Royce A. Ellis - Page 7




                                        - 7 -                                         
          as Coastal Builders, Agent Daniels found that petitioner                    
          deposited income of $3,651,293, $9,409,882, and $4,316,813 into             
          various bank accounts in the respective years at issue.                     
          Respondent did not issue to petitioner or Mr. Townshend a 30-day            
          letter setting out Agent Daniels’s findings.                                
               On September 15, 2004, petitioner filed a Form 1040 for 1999           
          reporting a tax liability of $11,155.  The 1999 return included             
          petitioner’s Schedule C for 1999 reporting gross receipts of                
          $3,601,882 and costs of goods sold and expenses totaling                    
          $3,600,556.6  Based upon respondent’s bank deposits analysis,               
          respondent determined that petitioner understated his Schedule C            
          gross receipts in 1999 by $49,411.7  Petitioner did not assert in           
          his petition or offer evidence to show he did not understate his            
          income in 1999.                                                             
               Petitioner failed to file a return for 2000.  Consequently,            
          on June 15, 2005, respondent filed a substitute for return                  
          pursuant to section 6020(b), in which he determined petitioner              
          received gross receipts of $9,409,882 in 2000.  On brief,                   
          respondent conceded petitioner only received gross receipts of              
          $9,009,882 for 2000.  Petitioner failed to make estimated tax               



               6 The $3,600,556 comprised costs of goods sold of                      
          $2,932,248, and deductions of $668,308.                                     
               7 $3,651,293 (bank deposits) - $3,601,882 (reported Schedule           
          C gross receipts) = $49,411 understatement                                  





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