T.C. Memo. 1997-173



                      UNITED STATES TAX COURT



                MAUDELLA L. CASKEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10864-95.                       Filed April 7, 1997.



     Maudella L. Caskey, pro se.

     Michael D. Zima, for respondent.



                        MEMORANDUM OPINION


     WRIGHT, Judge:   This matter is before the Court on

respondent's motion for summary judgment pursuant to Rule 121.1

In the motion, respondent contends that the Court should sustain


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

the income tax deficiency and penalty determined in the notice of

deficiency because this case contains no genuine issue as to any

material fact and that judgment should be rendered as a matter of

law.

Background

       Respondent determined a deficiency in petitioner's Federal

income tax for taxable year 1991 in the amount of $29,027.

Respondent further determined that petitioner is liable for the

accuracy-related penalty under section 6662(a) in the amount of

$5,805.    A notice of deficiency was issued on March 17, 1995.

       On September 27, 1996, petitioner filed a motion for

continuance (petitioner's motion), requesting that this case be

continued due to a surgical operation performed on her knee.

According to her motion, petitioner's physical condition

following said surgical operation prevented her from traveling to

Tampa, Florida, for the trial in this case.    On September 30,

1996, before the Court had ruled on petitioner's motion, this

case was called for trial at Tampa, Florida.    Neither petitioner

nor anyone acting on her behalf made an appearance.    Counsel for

respondent, however, appeared and was heard.    Despite

petitioner's absence at the calender call, the Court considered

and granted her motion for continuance.

       On November 13, 1996, respondent filed her above-referenced

motion for summary judgment (respondent's motion).    On November

15, 1996, the Court ordered (the Court's order) petitioner to
                                - 3 -

show cause in writing on or before December 23, 1996, why

respondent's motion should not be granted.   As of March 8, 1997,

petitioner has not responded to the Court's order.

     On March 7, 1994, petitioner entered a plea of no contest in

the Circuit Court of the Twentieth Judicial Circuit, located in

Charlotte County, Florida, case number 93-203-CF, to the charge

of first degree grand theft.2   This conviction stems from

     2
      The transcript of petitioner's criminal proceeding contains
the following colloquy:

     THE COURT:   Would the State summarize the facts, please.

     MS. HARRINGTON: Between the 23rd of February of 1990 and
August 25th of 1992, this Defendant was doing business as
Property Management Services. Under that corporation, they had a
contract to oversee greenbelt Maintenance in five sections of
Punta Gorda Isles; Sections 16, 18, 20 and 23. Maintenance was
to be paid for through fees assessed by the Association on each
of these sections.

     Under this contract, the Defendant's responsibility was to
accept bids and submit recommendations for payment to Punta Gorda
Isles when the work was completed. [The Defendant] was fully paid
on a monthly basis for the services under the contract by each of
the five Property Owners Associations.

     The investigation conducted by the Charlotte County
Sheriff's Office revealed that the contractors performed the
necessary work and then submitted these invoices to [the
Defendant]. After receipt of the invoices, she would duplicate
the invoices, changing the amount due on the form. The
duplicated invoices were then being submitted to the Home Owners
Association with a letter recommending payment. The invoices
were paid by checks from the appropriate sections where the work
was performed and issued in the name of the contractor.

     In the beginning when the amounts observed were higher than
the amounts of the bill, the contractors discussed this [the
Defendant]. She advised them that they wanted her to be paid by
the contractors and that they were to take the difference between
                                                   (continued...)
                               - 4 -


     2
      (...continued)
the amount she changed and pay it directly to her for her
services. She continued to instruct the contractors to pay the
bills in this amount over this period of years. These
contractors worked directly for her and they had no contact with
the Property Owners Association and were unaware that the
Defendant was under a contract and being compensated for her
services.

     Over this period of years, it was determined that there was
a loss through all of these sections of $136,692.98. Eventually,
one of the contractors contacted one of the sections and advised
them of his concern about this method of payment. Specifically,
Section 16 lost $2,600; Section 18 lost $3,500; Section 20 lost
$65,973.87; Section 21 lost $22,000 and Section 23 lost
$37,816.60.

     Your Honor, I discussed this downward departure negotiated
plea with the various representatives of the sections and they
understand the reason for the downward departure. And everything
stated occurred in Charlotte County, Florida.

     THE COURT: Do you take any exception or have any objection
to the facts as summarized, Ms. Hanaoka?

     MS. HANAOKA: Your Honor, just a couple of matters.
Property Management Services was not a corporation, it was a
business, it was not an incorporated business.

     Also, however, the State indicated [the Defendant]
individually, and we would assert that Property Management
Services was the particular business that was conducting business
with the Property Owners Associations.

     MS. HARRINGTON:   The State would concur with that, your
Honor.

     THE COURT: Okay. Other than those minor exceptions that
are not relevant to the State's ability to prove this case, and
there being no exceptions or objections, I find that the facts
which the State is prepared to prove are sufficient to constitute
the crime of first degree grand theft.

     Do you feel it's in your best interest and welfare to enter
this plea and accept the sentence of this Court?

                                                    (continued...)
                                - 5 -

petitioner's participation in a business owned and operated by

her and her husband.   Pursuant to the terms of petitioner's plea

arrangement, petitioner was sentenced to 10 years' probation and

ordered to pay restitution in the approximate amount of $68,000.

     Based on petitioner's criminal conviction, respondent

determined in the notice of deficiency that petitioner failed to

report $73,432 of "theft income" on her 1991 Federal income tax

return.   The record does not explain the basis for the difference

between the deficiency amount respondent determined and the

restitution amount required by petitioner's plea agreement.

However, petitioner was afforded an opportunity to address this

disparity, but she failed to do so.

Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.     Florida Peach Corp. v.

Commissioner, 

, 681 (1988).    It is appropriate if the

pleadings and other materials show that there is no genuine issue

as to any material fact, and a decision may be rendered as a

matter of law.   Rule 121(b); Naftel v. Commissioner, 

, 529 (1985).   The moving party bears the burden of proving

that summary judgment is warranted.     Celotex Corp. v. Catrett,


     2
      (...continued)
     THE DEFENDANT: Yes, Sir.

     THE COURT: Let the record show that I find this Defendant
is alert and intelligent. * * *
                                - 6 -

, 323 (1986); Espinoza v. Commissioner, 

,

416 (1982).    In deciding a motion for summary judgment, the Court

will construe factual inferences in a manner most favorable to

the opposing party.    Dahlstrom v. Commissioner, 

, 821

(1985).

     The Supreme Court has held that gross income includes all

clearly realized accessions to wealth over which a taxpayer has

complete dominion.    James v. United States, 

, 219

(1961)(citing Commissioner v. Glenshaw Glass Co., 

,

431 (1955)).   A taxpayer has dominion and control over cash when

he or she has the freedom to use it at will, even though that

freedom may be assailable by persons with better title.    Rutkin

v. United States, 

, 137 (1952).   In Ianniello v.

Commissioner, 

(1992), this Court stated that a

taxpayer obtains possession, custody, and control of unlawfully

acquired proceeds on the date he or she acquires such proceeds.

Thus, a taxpayer who unlawfully acquires cash receives gross

income in the taxable year that he or she unlawfully acquires the

cash, even though he or she makes restitution in a later year.3

James v. United States, supra at 219-220; Ianniello v.

at 173.    Stated simply, the dominion and

     3
      To be sure, a law-abiding taxpayer is treated no
differently. That is, a taxpayer who lawfully acquires cash
receives gross income in the taxable year that he or she lawfully
acquires the cash, even though he or she makes restitution in a
later year. Healy v. Commissioner, 

(1953); United
States v. Lewis, 

(1951).
                                - 7 -

control test excludes consideration of what happens to income

after it flows from a taxpayer's hands.     Ianniello v.

.

     In the instant case, it is evident that petitioner had

dominion and control over the misappropriated funds.       As

discussed above, the restitution provision contained in

petitioner's plea agreement does not alter the consequence of

this finding.    Accordingly, there remains no genuine issue as to

any material fact with respect to whether such misappropriated

funds should be included in petitioner's gross income for taxable

year 1991.4

     We turn now to the penalty determined by respondent pursuant

to section 6662(a).    Section 6662(a) imposes an accuracy-related

penalty in an amount equal to 20 percent of the underpayment of

tax attributable to one or more of the items set forth in section

6662(b).   Respondent determined the section 6662(a) penalty on

the grounds that petitioner's underpayment is a "substantial

understatement."    See sec. 6662(b)(2).   The term "understatement"

means the excess of the amount of tax required to be shown on a

return over the amount of tax imposed which is shown on the

return, reduced by any rebate (within the meaning of section

6211(b)(2)).    Sec. 6662(d)(2)(A).   An understatement is a

"substantial understatement" when the understatement exceeds the

     4
      The deductibility of any restitution paid by petitioner is
an issue not before us in the present proceeding.
                                 - 8 -

greater of $5,000 or 10 percent of the amount of tax required to

be shown on a return.     Sec. 6662(d)(1)(A).

     The accuracy-related penalty under section 6662(b)(2) does

not apply with respect to any portion of an underpayment if it is

shown that there was reasonable cause for such portion and that

the taxpayer acted in good faith with respect to such portion.

Sec. 6664(c)(1).     It is clear from the undisputed facts that the

reasonable cause exception under section 6664(c)(1) is not

applicable in the instant case.     Accordingly, the penalty

determined by respondent is sustained.

         Respondent has established that this case presents no

genuine issue as to any material fact and that she is entitled to

summary judgment as a matter of law.       Accordingly, we shall grant

respondent's motion for summary judgment to sustain the

deficiency and penalty determined in the notice of deficiency.5

                                         An order will be issued

                                 and decision will be entered

                                 for respondent.




     5
      In her petition, petitioner sets forth two grounds for
contesting the adjustments contained in the notice of deficiency.
This opinion addresses the principal ground. It can also be
gleaned from the petition that petitioner is contesting the
notice of deficiency on grounds that her husband should be
jointly and severally liable for the deficiency because the
couple filed a joint Federal income tax return for the year at
issue. Although respondent has determined that petitioner's
husband qualifies for relief under sec. 6013(e), whether
petitioner's husband is jointly and severally liable for the
deficiency at issue has no bearing on whether petitioner herself
is liable for such deficiency.