Rogers v. Commissioner of Internal Revenue

• Decision Date: 08 May 1940
• Docket Number: No. 8256.,8256.
• Citation: 111 F.2d 987
• Parties: ROGERS et ux. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

111 F.2d 987 (1940)

ROGERS et ux. v. COMMISSIONER OF INTERNAL REVENUE.

No. 8256.

Circuit Court of Appeals, Sixth Circuit.

May 8, 1940.

Theodore B. Benson, of Washington, D. C. (Theodore B. Benson, of Washington, D. C., and H. H. Timmering, of Louisville, Ky., on the brief), for petitioners.

Harry Marselli, of Washington, D. C. (James W. Morris, Sewall Key, and Helen R. Carloss, all of Washington, D. C., on the brief), for respondent.

Before ALLEN, HAMILTON, and ARANT, Circuit Judges.

ALLEN, Circuit Judge.

Petitioners appeal from a decision of the Board of Tax Appeals (38 B.T.A. 16), assessing deficiencies in income tax and penalties, as follows:

                                       25%          50%
                  Year       Tax      Penalty    Penalty
                  1932    $1,004.93   $363.73   $  545.68
                  1933     6,955.03              3,477.52
                  1934       663.41                298.91
                

The deficiency for 1934 and the 25% penalty assessed because the return for 1932 was delinquent are not contested.

Petitioners, Charles A. Rogers and Louise Rogers, are husband and wife, residing at Owensboro, Kentucky. They own one-half of the outstanding stock of the M & R Canning Company. During the period in controversy Rogers was also engaged in farming, and was city clerk and tax collector of Owensboro. From time to time both petitioners received money or checks from the Canning Company, which was credited to them on the company books.

The first question is whether the Commissioner erred in including in petitioners' gross income for the years 1932 and 1933 certain credits to their accounts on the books of the company. The Commissioner gave credit to petitioners for all such charges on the company books which had been explained, but regarded as income to petitioners all credits less the explained charges, and refused to allow petitioners to deduct from income the unexplained charges. In its opinion, the Board said: "Petitioners concede that all amounts added to income by respondent, representing unexplained credits and bank deposits, constitute taxable income derived by them from legitimate sources, with the exception of three items * * *."

Two of the three items were decided by the Board in favor of petitioners, and that conclusion is not here attacked. The remaining item consists of the amount of $12,000 credited to Rogers' account on the books of the Canning Company and added to income for 1933.

The Canning Company borrowed $12,000 from the Ontario Warehouse Company of Chicago, evidenced by check payable to the Canning Company dated November 29, 1933, which was endorsed by Rogers as president of the Canning Company, and further endorsed by him as tax collector and cashed by him through that office. Rogers received the $12,000 and testified that he used it to reimburse the tax collector's office for funds taken from it by him to pay bills of the Canning Company and to take up his personal checks which he had substituted for the cash taken from the collector's office. Petitioners assert that the $12,000 is part of a credit to Rogers on the books of the Canning Company of $17,582.59, entered December 31, 1933, to offset advances made to the company by Rogers to pay its bills and should not be included in petitioners' income. The Commissioner urges that Rogers personally received the $12,000, and that the burden is on petitioners to prove that it was used to pay corporate expenses.

We think the Board did not err as to this item. The finding of the Commissioner is prima facie correct, and petitioners have the burden of proving what part of the amount determined to be a deficiency is not due. Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212; United States v. Peabody Co., 6 Cir., 104 F.2d 267; Commissioner v. Volunteer State Life Ins. Co., 6 Cir., 110 F.2d 879, decided March 12, 1940. Petitioners have not sustained this burden. The records of the company were loosely kept, in that Rogers instructed the bookkeeper what entries to make. Petitioners kept no personal records. Evidence as to their income consists of sketchy memoranda, and information emanating from the uncertain memory of Charles A. Rogers. Rogers' testimony on the point is confused and evasive. He made references to memoranda which were not produced, and stated that he did not know where they were. It was Rogers who directed that the journal entry of December 31, 1933, of $17,582.59, be made. Rogers at the time of the hearing was serving sentence for conviction of embezzlement of city funds. The Board found that there was nothing in the record to show that the check for $12,000 has any relation to the credit of $17,582.59 on the books of the Canning Company. The Board's finding is a determination of a question of fact, and if supported by the record, should be affirmed unless clearly erroneous. Helvering v. National Grocery Co., 304 U.S. 282, 294, 58 S.Ct. 932, 82 L. Ed. 1346; Elmhurst Cemetery Co. of Joliet v. Commissioner, 300 U.S. 37, 40, 57 S.Ct. 324, 81...