T.C. Memo. 2006-202



                     UNITED STATES TAX COURT



 OMNITEC CORPORATION, AN ADMINISTRATIVELY DISSOLVED CORPORATION,
            LELAND V. LAMMERT, PRESIDENT, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 10271-03.               Filed September 25, 2006.



    Leland V. Lammert (an officer), for petitioner.

    James A. Kutten, for respondent.



                       MEMORANDUM OPINION


    COUVILLION, Special Trial Judge:   Respondent determined

deficiencies in petitioner’s Federal income taxes for taxable

years ending September 30, 1998 and 1999, of $10,976 and $4,984,
                              - 2 -

respectively, and additions to tax under sections 6651(a)(1)1 and

6654 as follows:2


     Taxable Year Ended     Sec. 6651(a)(1)      Sec. 6654

          9/30/98              $2,469.60          $537.91
          9/30/99               1,121.40           238.04


     The issues for decision are:   (1) Whether the income and

expenses of a business conducted under the names of Omnitec


     1
      All section references are to the Internal Revenue Code as
amended and in effect for the years at issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
The petition was filed pursuant to sec. 7463 as a small tax case.
Prior to trial, petitioner moved to have the case considered
under sec. 7443A(b)(3). Petitioner’s motion was granted. In the
notice of deficiency, respondent determined the addition to tax
under sec. 6651(a)(2) but conceded that adjustment at trial.
Counsel for respondent also advised the Court that the notice of
deficiency determined an addition to tax under sec. 6654, and
that, instead, the determination was under sec. 6655, failure of
a corporation to pay estimated income taxes.
     2
      Under sec. 7491(a)(1), with respect to audits commencing
after July 22, 1998, the burden of proof shifts to respondent
where the taxpayer introduces credible evidence with respect to
any factual issue relevant to ascertaining the tax liability.
The burden of proof, however, does not shift where the taxpayer
fails to comply with requirements for substantiation of any item,
has not maintained books and records with respect to any activity
in question, and fails to cooperate with reasonable requests for
witnesses, information, documents, meetings, and interviews.
Sec. 7491(a)(2). In this case, petitioner failed on several
fronts in complying with basic and fundamental requirements, such
as maintaining books and records and providing such records to
respondent in connection with the audit, which required
respondent to resort to an indirect method of determining income.
The burden of proof, therefore, has not shifted to respondent
under sec. 7491(a); however, under sec. 7491(c), relating to
penalties and additions to tax, the burden of production is on
respondent.
                               - 3 -

Corp., Omnitec, Inc., and L.V. Properties, Inc., constitute the

income and expenses of petitioner (identified and referred to

herein as Omnitec Missouri);3 (2) whether the income attributed to

petitioner was properly determined under the bank deposits

analysis method; and (3) whether petitioner is liable for the

additions to tax under sections 6651(a)(1) and 6655.


                            Background

     Some of the facts were stipulated and are so found.     The

stipulation of facts and accompanying exhibits are incorporated

herein by reference.   Petitioner was domiciled at St. Louis,

Missouri, at the time the petition was filed.

     Petitioner is a corporation that was organized in the State

of Missouri on December 15, 1980, under the name Orion

Laboratories, Inc.   The name was changed in 1985 to Omnitec Corp.

The corporation was administratively dissolved by the State of




     3
      At the outset, it is necessary to clarify and distinguish
between the taxpayers in this case. There are two corporations
that bear an identical name: Omnitec Corp. One corporation was
organized under the laws of Missouri, and the other corporation
was organized under the laws of Nevada. The corporations,
therefore, are referred to in this opinion, respectively, as
“Omnitec Missouri” and “Omnitec Nevada”. The notice of
deficiency was issued to Omnitec Missouri based on respondent’s
determination that the trade or business activity conducted in
the name of “Omnitec Corp.” was in truth and in fact the business
of Omnitec Missouri, a determination challenged by Omnitec
Missouri.
                                - 4 -

Missouri on June 14, 1999, for failure to file its annual

registration report.4

     Another corporation bearing the name of Omnitec Corp. was

incorporated in the State of Nevada on July 12, 2000.    The

corporation was organized sometime earlier; however, the articles

of incorporation were not filed with the State of Nevada until

July 12, 2000.    This corporation qualified to do business in

Missouri on July 2, 2003.    This corporation is referred to as

Omnitec Nevada.    See supra note 3.

     The third corporation, referred to above, L.V. Properties,

Inc., was organized on July 28, 1986, by Leland V. Lammert, the

incorporator of Omnitec Missouri and Omnitec Nevada.    See supra

note 3.

     There was one trade or business activity that gave rise to

the income in dispute in this litigation.    The basic and

fundamental issue, as framed by the parties, is which of the two

corporations, Omnitec Missouri or Omnitec Nevada, conducted the

activity in question and, therefore, is liable for Federal income

taxes on such income.    In the notice of deficiency, respondent

     4
      Under Missouri law, an administratively dissolved
corporation continues its corporate existence in order to wind up
its affairs. Mo. Rev. Stat. sec. 351.486.3 (1990). In Starvest
U.S., Inc. v. Commissioner, T.C. Memo. 1999-314, this Court held
that a dissolved corporation under Florida law continued its
corporate existence indefinitely to litigate matters affecting
the corporation. In this case, neither party raised objection to
the institution of this case by Omnitec to challenge respondent’s
deficiency determination.
                                 - 5 -

determined that the trade or business activity was that of

Omnitec Missouri (petitioner).    Petitioner contends the trade or

business activity was that of Omnitec Nevada.

     The business activity in question was providing technical

assistance to commercial businesses in design and development of

computer systems adaptable to a customer’s particular needs,

including computer repairs, and other services such as

development or creation of Web sites, registration services for

the listing of a Web site on various search engines, development

of bar codes for manufacturing businesses, and other related

technology services.

     The individual behind these corporations was Leland V.

Lammert (Mr. Lammert).    Mr. Lammert has a Ph.D. in engineering

and attended the University of Missouri, Southern Methodist

University, and California Western University.   It appears that

his sole business activity was his engagement with the three

corporations described.

     Of the three entities described, Omnitec Missouri, Omnitec

Nevada, and L.V. Properties, Inc., only Omnitec Nevada filed

Federal income tax returns for the fiscal years at issue.5    The


     5
      Based on the certificates of official record offered into
evidence at trial, the return for fiscal year ending Sept. 30,
1998, was received by the IRS on June 16, 2002, and the return
for fiscal year ending Sept. 30, 1999, was received by the IRS on
June 19, 2002. Both returns are dated by the preparer, May 14,
2002.
                                - 6 -

other two corporations, including petitioner, did not file

Federal income tax returns.

     At some point, Mr. Lammert was contacted by an agent of the

IRS requesting a conference with respect to Omnitec for one of

the tax years at issue.   Presumably, this would have been Omnitec

Nevada because that was the only one of the three corporations

that had filed income tax returns.      Mr. Lammert declined that

request.   The agent followed up with a second request, and that

request was also declined.    At that point, the agent decided that

respondent would proceed to an audit of fiscal years ending

September 30, 1998, and September 30, 1999, the fiscal years on

the returns filed by Omnitec Nevada.      Summonses were served on

two banks that maintained accounts for Omnitec Missouri and L.V.

Properties, Inc.   One of the accounts of L.V. Properties, Inc.,

at one of the banks bore the same employer identification number

as Omnitec Missouri, No. XX-XXXXXXX.      At the other bank, another

account for L.V. Properties, Inc., had an invalid number.

     The agent then followed up by contacting several customers

or businesses that had engaged the services of Omnitec, and, at

the agent’s request, these businesses provided approximately 71

invoices or bills that had been issued to them for services

provided by Omnitec during the years in issue.      None of these

invoices explicitly identified the services as having been

provided either by Omnitec Nevada, L.V. Properties, Inc., or
                                - 7 -

Omnitec Missouri.    All the invoices were on printed stationery of

Omnitec, Inc., with a St. Louis, Missouri, post office address.

All payments received on these bills were deposited in a bank

account in the name of Omnitec, Inc., at St. Louis, Missouri.

     Two witnesses were called by petitioner.    Both witnesses had

utilized the services of Omnitec in connection with their

business activities for several years.   Neither of these

witnesses expressed any knowledge that the entity providing

services to them was any entity other than “Omnitec”.   The Court

is satisfied from their testimony that they had known Mr. Lammert

for several years.   They knew of his business activity through

“Omnitec” and had utilized the services offered by the entity.

They offered no testimony to support Mr. Lammert’s contention

that the services provided were those of Omnitec Nevada.    Based

on their testimony, the Court doubts that these witnesses knew

that there was an Omnitec Nevada.   Copies of the bank statement

of Omnitec, Inc., were offered into evidence as well as numerous

copies of checks that were issued to Omnitec, Inc., which were

deposited in the bank account of Omnitec, Inc.   No evidence was

presented by petitioner that would establish that the bank

account was an account of Omnitec Nevada or L.V. Properties, Inc.

     Respondent’s agent determined that, based upon an analysis

of the bank account, the deposits in that account represented

payments to Omnitec Missouri for services rendered, and,
                                 - 8 -

therefore, such deposits constituted gross income of Omnitec

Missouri.   The notice of deficiency is based on that

determination.   No evidence was presented to show that the

deposits were payments for services provided by Omnitec Nevada or

L.V. Properties, Inc.    The witnesses offered by petitioner

essentially corroborated respondent’s case.

     The only income tax returns filed were those filed by

Omnitec Nevada, which reflected income and expenses as follows:


                                      FYE 9/30/98     FYE 9/30/99
     Income
       Gross receipts                     $61,634       $47,486
     Expenses
       Repairs, maintenance                 1,506           249
       Rents                               22,275        28,887
       Taxes and licenses                      45          -0-
       Advertising                          1,260         3,200
       Other expenses (per an
        attached schedule)                 40,419       34,130
       Total expenses                      65,505       66,466
     Net losses                          ($ 3,871)    ($18,980)


The returns, accordingly, showed no Federal income taxes due for

the 2 fiscal years.     In the notice of deficiency, respondent

determined that the trade or business activity was that of

Omnitec Missouri and determined taxable income as follows:


                                      FYE 9/30/98     FYE 9/30/99
     Income
       Gross receipts                     $89,870       $60,989
       Gross rents                         20,450         9,419
     Omnitec expenses                     (41,910)      (33,185)
     Rental expenses                       (4,504)       (3,996)
     Taxable income                        63,906        33,227
                                - 9 -

                              Discussion

     The first issue is whether the business activity described

was the activity of Omnitec Missouri, as respondent contends, or

the activity of Omnitec Nevada, as petitioner contends.

     Respondent determined that the taxpayer was Omnitec

Missouri, and the notice of deficiency was issued to Omnitec

Missouri.   The Court sustains that finding.    The record shows

that Omnitec Missouri was actively engaged in a trade or business

activity.   The bank statements offered into evidence support such

a conclusion as well as the invoices to customers or clients who

were provided services by Omnitec, Inc., which was based in St.

Louis, Missouri, including the testimony of the two witnesses at

trial who were called by Mr. Lammert.      There was a Web site for

Omnitec, Inc., which listed a St. Louis, Missouri, address, with

no indication of any other Omnitec Corp. at some other location.

The statements, bills, and invoices that were issued by Omnitec

also provided the same information.

     It is very clear to the Court, on the record presented, that

the business that held itself out to the general public and its

patrons as Omnitec, Inc., was Omnitec Missouri.     Moreover,

Omnitec Missouri was the corporation engaged in the trade or

business activity that was described at trial, and there is no

evidence to support the contention that the activity in question

was that of Omnitec Nevada.    Additionally, there is no evidence
                              - 10 -

to support a finding that any part of the activity in question

was that of L.V. Properties, Inc., or that Omnitec Nevada was

engaged in any business activity.   The Court, therefore, sustains

respondent’s determination that the trade or business activity

was that of petitioner Omnitec Missouri.

     The second issue is whether respondent properly determined

the income of petitioner, Omnitec Missouri, using the bank

deposits analysis method, the results of which are outlined

above.

     The bank deposits analysis method is an accepted method of

income determination where books and records are either not

maintained by a taxpayer, or where the taxpayer refuses to

produce books and records.

     Taxpayers are required under section 6001 to keep such

records as may be required to sufficiently establish gross

income.   Anson v. Commissioner, 

, 705 (10th Cir.

1964), affg. Bassett v. Commissioner, T.C. Memo. 1963-10.     If a

taxpayer either fails to keep the required records, or if the

records do not clearly reflect income, the Commissioner is

authorized under section 446(b) to reconstruct income by a method

which clearly reflects income.   Anson v. Commissioner, supra;

Sutherland v. Commissioner, 

 (1959).   The bank

deposits method is an acceptable method of reconstructing income

and may be used to establish the correct amount of income.
                                - 11 -

Michalowski v. Commissioner, T.C. Memo. 1976-192 (and cases cited

therein).   Under section 7491(a), the burden of proof does not

shift to petitioner.   See supra note 2.      Moreover, in Tokarski v.

Commissioner, 

 (1986), this Court held that, where a

taxpayer is in receipt of bank deposits, respondent does not have

the burden of going forward with evidence linking the taxpayer to

an income-producing activity as a precondition to requiring the

taxpayer to satisfy his burden of proof.      Thus, the burden of

showing error in the bank deposits analysis is on the taxpayer.

     Respondent’s agent made an exhaustive review of bank records

to arrive at a determination of petitioner’s income.      The audit

included contacts with numerous businesses that had utilized the

services of Omnitec.   None of these businesses had any reason to

believe that the services provided to them were other than the

services of Omnitec Missouri.    Respondent’s use of this indirect

method of income determination was warranted in light of the

refusal of Mr. Lammert, an officer of Omnitec Missouri, to

cooperate in the audit by providing books and records to show the

income and expenses of Omnitec Missouri or to show that the

activity conducted under the names of Omnitec Corp. and Omnitec,

Inc., was an activity of Omnitec Nevada.      The agent concluded

that the activity was an activity of Omnitec Missouri and

calculated the income and allowable expenses leading to the

determination of the deficiencies.       No evidence was presented to
                              - 12 -

the contrary at trial.   The entire trial was focused on

petitioner’s contention that the taxpayer was not Omnitec

Missouri but was Omnitec Nevada.   The Court, on this record,

sustains respondent in determining the taxpayer to be Omnitec

Missouri, petitioner herein, and in determining the income and

expenses as set forth in the notice of deficiency.

     Respondent determined that petitioner was liable for the

failure to file timely Federal income tax returns for the 2 years

at issue under section 6651(a)(1).     As noted earlier, Omnitec

Missouri did not file Federal income tax returns for the fiscal

years at issue.   Under section 7491(c), the Secretary has the

burden of production in any court proceeding with respect to the

liability of the taxpayer for any penalty or addition to tax.

Since it has been shown that petitioner did not file returns for

the years at issue, that burden of production has been satisfied.

Moreover, the record does not support a finding that the failure

to file was due to reasonable cause and not due to willful

neglect. Consequently, the late filing addition to tax under

section 6651(a)(1) is sustained.   Respondent also determined the

addition to tax under section 6651(a)(2) for the failure to pay

the amount shown as tax on the return.     At trial, respondent

conceded that adjustment.   As a result of that concession, the
                              - 13 -

addition to tax under section 6651(a)(1) must be recalculated

because of section 6651(c)(1).6

     The final issue is respondent’s determination that

petitioner is liable for the addition to tax for failure to pay

estimated taxes under section 6655.

     Section 6655 requires corporations to pay estimated income

taxes as a parallel to section 6654, which requires individuals

to pay estimated taxes.   Petitioner failed to pay any estimated

taxes for the 2 years at issue.   Since the Court holds that taxes

were due for these years, it follows that this addition to tax is

applicable and is, therefore, sustained.7



                                      Decision will be entered

                               under Rule 155.




     6
      In conceding the sec. 6651(a)(2) addition to tax, the Court
construes that concession as an assertion of a claim by
respondent for an increase in the sec. 6651(a)(1) addition to tax
based upon the concession of the sec. 6651(a)(2) addition to tax.
     7
      The Court recognizes that, with respect to the fiscal year
ending Sept. 30, 1998, the required estimated taxes for that year
would, under sec. 6655(d)(1)(B)(ii), be 100 percent of the tax
shown on the return of the corporation for the preceding taxable
year, which, in this case, would be the year ending September 30,
1997. Although no direct evidence was offered with respect to
the fiscal year ending Sept. 30, 1997, the record supports a
finding that no income tax return was filed by Omnitec Missouri
(petitioner) for that year. The record supports the conclusion
that the burden of production on respondent for the sec. 6655
additions to tax for the fiscal years ending Sept. 30, 1998 and
1999 has been satisfied.