a

$15,000 Finder's Fee Paid to Petitioner for Using His Influence

to Assist Jack Ham in Procuring a Construction Loan.

Respondent determined that petitioners received income in

1978 of $38,334.50, consisting of a $15,000 finder's fee for

assisting Jack Ham in procuring a construction loan and a

$23,334.50 fee for assisting Jack Ham in procuring a liquor

license. Petitioner asserts that he never had any agreement

with, nor did he receive any fees from the Hams during the

taxable year in issue. Petitioner admits that he received

$38,334.50 in 1978, but asserts that such income was from the

sale of his partnership interest in South Texas Drilling.

Petitioner concedes that although the transaction was

inadvertently omitted from his original 1978 joint Federal income

tax return, the sale was properly reported on a timely filed

amended return.

Based on the entire record and for the reasons discussed

herein, we find that Jack Ham paid petitioner a $15,000 finder's

fee for petitioner's assistance in procuring a $2.5 million

construction loan for the Hams.

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Gross income includes all income from "whatever source

derived". Sec. 61(a). The Supreme Court has consistently held

that section 61 subjects to taxation all accessions to wealth

that are clearly realized over which a taxpayer has complete

dominion and control, unless specifically excluded by statute.

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955).

Moreover, the elimination of a taxpayer's debt, in whole or in

part, may result in an accession to wealth. Sec. 1.61-12(a),

Income Tax Regs.

Respondent introduced the following evidence that petitioner

received a $15,000 finder's fee from Jack Ham: During a

deposition taken before petitioner's criminal trial, Jack Ham

testified that he owed petitioner a finder's fee because

petitioner helped him obtain a $2.5 million construction loan.

Moreover, Bert Ham testified at trial of this case that he and

Hood both knew that Jack Ham owed petitioner a finder's fee. In

fact, sometime prior to August 1978, the Hams met with Hood at

the Capitol in order to discuss the progress of the construction

loan. During that meeting, Hood telephoned petitioner about the

loan, who indicated that he would call Nelson, the president of

Commerce Bank regarding the matter. Furthermore, petitioner

conceded at trial that he indeed contacted Nelson in an effort to

help the Hams get financing. Shortly after speaking with Nelson,

the Hams received the $2.5 million loan. Bert Ham further

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testified that on December 4, 1978, he gave Commerce Bank a check

for $15,000 on behalf of his uncle, as reimbursement for the

finder's fee that Jack Ham owed petitioner. Finally, Nelson,

the bank's president, testified that the $15,000 payment was used

to partially extinguish the oil partnership debt that petitioner

had outstanding with the bank.

Seeking to rebut respondent's evidence, petitioner contends

that although he called Commerce Bank, he did not indicate to

Nelson that he had a personal financial interest in the loan's

being approved, nor did the bank deviate from its policies in

extending credit to Ham. Even if true, these facts do not negate

a finding that petitioner received a $15,000 finder's fee. It is

irrelevant whether petitioner in fact influenced the bank's

decision to extend credit to the Hams. What is relevant is Jack

Ham's perception of the events that led up to the bank's approval

of the loan and his own obligation to pay. Because of the Hams'

difficulty with Commerce Bank in the past, Jack Ham was convinced

that the bank approved the loan solely because of petitioner's

assistance.

To support his contention that he and Jack Ham never had an

agreement, petitioner points to the lack of "anything in writing

evidencing indebtedness between petitioner and [Ham] relating to

a finder's fee". Although the $15,000 debt might have been

unenforceable had Jack Ham refused to pay it, he did in fact pay

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it. Jack Ham clearly compensated petitioner for his efforts

when, through his nephew, he paid Commerce Bank $15,000 to

partially extinguish petitioner's outstanding debt. Moreover, at

trial Bert Ham testified that he paid petitioner the 15,000 as a

finder's fee on behalf of his uncle, who owed petitioner the

money.

We hold that petitioner received a $15,000 finder's fee in

1978.

Issue 2. Whether Petitioner Is Liable for the Section 6653(b)

Fraud Addition to Tax

Under section 6653(b) respondent has the burden of proving

by clear and convincing evidence that there is an underpayment of

tax and that some part of the underpayment was due to fraud. See

sec. 7454(a); Rule 142(b). Respondent must show that petitioner

intended to evade taxes known to be owing by conduct intended to

conceal, mislead, or otherwise prevent the collection of such

taxes. Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).

In the instant case, petitioner has already been

collaterally estopped from denying that he received $23,334.50

from Jack Ham in violation of the Hobbs Act. Moreover, as

discussed, supra pp.12-15, we found that petitioner received a

$15,000 finder's fee in 1978 from Jack Ham for assisting him in

procuring the $2.5 million construction loan through Commerce

Bank. Finally, petitioner's amended return admits receipt of the

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$38,334.50 that resulted in the underpayment. Accordingly,

pursuant to section 6653(b), respondent has proven that an

underpayment of tax exists for the year in issue. We now must

decide whether petitioner intended to conceal, mislead, or

otherwise prevent the collection of such taxes. Rowlee v.

Commissioner, supra at 1123, and cases cited therein.

The existence of fraud is a question of fact to be resolved

upon consideration of the entire record. Gajewski v.

Commissioner, 67 T.C. 181, 199 (1976), affd. without published

opinion 578 F.2d 1383 (8th Cir. 1978). Fraud will never be

presumed. Beaver v. Commissioner, 55 T.C. 85, 92 (1970). Fraud

may, however, be proved by circumstantial evidence, because

direct proof of the taxpayer's intent is rarely available.

Rowlee v. Commissioner, supra. The taxpayer's entire course of

conduct may establish the requisite fraudulent intent. Stone v.

Commissioner, 56 T.C. 213, 223-224 (1971). The intent to conceal

or mislead may be inferred from a pattern of conduct. See Spies

v. United States, 317 U.S. 492, 499 (1943). Over the years, this

Court has developed a nonexclusive list of the various kinds of

circumstantial evidence that may support a finding of fraud. See

Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992) (citing

Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986),

affg. T.C. Memo. 1984-601).

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Purposefully engaging in sham transactions with the intent

to disguise ordinary income as capital gains is strong evidence

of fraud. See Fazzio v. Commissioner, 959 F.2d 630 (6th Cir.

1992), affg. T.C. Memo. 1990-608. Based on collateral estoppel,9

petitioner's receipt of the $23,334.50 was not for the sale of

the oil partnership interest. Instead, when Jack Ham paid

Commerce Bank $23,334.50 in satisfaction of petitioner's

outstanding debt at the bank, and subsequently acquired

petitioner's interest in the oil partnership, this amount was

paid by Ham and understood by petitioner to be in satisfaction of

an obligation to pay petitioner 20 percent of the profits from

Ham's liquor store and for no other purpose. See Blanton v.

Commissioner, 94 T.C. 491, 498 (1990). The same is true with

respect to the $15,000 finder's fee; i.e., it was not paid for

the partnership interest.

Petitioner and Jack Ham, with the assistance of Hood,

initiated detailed transactions with Commerce Bank to ensure that

the sham sale appeared bona fide despite the oil partnership's

lack of value. It is clear that petitioner's interest in the oil

partnership was worthless or nearly so. Both Jack and Bert Ham

believed that it had no value. In fact, after acquiring the

9

As discussed supra note 3, petitioner is collaterally

estopped from denying that in 1978 he received income of

$23,334.50 from liquor license sales in violation of the Hobbs

Act.

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interest from petitioner, Jack Ham sold it to his nephew for

$334.50 and claimed a loss for tax purposes. At trial, Harris, a

commercial loan officer at Commerce Bank, testified that after

considering petitioner's interest expense, he thought

petitioner's oil partnership interest was worth a negative

amount. Hooker, who was a limited partner himself, testified

that he thought the price petitioner received was high in

relation to the value. Moreover, all the original investors in

the oil partnership lost money because the oil production

drastically dropped, and investors could not find buyers to whom

they could sell their interests. Finally, petitioner admitted to

IRS Agent McGehee that he thought he would lose his entire

investment because the well was dry. Thus, by structuring a

transaction where he would receive $38,334.50 for an oil

partnership interest that was worth little or nothing, petitioner

purposefully intended to conceal his receipt of the kickbacks.

We note that petitioner's education and sophistication are

also relevant to the determination of fraud. See Blunt v.

Commissioner, T.C. Memo. 1966-280 (fraud addition imposed on

former mayor whose activity in business and civic affairs gave

him the requisite sophistication to commit fraud); see also

Halle v. Commissioner, 175 F.2d 500, 503 (2d Cir. 1949), affg. 7

T.C. 245 (1946). Petitioner was a career politician. During his

career, he held office as a State legislator and U.S.

- 20 -

Congressman. Winning eleven of thirteen campaigns for office,

his political career culminated in his election to the highest

political office in the State. As Governor, petitioner was

responsible for running the State and supervising 38,000

employees. Petitioner cannot claim ignorance with respect to the

value of the oil partnership. Petitioner was a sophisticated

investor who knew, and even admitted, that he made a bad

investment.

Finally, the following factors are indicative of

petitioner's fraudulent intent: (1) Petitioner's substantial

understatement of income coupled with circumstances showing an

intent to conceal; see Holland v. United States, 348 U.S. 121

(1954); (2) petitioner's involvement in illegal activities and

his attempts to conceal those illegal activities; see Bradford v.

Commissioner, supra; (3) petitioner's act of filing false

documents and failing to comply with known reporting

requirements; see Stephenson v. Commissioner, 79 T.C. 995, 1007

(1982), affd. 748 F.2d 331 (6th Cir. 1984); and (4) petitioner's

making false and misleading statements to respondent's agents;

see Grosshandler v. Commissioner, 75 T.C. 1, 20 (1980).

In light of the foregoing, we find that respondent has

proven by clear and convincing evidence that petitioner engaged

in conduct intended to conceal, mislead, or otherwise prevent the

collection of his 1978 taxes. Petitioner fraudulently reported

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the disposition of his interest in South Texas Drilling as a sale

in order to disguise the $38,334.50 of ordinary income

received.10

To reflect the foregoing,

Decision will be entered

for respondent.

10

Based on our finding that petitioner fraudulently

underreported his income for 1978, respondent is not barred by

the section 6501(a) limitations period from assessing a

deficiency against petitioner for the taxable year in issue.