Lawrence Block Co. v. Comm'r of Internal Revenue, Docket No. 13228.

• Decision Date: 17 March 1949
• Docket Number: Docket No. 13228.
• Citation: 12 T.C. 366
• Parties: LAWRENCE BLOCK CO., INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

12 T.C. 366

LAWRENCE BLOCK CO., INC., PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 13228.

Tax Court of the United States.

Promulgated March 17, 1949.

Petitioner filed no excess profits tax returns until March 1946, when its secretary-treasurer was informed that a return was due for 1945. Returns for 1943 and 1944 were filed in May 1946, upon legal advise after an internal revenue agent examined the books. Held, on the evidence, reasonable cause did not exist for petitioner's failure to file timely excess profits tax returns for 1943 and 1944. Dana Latham, Esq., and Austin H. Peck, Jr., Esq., for the petitioner.

A. J. Hurley, Esq., for the respondent.

The sole issue is whether respondent erred in determining penalties for failure to file timely excess profits tax returns for the calendar years 1943 and 1944. The amounts so determined were $4,969.30 for 1943 and $6,975.80 for 1944.

The respondent also determined deficiencies, which are not contested, in excess profits tax for 1944 in the amount of $812.58 and in declared value excess profits tax for 1943 of $1,209.60 and for 1944 of $925.04

FINDINGS OF FACT.

Petitioner is a California corporation, engaged in the real estate brokerage business. Its principal place of business is Beverly Hills, California. It was incorporated in 1934. All its outstanding stock is, and at all times has been, owned by Lawrence Block, who is its president. It filed its income tax and excess profits tax returns with the collector of internal revenue at Los Angeles, California.

Lawrence Block has been engaged in the real estate business in California since 1911. He was employed by the Realty Syndicate Co. of Oakland from 1911 to 1923, becoming its sales manager, and was associated with a real estate subdivider in Los Angeles from 1923 to 1934. He formed the petitioner in 1934. At all times his activities were in the field of sales and at no time did he engage in accounting work or prepare tax returns in connection with real estate enterprises.

In 1935, T. H. Hancock was employed by petitioner as secretary and treasurer. As such he was in charge of all accounting for the petitioner and the preparation of its tax returns. He had been employed for many years by Realty Syndicate Co. as assistant auditor and auditor. From 1920 to 1930 he had charge of preparing tax returns for that company.

Petitioner filed timely income and declared value excess profits tax returns, Form 1120, for the years 1940 to 1944, inclusive. Each was prepared personally by Hancock and signed by Block and Hancock. No excess profits tax returns were filed by petitioner for any of these years until May 28, 1946. On that date petitioner filed excess profits tax returns for 1943 and 1944. The question on page 4 of Form 1120, as to whether an excess profits tax return was being filed, was answered in the negative for the years 1940, 1941, and 1942, was not answered as to 1943, and was answered ‘yes‘ as to 1944. On Form 1120 for 1944 the question calling for the excess profits net income (for purpose of determining necessity for filing return) was answered ‘$44,126.03.‘

Hancock did not consult counsel or accountants on tax matters until May 21, 1946. At various times after 1920 he consulted the local office of the collector of internal revenue on questions arising in the preparation of returns.

In March 1941 Hancock made inquiry at the office of the collector of internal revenue in the Federal Building in Los Angeles. He talked to a man at a counter, explained that petitioner was in the real estate business, selling properties for owners on a commission basis, and asked whether petitioner was subject to excess profits tax. He was informed that a corporation such as petitioner was not required to file an excess profits tax return. Relying on that advice, Hancock did not prepare or file excess profits tax returns for petitioner in 1940, 1941, 1942, 1943, and 1944.

In the preparation of petitioner's return, Form 1120, for 1945 Hancock sought advice in March 1946 at the office of the collector of internal revenue at Los Angeles. After receiving advice from one Ward of that office and preparing the return in accordance therewith, Hancock submitted the return to Ward, who then inquired about the petitioner's excess profits tax return for 1945 and informed Hancock that such return was required. Hancock did not tell Ward that such returns had not been filed for prior years and did not mention the advice previously received to the effect that petitioner was not subject to excess profits taxes. Hancock then prepared an excess profits tax return, Form 1121, for petitioner for the year 1945, and it was filed concurrently with petitioner's income tax return for that year.

In May, 1946 a revenue agent called at petitioner's office to examine its books, advised Hancock that excess profits tax returns should have been filed for 1943 and 1944, and prepared a statement of petitioner's excess profits tax liability for those years. Hancock and Block consulted counsel on May 21, 1946, who prepared excess profits tax returns for 1943 and 1944 which were filed on May 28, 1946.

Petitioner's failure to file timely excess profits tax returns for 1943 and 1944 was not...