The opinion
T.C. Summary Opinion 2001-170
UNITED STATES TAX COURT
CELESTE BONNER AND LOUIS BONNER, JR., Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 839-01S. Filed October 25, 2001.
Celeste Bonner and Louis Bonner, Jr., pro se.
Linda A. Neal, for respondent.
POWELL, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463.1 The decision to be entered
is not reviewable by any other court, and this opinion should not
be cited as authority.
Respondent determined a deficiency of $7,222 and an
accuracy-related penalty under section 6662 of $1,444 in
petitioners’ 1998 Federal income tax.
1
Subsequent section references are to the Internal Revenue
Code in effect for the year in issue.
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The issues are (1) whether petitioner Louis Bonner, Jr.
(petitioner), had unreported income of $25,980, and (2) whether
petitioners are liable for the section 6662 penalty. Petitioners
resided in Shreveport, Louisiana, at the time they filed their
petition.
The facts may be summarized as follows. Petitioners filed a
joint Federal income tax return for 1998 on which they reported
wage income for petitioner Celeste Bonner of $11,986 and interest
income of $59. Petitioner did not report any income from self-
employment or wages.
Petitioner is a cabinetmaker. Jerry Brown is a contractor
who does reconstruction of residential properties. His wife,
Linda Brown, operates a “craft business” that sells, inter alia,
dowry chests. Mrs. Brown keeps the records for both endeavors,
which are operated as a single business for tax purposes under
the Browns’ name. The Browns issued a Form 1099-MISC,
Miscellaneous Income, to petitioner in the amount of $25,980 for
services as a self-employed individual. Petitioner contends that
he received only $1,200 in income from the Browns in 1998.
The issue is totally factual–-viz, did petitioner receive
income of $25,980 from the Browns--and turns on whether we
believe petitioner or the Browns. We believe the Browns.
Both Mr. and Mrs. Brown testified that they used the
services of petitioner to build cabinets and chests during 1998.
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Mrs. Brown testified that petitioner was paid by cash and by
check. Mrs. Brown kept a payment ledger that indicates that the
Browns paid petitioner routinely during 1998 for his work. The
record contains seven checks that are appropriately shown on the
ledger and were endorsed by petitioner. The ledger also contains
the initials “LB” by most of the entries made. Mrs. Brown
testified that they were petitioner’s initials. The formation of
the letters “LB” on the ledger strongly resembles the formation
of those letters on the canceled checks that were endorsed by
petitioner. In addition, a written agreement for independent
contracting services, dated January 2, 1998, was executed by
petitioner.
Petitioner initially denied receiving any money from the
Browns. When confronted with the canceled checks, he reluctantly
conceded that he had received those checks. Furthermore, when
petitioner was asked what he lived on during 1998, he was totally
evasive stating that “I’m not just helpless. I do little
ordinary things. I’ve made a dollar bill [sic?].” Those dollars
“here and there” were not reported on petitioners’ tax return.
In short, we accept the Browns’ (and respondent’s) version of the
transactions between petitioner and the Browns.
Next, we turn to the question of the penalty. Section
6662(a) provides that, if the section applies, there is imposed a
penalty in an amount equal to 20 percent of the portion of the
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underpayment. The penalty applies, inter alia, to “Any
substantial understatement of income tax.” Sec. 6662(b)(2).
Section 6662(d)(1)(A) provides that there is a substantial
understatement of income tax if the amount of the understatement
exceeds the greater of “(i) 10 percent of the tax required to be
shown on the return for the taxable year, or (ii) $5,000.” The
understatement here is the full amount of the deficiency or
$7,2222 and exceeds $5,000. Accordingly, petitioners are liable
for the penalty under section 6662.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.
2
See sec. 6662(d)(2). Petitioners reported that no tax was
due on their return. The amount of tax required to be shown on
the return was $7,222, the amount of the deficiency. There were
no rebates.