T.C. Memo. 1998-169



                      UNITED STATES TAX COURT



                 BRADLEY G. BJELK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14849-95.                       Filed May 11, 1998.



     Bradley G. Bjelk, pro se.

     Lawrence H. Ackerman, for respondent.



                        MEMORANDUM OPINION

     GALE, Judge:   Respondent determined the following

deficiencies in, and additions to, petitioner's Federal income

taxes:
                                 - 2 -

                                    Addition to Tax
Year        Deficiency      Sec. 6651(a)1       Sec. 6654(a)

1988         $12,909           $2,802                 $705
1989          53,816           13,404                3,623
1990           9,928            2,482                  655
1991          58,170           14,543                3,347
1992          10,137            2,534                  440
1993          17,712            4,428                  742

       After concessions by both parties, we must decide the

following issues:

       (1) Whether the notices of deficiency in this case were

valid, granting us jurisdiction.    We hold that the notices were

valid and that we have jurisdiction.

       (2) Whether the notices of deficiency were arbitrary and

erroneous, which would cause them to lose their presumption of

correctness.    With the exception of $35,873 of unreported income

determined in the notice for 1993, we hold that the notices were

not arbitrary and erroneous and that they are entitled to the

presumption of correctness.

       (3) Whether petitioner is liable for the deficiencies in tax

as determined by respondent.    We hold that petitioner is liable

to the extent discussed below.

       (4) Whether petitioner is liable for the additions to tax as

determined by respondent.    We hold that petitioner is liable to

the extent discussed below.

       1
       Unless otherwise noted, all section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                - 3 -

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

incorporate by this reference the stipulation of facts, first

supplemental stipulation of facts, and attached exhibits.

     The petition in this case was timely filed on August 7,

1995.    At the time of filing the petition, petitioner resided in

DeKalb, Illinois.

     At the calendar call of this case, petitioner filed a motion

for summary judgment, asking the Court to "deny any reassessments

of taxes, interest, and penalties" for the years in issue on the

basis that respondent did not mail the notices of deficiency to

his correct address.    We treat this motion as a motion to dismiss

for lack of jurisdiction.   The Court took the motion under

advisement, and the parties have addressed it on brief.    We now

deny petitioner's motion.

     Petitioner attached several copies of documents to his

briefs as documents in support of his motion.    These documents

include copies of cover pages of 30-day letters respondent sent

to petitioner dated February 8, 1995, and a copy of a letter

respondent sent to petitioner dated June 2, 1995.

     Petitioner did not file tax returns for any of the years in

issue.    Separate notices of deficiency, each covering one of the

years at issue, were mailed May 9, 1995, and addressed to

petitioner at 645 North 11th Street, DeKalb, Illinois (the 11th

Street address), a house where petitioner formerly resided but

which had been sold by him in 1989.     At the time the notices were
                                - 4 -

mailed, petitioner resided at 120 South 9th Street, DeKalb,

Illinois (the 9th Street address).      Prior to the mailing of the

notices, respondent had mailed 30-day letters addressed to

petitioner at the 9th Street address.

     In response to the 30-day letters, petitioner filed an

initial petition with this Court on May 1, 1995, prior to the

issuance of any notices of deficiency.     On May 9, respondent

mailed the notices of deficiency to the 11th Street address, as

previously indicated.    On June 2, respondent sent petitioner a

letter at the 9th Street address, advising (i) that his initial

petition would have to be dismissed for lack of jurisdiction

because it was filed before the notices of deficiency were

issued, (ii) that the notices of deficiency had been issued on

May 9, and (iii) that he had until August 7 to file a petition in

response to the notices of deficiency.     Petitioner admits

receiving this letter.    On August 7, 1995, the petition that

initiated this case was filed, in which petitioner states that he

"disagrees with the tax deficiencies for the years 1987-1988-1993

[sic] as set forth in the Notice of Deficiency dated May 9, 1995,

a copy of which is lost."    On August 18, the Court dismissed the

May 1, 1995, petition.    On September 27, 1995, respondent served

on petitioner, by mailing to him at the 9th Street address, a

copy of his answer in this case, to which were attached copies of

the notices of deficiency for each year at issue.
                               - 5 -

     Our jurisdiction in this case depends on respondent's having

issued valid notices of deficiency.    Frieling v. Commissioner, 

, 46 (1983).   Petitioner argues that the 9th Street

address was his last known address and that because the notices

were not mailed to the 9th Street address, they are invalid.

Proper mailing of a notice of deficiency to the taxpayer at his

last known address is sufficient to validate the notice whether

or not the taxpayer actually receives it.    Sec. 6212(b)(1); see

Frieling v. 

at 48, 52, and cases cited

therein.   It is well established, however, that even where the

Commissioner mails a notice to an address other than the

taxpayer's last known address, if the taxpayer receives the

notice within the period for filing a timely petition and in fact

files a timely petition, the Court has jurisdiction.    Frieling v.

at 53.

     Further, oral notice that a notice of deficiency has been

issued may be sufficient for jurisdictional purposes if the

taxpayer receives such notice in time to file, and does file, a

timely petition, even if the written notice of deficiency is not

sent to the last known address and the taxpayer does not receive

such written notice until after filing.     Zaun v. Commissioner, 

(1974).   In Zaun we held that a notice of deficiency was

valid for jurisdictional purposes, even assuming it was not sent

to the last known address, where the taxpayers received oral
                                - 6 -

notice of the deficiency in time to file, and did file, timely

petitions, notwithstanding that they did not receive copies of

the deficiency notices until service of respondent's answer in

the case.   

     In the instant case, we find that petitioner received, in

time to file a timely petition, actual notice that the notices of

deficiency had been issued.    Respondent's June 2, 1995, letter to

petitioner, which he admits receiving, informed him that notices

of deficiency had been issued on May 9, and petitioner filed a

timely petition.   That petitioner could state the correct date of

issuance of the deficiency notices (May 9, 1995) in his petition

confirms his awareness of them.   As to petitioner's receipt of

the written notices themselves, petitioner has stipulated

receiving them but not to the date on which they were received.

On brief he admits to receiving copies on August 28, 1996, at a

conference with respondent's counsel.   We find that he received

copies no later than when served with respondent's answer, which

was mailed to him at the 9th Street address on September 27,

1995.   In any event, because petitioner received notice of the

issuance of the notices of deficiency in time to file a timely

petition, and did file a timely petition, we have jurisdiction.

Zaun v. 

.

     Because petitioner failed to present books and records,

respondent had authority to compute petitioner's income by

whatever method clearly reflects income.   Sec. 446; Meneguzzo v.
                               - 7 -

Commissioner, 

, 831 (1965).2   Petitioner argues that

the notices of deficiency in this case were arbitrary and

erroneous, in which case they would not be entitled to the

presumption of correctness ordinarily accorded to deficiency

notices.   Pittman v. Commissioner, 

, 1317 (7th Cir.

1996), affg. T.C. Memo. 1995-243.   We disagree with respect to

the notices of deficiency for every year in issue except 1993.

     For each of the years in issue except 1992, respondent

determined that petitioner had (i) specific items of income from

identified sources, based on information reported by third

parties on Forms W-2 or Forms 1099; and (ii) a specified amount

of "unreported income".   The notice for 1992 determined only

"unreported income" and did not determine any income from

identified sources.   For each item of income from identified

sources, the notice provided an explanation of the source.    The

"unreported income" item was explained in each of the notices as

follows:   "We have computed your unreported taxable income using

reasonable estimates based on known sources of income and

     2
       Petitioner contends that he had maintained records of his
business operations but that they were lost in a flood at his
residence in July 1996. Petitioner has offered no corroborating
evidence of this contention, and we reject it as unsubstantiated.
Petitioner provided noncredible or contradictory testimony with
respect to other important aspects of this case. For example, he
contended that he did not earn more than $5,535 in 1990, despite
representing in a prior court proceeding that his annual income
at this time was $18,000. Moreover, although he testified that
he had submitted a claim regarding the flood damage with the
Federal Emergency Management Agency, he produced no documentary
evidence of such claim.
                                  - 8 -

deductible expenses."     Petitioner has stipulated to most of the

specific items of income from identified sources as determined by

respondent.3    Petitioner also admits that he received unreported

income in some of the years, but in lesser amounts than

determined by respondent, and denies receipt of unreported income

in others.     Petitioner contends that respondent's determinations

of unreported income are arbitrary and erroneous.

     In general, respondent's determinations in the notices of

deficiency are entitled to a presumption of correctness, and

petitioner has the burden of proving them incorrect.        Rule

142(a); Welch v. Helvering, 

, 115 (1933).        However,

the determinations may lose their presumption of correctness if

they are arbitrary and erroneous.         Pittman v. 

at 1317.     In order to maintain the presumption of correctness,

respondent's determinations need only have some minimal factual

predicate.     

need only be rational, not

flawless, and to vitiate the presumption of correctness, a

taxpayer must show that the determinations were arbitrary and

erroneous, not merely erroneous.      

the required

factual predicate, it is ordinarily sufficient for the

Commissioner to show that the taxpayer was engaged in an income-

producing activity for each year in which it has been determined

     3
       With respect to respondent's determination of income from
real estate sales in 1989 and 1991, petitioner has stipulated
only to the amount of the gross sales proceeds in each
transaction.
                               - 9 -

that the taxpayer had unreported income.   Gold Emporium, Inc. v.

Commissioner, 

, 1378 (7th Cir. 1990), affg. Malicki

v. Commissioner, T.C. Memo. 1988-559.

     Respondent has established, except with respect to 1993,

that petitioner was engaged in income-producing activities beyond

those that can be attributed to the income from identified

sources to which petitioner has stipulated.   For taxable years

1988, 1989, and 1990, petitioner has stipulated that he operated

a business known as "The Crazy Horse Saloon" (the Crazy Horse

Saloon) and has admitted receiving income from this business in

each year, although in lesser amounts than respondent determined

as unreported income.

     With respect to 1991 and 1992, we are satisfied that the

evidence establishes that petitioner worked as manager of

Jiordano's Pizza (Jiordano's) in Dekalb, Illinois.   Petitioner

denied that he ever worked at Jiordano's, even when confronted

with 1991 and 1992 DeKalb telephone directories listing him as

the manager of the establishment.   Moreover, respondent produced

a witness who was a cable television installer and who testified

that he made an installation at Jiordano's in 1991 or 1992, that

petitioner was listed as the contact person on the work order for

such installation, that petitioner and his sons were the only

persons present in the establishment and they entered areas not

normally accessible to customers, and that petitioner paid for

the installation.   In our view, petitioner's denial that he
                              - 10 -

worked at Jiordano's despite compelling evidence to the contrary,

without further explanation, undermines his credibility, and we

accordingly consider all of his other testimony with skepticism.

For 1992, petitioner also testified that he delivered a small

number of summonses for attorneys and was compensated for doing

so.

      Thus, it has been demonstrated for the years 1988 through

1992 that petitioner was engaged in income-producing activities

in addition to those connected to the income determined in the

notices from identified sources.    Accordingly, respondent's

determinations that petitioner had unreported income from

unidentified sources in those years are presumptively correct,

and petitioner bears the burden of demonstrating that they are

erroneous.

      With respect to 1993, however, there is no evidence that

petitioner was engaged in income-producing activity beyond his

work for Cantel Communications.    In the deficiency notice for

1993, respondent determined that petitioner received nonemployee

compensation from Cantel Communications in the amount of

$18,018.98 and "unreported income" of $35,873.    Petitioner has

stipulated to the Cantel Communications income, but denies the

unreported income.   It has been stipulated that petitioner sold

the property where the Crazy Horse Saloon was located in 1991,

there is no evidence that petitioner worked as manager of

Jiordano's beyond 1992, and there is no evidence that petitioner
                              - 11 -

delivered summonses or engaged in some other income-producing

activity in 1993.   In the absence of any evidence that petitioner

was engaged in income-producing activity beyond his work for

Cantel Communications, respondent has not demonstrated any

factual predicate for the unreported income of $35,873 in 1993,

and accordingly the determination thereof is not presumptively

correct.

     Having decided that the notices of deficiency, with one

exception, are presumptively correct, we turn now to an

evaluation of the evidence pertaining to the disputed amounts of

unreported income in each year.   The deficiency notices state

that petitioner's unreported income was computed "using

reasonable estimates based on known sources of income".   While

the notices make no reference to the Bureau of Labor Statistics

(BLS), respondent asserts on brief that petitioner's unreported

income in each year was reconstructed through the use of BLS

data.   Respondent cites Giddio v. Commissioner, 

,

1533 (1970), where we approved the use of BLS statistics to

reconstruct income, for the proposition that it is not "arbitrary

for the Commissioner to determine that the taxpayer had income at

least equal to the normal cost of supporting his family."    Based

on this reliance on Giddio, and in the absence of any further

explanation of the BLS computation, respondent's position appears

to be that BLS data were used in the deficiency notices to

establish petitioner's normal cost of living; i.e., that the
                               - 12 -

"unreported income" item in each notice of deficiency represents

petitioner's cost of living during the respective year in issue.4

It is not clear, however, that the "unreported income" amounts

determined by respondent constitute a reasonable approximation of

petitioner's cost of living in years where petitioner has

stipulated or admitted to income from other sources in amounts

that may have been used to meet his cost of living.5   With these

considerations in mind, we review the evidence for each year.

1988

       The parties have stipulated that petitioner received wages

of $14,239 and interest income of $13 in 1988.   It has also been

stipulated that in 1987 petitioner purchased business property in

Cortland, Illinois (the Crazy Horse property), and operated the

Crazy Horse Saloon on these premises in 1987 and 1988.   In

connection with the trial of this case, petitioner completed and

signed a 1988 Federal income tax return, on Schedule C of which




       4
       We note that respondent in this case did not provide the
supporting detail with respect to the BLS reconstruction that was
provided by the Commissioner in Giddio v. Commissioner, 

(1970).
       5
       Respondent also relies on Diercks v. Commissioner, T.C.
Memo. 1996-345, a case in which we sustained determinations of
unreported income based on reconstructions from BLS data.
However, Diercks is distinguishable from some of the years at
issue in the instant case. In Diercks, the taxpayer denied
receiving income greater than $500 in each year, despite proof of
expenditures for living expenses that far exceeded that amount.
Here, petitioner has stipulated or admitted to income in some
years that could be sufficient to meet his living expenses.
                               - 13 -

he listed his "net profit"6 from the Crazy Horse Saloon as

$15,748.   This representation is an admission by petitioner.    On

December 31, 1987, petitioner submitted a financial statement to

a bank in which he represented that his annual income was

$20,000.

     Petitioner had a wife and two children and testified that he

provided their support in 1988.   It has been stipulated that

petitioner paid mortgage interest totaling $16,253 in 1988, of

which $9,968 related to the Crazy Horse property and $6,285 is

unspecified.   Based on the entire record, we find that the $6,285

in mortgage interest related to petitioner's residence at the

11th Street address.

     Petitioner has stipulated or admitted to income totaling

$30,000 in 1988.   Petitioner denies any additional unreported

income beyond the $15,748 in net profit from the Crazy Horse

Saloon.    Respondent determined unreported income of $29,147, in

addition to other income determinations of $14,252, for a total

of $43,399, and apparently takes the position that petitioner's

cost of living must have required income in that amount.     In the

absence of any BLS evidence regarding petitioner's cost of

living, we believe $30,000 in total income was adequate to meet

the cost of living of petitioner and his family.   We conclude on


     6
       On the Schedule C, petitioner listed "net profit" only,
without making any entries for gross receipts, cost of goods
sold, or deductions.
                                - 14 -

this record that respondent's determination that petitioner had

unreported income of $29,147 is erroneous.       We accordingly

sustain respondent's determination of such unreported income only

to the extent of $15,748; this is in addition to the unreported

wages of $14,239, and the unreported interest income of $13, to

which the parties have stipulated.       In addition, since we have

found that petitioner paid home mortgage interest of $6,285,7

petitioner is entitled to a deduction in that amount, although

respondent's allowance of the standard deduction in the notice

must be adjusted accordingly.    Petitioner has not substantiated

any other Schedule A deductions.

1989

       The parties have stipulated that petitioner received wages

of $1,944 in 1989.

       The parties have further stipulated that petitioner sold

real property located at the 11th Street address in 1989 for a

gross sales price of $69,500.8    In connection with the trial of

this case, petitioner completed and signed a 1989 Federal income

tax return on which he claimed certain expenses of sale of this

       7
       We make no provision for the $9,698 in mortgage interest
that the parties stipulated petitioner paid with respect to the
Crazy Horse property because petitioner admitted to a "net
profit" estimate from the Crazy Horse Saloon, which would have
been net of mortgage interest expense.
       8
       Although the notice of deficiency for 1989 determined
income from real estate sales in the amount of $139,000,
respondent now concedes that the gross sales price received by
petitioner was $69,500 rather than $139,000.
                              - 15 -

property and a basis of $55,550.   Petitioner has provided no

substantiation of the claimed sales expenses.   With respect to

the claimed basis, we observe that respondent offered into

evidence two personal financial statements dated December 31,

1987, and February 16, 1989, that petitioner submitted to a bank

to obtain loans.   In both statements, petitioner represented that

the property at the 11th Street address was acquired in 1983 at a

cost of $57,000.   We find sufficient corroboration that

petitioner had a basis in the property of at least $55,500.     We

accordingly find that his net gain on the sale of the 11th Street

property was $13,950 ($69,500 gross sales price less $55,550

basis).   We therefore sustain respondent's determination of

income from real estate sales in the amount of $13,950 only.

     It is stipulated that petitioner continued to operate the

Crazy Horse Saloon in 1989.   With respect to his income from this

business, petitioner filed returns for retailers' occupation and

related taxes for the Crazy Horse Saloon with the Illinois

Department of Revenue, in which he reported total receipts for

1989 of $30,591.   This figure was also represented by petitioner

as his gross receipts from the Crazy Horse Saloon on Schedule C

of the 1989 Federal income tax return previously noted.    Both

representations of gross receipts constitute admissions by

petitioner.   Petitioner listed various deductions on the Schedule

C in computing net profit from the Crazy Horse Saloon, but has

provided no substantiation for any of them except mortgage
                               - 16 -

interest of $9,689, to which the parties have stipulated.

Accordingly, we find that petitioner had unreported income from

the Crazy Horse Saloon in 1989 of at least $20,902 ($30,591 gross

receipts less $9,689 mortgage interest).

     Petitioner separated from his wife on or about December 1,

1989, after which they did not live together.    He testified that

he moved in with his mother, which his former wife as well as an

employer corroborated.    We accordingly find that petitioner moved

in with his mother in December of 1989.    Petitioner testified

that both he and his wife provided support for the family in

1989.   In a February 16, 1989, personal financial statement

submitted to a bank to obtain a loan, petitioner represented that

his annual income was $20,000.   The parties have stipulated that

petitioner paid mortgage interest of $15,931, of which $9,689

related to the Crazy Horse property.    Based on the entire record,

we find that the remainder, $6,242, related to petitioner's

residence at the 11th Street address.

     The income that has been stipulated, or that we have found,

totals $36,796 in 1989, consisting of $1,944 in wages, $13,950

from a real estate sale, and $20,902 in unreported income from

the Crazy Horse Saloon.   Respondent's determination of

"unreported income" from an unidentified source in the amount of

$30,492 would increase petitioner's income another $9,590 to

$46,386.   In the absence of any BLS evidence regarding

petitioner's cost of living, we believe that $36,796 was adequate
                                 - 17 -

to meet the cost of living of petitioner and his family.         We

conclude on this record that respondent's determination of

unreported income of $30,492 is erroneous.       We accordingly

sustain respondent's determination of unreported income only to

the extent of $20,902.      In addition, since we have found that

petitioner paid home mortgage interest of $6,242 in 1989,

petitioner is entitled to a deduction in that amount, although

respondent's allowance of the standard deduction in the notice of

deficiency must be adjusted accordingly.       Petitioner has not

substantiated any other Schedule A deductions.

1990

       The parties have stipulated that petitioner received

nonemployee compensation of $1,035 from J&K Developers, Inc., in

1990.      It has also been stipulated that petitioner operated the

Crazy Horse Saloon "during 1990".      Petitioner testified that he

ceased operations on July 1, 1990.        Other evidence in the record

provides some support for this assertion.9       In a personal

financial statement dated March 29, 1990, submitted to a bank to

obtain a loan, petitioner represented that his annual income was


       9
       The parties have stipulated that the Crazy Horse property
was sold in 1991 and have not stipulated that any operations were
conducted in that year. The only liquor license granted to the
Crazy Horse Saloon that is in evidence carries an expiration date
of Apr. 30, 1990. No State tax returns for the business beyond
1989 are in evidence. The parties have stipulated that
petitioner paid mortgage interest related to the Crazy Horse
property of $4,360 in 1990, which is less than half the amount
paid in each of the 2 preceding years.
                               - 18 -

$20,000, which is an admission.    In connection with divorce

proceedings on August 28, 1990, petitioner signed a separation

agreement representing that his annual income was $18,000 and

testified under oath that his current occupation was "machine

operator".    Yet on a 1990 Federal income tax return completed and

signed by petitioner and submitted in support of his position at

trial, he states that his gross income for 1990 was $5,535,

consisting of the $1,035 in compensation from J&K Developers and

an estimated net profit of $4,500 from the Crazy Horse Saloon.10

Petitioner has not accounted for his admitted $20,000 or $18,000

annual income in 1990 or, with the possible exception of the

income from J&K Developers, any income from his work as a machine

operator.    We do not believe that gross income of $5,535 was

sufficient to meet petitioner's cost of living, even accepting

his contention that he lived with his mother during 1990.     We

note in this regard that petitioner assumed child support

obligations of $100 per week, plus one-half of medical expenses,

as well as a $2,000 debt, in the divorce proceedings.    We

conclude that no error has been demonstrated in respondent's

determination of $32,285 in unreported income for 1990 and

accordingly sustain it.

1991

       10
       Petitioner reported only a net profit figure on Schedule
C of the submitted 1990 return, without a supporting computation,
adding the notation that the figure represented one-half of his
net profits from the business in the preceding year.
                               - 19 -

     The parties have stipulated that petitioner received $14 in

interest income in 1991.

     The parties have further stipulated that petitioner sold the

Crazy Horse property in 199111 for a gross sales price of

$155,000.    Respondent determined in the deficiency notice that

petitioner had income in that amount from real estate sales.

Petitioner testified that his basis in the property was "$186,000

or $183,000" but has provided no evidence to corroborate that

statement.   Respondent, however, introduced into evidence a

personal financial statement prepared and signed by petitioner on

March 11, 1988, in which petitioner represents that his cost was

$90,000 for real property at "4519 Route 38 East" that was

acquired in 1987.   Since the parties have stipulated that the

Crazy Horse property was located at the foregoing address and was

purchased by petitioner on July 31, 1987, we accept the $90,000

figure as petitioner's cost for the Crazy Horse property.

Assuming that the property was 31.5-year property and was placed

in service on or about July 31, 1987, we estimate that petitioner

would have been entitled to depreciation of as much as $11,190

during the period the property was held.    We accordingly reduce

our estimate of petitioner's basis by that amount, for an

estimated basis of $78,810.    Petitioner offered into evidence,

and we hereby admit, the June 11, 1991, settlement statement from

     11
       Based on the record in this case, we find that the date
of sale was June 11, 1991. See infra note 12.
                               - 20 -

the sale of the Crazy Horse property which lists expenses

incurred by petitioner in connection with the sale totaling

$4,015.12   Petitioner is entitled to an offset for these

expenses.   Using the foregoing estimates, we find that

petitioner's gain on the sale of the Crazy Horse property was

$72,175 ($155,000 gross sales proceeds, less $4,015 expenses of

sale, less $78,810 basis), and we sustain respondent's

determination of gain from real estate only to that extent.

Since the parties have stipulated that petitioner paid mortgage

interest of $365 in relation to the Crazy Horse property,

petitioner is entitled to a deduction in that amount.

     For the reasons discussed earlier, we find that petitioner

worked as the manager of Jiordano's in 1991.   Other than his

contention on brief that he "earned less than $600" in 1991,

petitioner has not accounted for any income from Jiordano's.    The

settlement statement for the Crazy Horse property sale indicates

that petitioner received cash proceeds from the sale of the Crazy

Horse property of $13,851 on June 11, 1991.    Thus, if petitioner

is to be believed, he met his cost of living for the first half

     12
       Respondent noted a hearsay objection to the document.
Since the document is a settlement sheet and contains the sales
price, property address, and year of sale to which the parties
have stipulated for the sale of the Crazy Horse property, we find
the document of sufficient trustworthiness that petitioner's
retained copy is admissible. Cf. United States v. Ullrich, 

(5th Cir. 1978); United States v. Flom, 

(5th Cir. 1977); United States v. Vacca, 

(E.D.
Pa. 1977), affd. without published opinion 

(3d Cir.
1978).
                                - 21 -

of 1991 with less than $600, of which $365 was paid as mortgage

interest on the Crazy Horse property.    Even accepting

petitioner's contention that he lived with his mother, we do not

find his position credible.    We conclude that petitioner has not

offered a credible explanation of how he met his living expenses

during the first half of 1991, although the $13,851 in cash

proceeds from the Crazy Horse sale could account for his living

expenses for the second half.    We therefore find that

respondent's determination of $33,631 in unreported income based

on petitioner's cost of living for the year is erroneous to the

extent that it fails to take into account the $13,851 in cash

proceeds available to petitioner.    We therefore sustain the

determination only to the extent of $19,780 ($33,631 in

determined unreported income less $13,851 in available cash

proceeds).

1992

       The parties have not stipulated that petitioner received any

income or had any specific expenditures in 1992.    For the reasons

discussed earlier, we find that petitioner worked as the manager

of Jiordano's in 1992.    Petitioner admits that he delivered "a

handful" of summonses for attorneys, for which he was

compensated.    For the reasons discussed earlier, we find that

petitioner lived with his mother.

       Other than his contention on brief that he "earned less than

$600" in 1992, petitioner has not accounted for any income from
                               - 22 -

Jiordano's or his delivery of summonses, nor explained how he may

have met his cost of living.    Because petitioner has not offered

a credible explanation of how he met his living expenses in 1992,

he has failed to demonstrate error in respondent's determination

that he had unreported income of $34,752 based on his cost of

living, and we therefore sustain the determination.

1993

       The parties have stipulated that petitioner received

nonemployee compensation from Cantel Communications in the amount

of $18,018.98 in 1993.    Respondent also determined that

petitioner received "unreported income" of $35,873 in that year.

As previously discussed, because respondent presented no evidence

that petitioner was engaged in any other income-producing

activity besides working for Cantel Communications, the notice of

deficiency is arbitrary and is not entitled to a presumption of

correctness insofar as it determines such unreported income.    In

light of the fact that (i) petitioner admits receiving $18,018.98

of income, which could have met his cost of living; (ii)

petitioner denies receiving any other income; (iii) respondent's

determination of unreported income is not presumptively correct;

and (iv) there is no other evidence of unreported income, we will

not sustain respondent's determination of unreported income of

$35,873 in 1993.
                               - 23 -

Additions to Tax

     The addition to tax under section 6651(a) applies in the

case of failure to file a tax return, unless the failure is due

to reasonable cause.   Petitioner failed to file returns for all

the years in issue and has offered no evidence of reasonable

cause.   Thus, he is liable for the additions to tax under section

6651(a).   The additions to tax are based on the amount required

to be shown as tax on each return, which amount will be computed

under Rule 155.

     The additions to tax under section 6654(a) apply in the case

of an underpayment of estimated tax.    Petitioner failed to pay

estimated tax during all the years in issue, and he has offered

no evidence to show that he qualifies for one of the exceptions

provided in section 6654(e).   Thus, he is liable for the

additions to tax under section 6654(a).    The additions to tax are

based on the amount of each underpayment, which amount will be

computed under Rule 155.

     To reflect the foregoing,


                                        Decision will be entered

                                  under Rule 155.