Kirk v. Comm'r of Internal Revenue (In re Estate of Briden) , Docket No. 15802.

• Decision Date: 31 December 1948
• Docket Number: Docket No. 15802.
• Citation: 11 T.C. 1095
• Parties: ESTATE OF LOUIS L. BRIDEN, DECEASED, FRANCIS P. Kirk, ADMINISTRATOR D.B.N., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

11 T.C. 1095

ESTATE OF LOUIS L. BRIDEN, DECEASED, FRANCIS P. Kirk, ADMINISTRATOR D.B.N., PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 15802.

Tax Court of the United States.

Promulgated December 31, 1948.

1. Held, the businesses operated under the name of L. L. Briden & Co. and Clinton Dye Works, respectively, were wholly owned by decedent and were not partnerships in the years involved.

2. Amounts credited as of December 31, 1941 and 1942, to the capital accounts of three persons other than decedent on the books of Clinton Dye Works and to the capital account of one other than the decedent on the books of L. L. Briden & Co., held, upon the evidence, includible in the taxable income of decedent. There being no evidence showing the amounts were intended as compensation for services rendered, held, such amounts are not deductible as business expenses under section 23(a)(1)(A), I.R.C.

3. Disallowance of deductions claimed by Clinton Dye Works in 1940 to 1942, inclusive, as traveling expenses of Francis J. Coleman approved, the evidence showing that the amounts were not received or expended by Francis J. Coleman or anyone else in traveling in connection with the business of Clinton Dye Works.

4. Inclusion in income of decedent of proceeds of sales actually made by L. L. Briden & Co. in 1936 to 1942, inclusive, and proceeds of sales of waste actually made by Clinton Dye Works in 1940 to 1942, inclusive, not entered on the books of either company, approved, there being no evidence that amounts received were sales made without his knowledge or proceeds were misappropriated by employees of decedent.

5. Inclusion in decedent's income of amounts paid out of funds of Clinton Dye Works and L. L. Briden & Co. for personal expenses of certain employees of decedent and treated as business expenses of such companies for 1939 to 1942, inclusive, approved.

6. Held, that decedent filed false and fraudulent income tax returns with intent to evade taxes for 1936 to 1942, inclusive.

7. Held, that decedent's estate is liable for the 50 per cent addition to the tax imposed by section 293(b) of the Revenue Acts of 1936 and 1938 and the Internal Revenue Code. Chester C. Steadman, Esq., and John F. Carr, Esq., for the petitioner.

Paul P. Lipton, Esq., for the respondent.

VAN FOSSAN, Judge:

The Commissioner determined deficiencies in income tax and 50 per cent penalties for the years 1936 to 1942, inclusive, and thereafter made claim for an increase in the deficiencies and penalties for the years 1938 to 1942, inclusive, as follows:

+------------------------------------------------+
                ¦Year¦Original determination¦Increase claimed    ¦
                +----+----------------------+--------------------¦
                ¦    ¦Deficiency  ¦Penalty  ¦Deficiency¦Penalty  ¦
                +----+------------+---------+----------+---------¦
                ¦1936¦$4,860.83   ¦$2,430.42¦          ¦         ¦
                +----+------------+---------+----------+---------¦
                ¦1937¦8,495.70    ¦4,371.68 ¦          ¦         ¦
                +----+------------+---------+----------+---------¦
                ¦1938¦11,604.16   ¦5,896.72 ¦$577.30   ¦$288.65  ¦
                +----+------------+---------+----------+---------¦
                ¦1939¦7,066.32    ¦3,533.16 ¦680.48    ¦340.24   ¦
                +----+------------+---------+----------+---------¦
                ¦1940¦6,015.09    ¦3,099.95 ¦1,099.71  ¦549.85   ¦
                +----+------------+---------+----------+---------¦
                ¦1941¦10,091.35   ¦5,045.68 ¦14,477.78 ¦7,238.89 ¦
                +----+------------+---------+----------+---------¦
                ¦1942¦65,323.12   ¦32,661.56¦53,088.75 ¦26,544.38¦
                +------------------------------------------------+
                

Respondent abandoned his claim for increased deficiencies for the years 1938 and 1939.

The questions to be determined are whether certain items are includible in the taxable income of decedent, as follows:

(1) Amounts credited as of December 31, 1941 and 1942, to the capital accounts of Francis J. Coleman, Gladys M. Coleman, and Xavier Briden on the books of Clinton Dye Works and to the capital account of Gladys M. Coleman on the books of L. L. Briden & Co.;

(2) Deductions claimed by Clinton Dye Works in 1940 to 1942, inclusive, as traveling expenses of Francis J. Coleman, and disallowed;

(3) Proceeds of sales of L. L. Briden & Co. in 1936 to 1942, inclusive, not entered on the books of such company;

(4) Proceeds of the sale of waste by Clinton Dye Works in 1940 to 1942, inclusive, not entered in the books of such company, and (5) Amounts paid by Clinton Dye Works and L. L. Briden & Co. for personal expenses of Francis J. Coleman and Gladys M. Coleman and treated as business expenses of such companies, respectively, for 1939 to 1942, inclusive.

The following additional questions are presented:

(6) Whether the decedent filed false and fraudulent income tax returns with intent to evade income tax for the years 1936 to 1942, inclusive, and

(7) Whether the estate of decedent is liable for the 50 per cent addition to the tax under section 293(b) of the Revenue Acts of 1936 and 1938 and the Internal Revenue Code.

Other issues raised by the pleadings have been stipulated, to which effect will be given upon recomputation under Rule 50.

The facts were established by the pleadings, by stipulation of the parties, by oral testimony, and by documentary evidence. Those facts hereinafter appearing which are not from the stipulation are otherwise found from the record.

FINDINGS OF FACT.

Louis L. Briden, hereinafter referred to as decedent, died intestate in Miami, Florida, on April 5, 1943. He had gone there shortly before his death. His income tax returns for the years 1936 to 1942, inclusive, were filed with the collector of internal revenue for the district of Massachusetts. Decedent was born in Alsace, France, on January 27, 1890, and came to the United States in 1907.

The decedent's returns for 1936, 1937, and 1938 were filed on February 6, 1937, February 11, 1938, and February 24, 1939, respectively. The notice of deficiency covering such years was mailed to petitioner June 18, 1947.

Francis P. Kirk, hereinafter referred to as the petitioner was appointed administrator de bonis non of the estate of decedent on June 23, 1942. He succeeded Xavier L. Briden, brother of decedent, who had been appointed administrator de bonis non following the death of decedent.

At the time of his death and during the years involved herein decedent operated two businesses in Clinton, Massachusetts; one under the name of L. L. Briden & Co., hereinafter referred to as Briden & Co., and the other under the name of Clinton Dye Works. Briden & Co. was engaged in the business of manufacturing and selling dyestuffs and a chemical product known as ‘Permacyl,‘ on which the decedent had a patent. Clinton Dye Works engaged in the business of commission dyeing. It dyed both yarn and tops, the latter being raw wool made in a ball so it can be dyed and spun into yarn. Prior to 1924 and until June 1932, decedent conducted the business of Briden & Co. in Boston, Massachusetts. In June 1932 he moved the business to Clinton, where he had acquired a plant located on Stone Street. He conducted the two businesses at the same location.

On July 8, 1932, decedent filed a ‘Certificate of Name‘ with the town clerk at Clinton, stating that he was conducting business on Stone Street in Clinton under the name of ‘Clinton Dye Works‘ and ‘that no other person has any part ownership or interest in said business.‘ No other certificate of name was filed by decedent or any other individual or group of individuals at any time during the years 1932 to 1942, inclusive, for Clinton Dye Works.

The real estate in Clinton on which the businesses of Briden & Co. and Clinton Dye Works were conducted stood in the name of decedent only throughout 1936 to 1942, inclusive, and at all material times prior thereto.

The office building located on Stone Street consisted of a basement floor, main floor, and second floor. On the basement floor was an office and a conference room. On the main floor were two offices. One was used by the bookkeeper. The other office on the main floor had three desks in it and was occupied by Gladys and Robert Coleman. The decedent used the office in the basement and also the office on the main floor. On the second floor was a four-room apartment, which was occupied by decedent after about July 1, 1939.

The mill was in a separate building in the immediate rear of the office building. The office of Francis Coleman was located in the mill. Francis Coleman at first was overseer or superintendent of the dyers, and later, superintendent of the mill. In the mill office the invoices for the dyeing of yarns and tops were prepared by an employee of Clinton Dye Works, here-in-after referred to as the clerk. She had been employed in about 1933 to do general office work. The invoices were prepared in duplicate, the original having the letterhead of Clinton Dye Works on it and the duplicate being plain white paper. The invoices were numbered in rotation by typewriter. The original invoice was mailed to the customer and the duplicate invoice was taken by the clerk to the bookkeeper in the main office. In the mill office was kept a large book called the ‘yarn book,‘ in which were entered the yarn and tops received from each customer, the dye specified, and the yarn shipped. The decedent examined this record daily.

Prior to and throughout the years 1936 to 1942, inclusive, decedent had a checking account at the First National Bank of Boston. He had a safe deposit box in that bank.

During the years 1936 to 1942, inclusive, Briden & Co. also had a checking account at the First National Bank of Boston. Deposits in that account were made by mail.

All checks of Briden & Co. issued in 1937 were signed by decedent. Otherwise, such checks were in the handwriting of Gladys Coleman, except 18 of them which were written by decedent.

All checks issued from January through November 1938 were signed by decedent. mOst of those checks were made out by Gladys Coleman. The checks issued in December...