Mitchell v. Commissioner of Internal Revenue

• Decision Date: 14 March 1941
• Docket Number: No. 9615.,9615.
• Parties: MITCHELL v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

118 F.2d 308 (1941)

MITCHELL v. COMMISSIONER OF INTERNAL REVENUE.

No. 9615.

Circuit Court of Appeals, Fifth Circuit.

March 14, 1941.

W. A. Sutherland and Edward R. Kane, both of Atlanta, Ga., for petitioner.

Warren F. Wattles and Sewall Key, Sp. Assts. to Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., J. P. Wenchel, Chief Counsel, and Irving M. Tullar, Sp. Atty., Bureau of Internal Revenue, all of Washington, D. C., for respondent.

Before SIBLEY, HOLMES, and McCORD, Circuit Judges.

SIBLEY, Circuit Judge.

The Board of Tax Appeals adjudged that William E. Mitchell should pay additional income taxes for the year 1930, though barred, and a penalty of fifty percent additional, because of fraud in the tax return with intent to evade the tax. Revenue Act of 1928, Secs. 276, 293, 26 U.S.C.A. Int. Rev.Code §§ 276, 293. Mitchell petitions for review upon the grounds that the particular facts found by the Board do not in law authorize the conclusion of fraud with intent to evade tax, and that there was no evidence of fraud but only of mistake and negligence.

The pleadings before the Board involved the taxes of five years, but the Board found in favor of Mitchell as to all save the year 1930. The allegations were at first general, but on Mitchell's motion for particulars the Commissioner amended by quoting the untrue items in the returns and stating the amount in dollars of the falsity, and concluded "(w) That the petitioner at the time of filing said federal income tax returns * * * knew the same to be false and nevertheless filed them with the intent that they should be accepted as true and correct." Mitchell replied by expressly admitting the incorrectnesses alleged, but as to (w) "Denies that the petitioner at the time of filing said federal income tax returns knew the same to be false; but admits that petitioner filed said returns with intent that they should be accepted as true and correct." The single issue therefore specifically drawn was whether Mitchell when he filed the 1930 return knew or did not know it was untrue.

The burden of proof was upon the Commissioner. Internal Revenue Code, Sec. 1112, 26 U.S.C.A. Int.Rev.Code, § 1112. Griffiths v. Commissioner, 7 Cir., 50 F.2d 782. To sustain it he swore as witnesses Mitchell, and P. H. Nabors who had prepared the return. Mitchell denied positively and with indignation that he knew the return was in any respect untrue; he had no books of account, but turned his papers and files over to Nabors whom he regarded as reliable and competent, and accepted the returns he prepared for all the years in question without checking the computations or doubting their correctness. Nabors also testified positively that he alone prepared the return, and what mistakes were made were his own, that he had no request from Mitchell to distort facts and would not have done that if asked to; that the mistakes made were wholly unintended and unknown, and that Mitchell did not check his computations so far as he knew. The returns, all of which for the years in question were made out by Nabors, were really complicated and he made many mistakes in them both for and against Mitchell. Stocks of the corporations for which Mitchell was working had been bought by him at different prices in forty-six purchases over ten years, there had been several stock dividends and reorganizations which complicated the costs, and there were about eighty-eight different sales. Mitchell was an engineer and not an accountant. Nabors had high school education and business and clerical experience but also was not an accountant. Very large mistakes were made later in an audit by a capable revenue agent; and an accountant employed by Mitchell whose work the Commissioner approved and adopted also went...