United States v. Ridley, Civ. A. 4718.

• Citation: 120 F. Supp. 530
• Decision Date: 20 March 1954
• Docket Number: Civ. A. 4718.
• Parties: UNITED STATES v. RIDLEY et al.
• Court: U.S. District Court — Northern District of Georgia

120 F. Supp. 530

UNITED STATES v. RIDLEY et al.

Civ. A. 4718.

United States District Court, N. D. Georgia, Atlanta Division.

March 20, 1954.

James W. Dorsey, U. S. Atty., Atlanta, Ga., for plaintiff.

Hal Lindsay and M. Neil Andrews, Atlanta, Ga., for defendants.

SLOAN, District Judge.

The United States brings this complaint in equity alleging that the Commissioner of Internal Revenue has made tax assessments against the defendant, Claude Ridley, for the years 1942 through 1951, inclusive, which taxes, penalties and interest amount to $106,674.37.

Asserting its lien for taxes on described property, the United States alleges that the other named defendants claim liens against or interests in the described property.

Alleging further that the defendant, Claude Ridley, was likely to encumber or transfer the property, the plaintiff prays for a receiver and injunction and that the claims of the defendants be determined and the plaintiff's liens foreclosed.

The defendants make answer. The defendant, Claude Ridley, denies the correctness of the tax assessments; denies fraud or intent to evade the payment of tax and prays that this Court determine the amount of taxes due. The other defendants each assert some claim upon or interest in some of the described properties and seek a determination thereof.

Findings of Fact.

The defendants, Claude Ridley and Mrs. Dimple Ridley are husband and wife. They are about forty years of age and were married about twenty years ago and have no children. Neither has any education and can neither read or write. They have lived on a farm all of their lives and have raised some cotton and corn, hay, produced a few chickens and eggs, and sold some milk and butter. So far as can be determined, they never raised in excess of three to four bales of cotton or two to three hundred bushels of corn in any one year. Their marriage apparently took place about 1934, and in 1937 Claude Ridley, together with Nathan Ridley, entered a plea of guilty in the District Court of the United States for the Northern District of Georgia to the offense of possession of 113 gallons of illicit liquor, the containers not having affixed thereto revenue stamps, and it appears that from this time on the defendant, Claude Ridley, was engaged in the illegal liquor traffic, both manufacturing and selling. Though this business may not have been continuous, the evidence not disclosing the facts in this respect, the circumstances indicate a fairly continuous illicit liquor business.

Both Claude Ridley and his wife were frugal to the point of miserliness; had no luxuries of life, and the barest necessities. From the evidence, and from their appearance, it is determined, with reasonable certainty, that they have lived frugally through the years and have spent little for living expenses, the Court being of the opinion, and here finds, that the expenditures of Claude Ridley and his wife, Dimple Ridley, for living expenses during the years 1937, 1938, 1939, 1940, 1941, 1942, 1943, 1944, 1945, 1946, 1947 and 1948 did not exceed the sum of $1,000 per year, and that during the years 1949, 1950 and 1951 that said expenditures did not exceed the sum of $1,500 per year.

Claude Ridley and his wife saved their money and some years later purchased a small farm upon which there was situated a residence and a small store building, the same containing fifteen to twenty acres of land. This farm apparently was placed in the name of the wife, Dimple Ridley, and for many years they have lived on this farm and have operated the country store, selling groceries and gasoline. No records were kept of the amount of income or of the business transacted, and it is impossible to determine accurately the amount of income received by Claude Ridley, nor is it possible to determine accurately the years in which the income was received. It does appear, and the Court finds, that during the years 1942 through 1951, the defendant, Claude Ridley, and his wife, Dimple Ridley, purchased United States Savings Bonds in the sum of $98,550; real estate in the sum of $23,030.50; an automobile-truck $1425; spent for building materials and for the improvement of real estate, $2,199.83; deposited $1,308 in cash in the bank; expended $1,750 in the construction of a grist mill building; all of such purchases and expenditures were made from taxable income received by Claude Ridley during the years 1937 through 1951, inclusive.

In 1952 a special agent of the Internal Revenue Service, United States Department of Internal Revenue, commenced an investigation of the tax liability of Claude Ridley, and finding that no records had been kept by Claude Ridley, and that it was impossible to determine his income with accuracy since no records were kept, said special agent began the investigation by talking with the taxpayer, examining the public records of Murray and Whitfield counties, examining the bank records and the bond purchases by the said Claude Ridley, and determined that the best method by which to compute the taxable income of Claude Ridley would be the net worth and non-deductible expenditures method and accordingly the investigator adopted that method of determining the income and computing the tax, and in so doing, the special agent determined the year that the purchases were made and the year that the other expenditures were made and charged said amounts as income in the year in which the purchases or expenditures were made. The special agent testifying that he was unable to find money or property belonging to Claude Ridley prior to 1942, fixed as the opening net worth as of December 31, 1941, nothing, and although he determined from investigation that the said Claude Ridley did in January, 1942, purchase United States Government Bonds in the sum of $7,500, he charged the said sum of $7,500 as having been earned and received by the said Claude Ridley in the year 1942, and taxable as such.

The method used by the special investigator for determining the time that income was received by Claude Ridley was based entirely upon the time of the purchase or expenditure, and this has resulted in a great difference in the taxes assessed in the various years. For instance, for 1942 a tax of $2,584, besides interest and penalties is assessed, while in the year 1943, a tax of $181.28 is assessed. In 1947 a tax of $15,277.54 is assessed, while in 1948 a tax of $483 is assessed, the amount of income allocated in each year being based entirely upon the amount of the purchases or expenditures in that year.

There is in evidence the positive testimony of Claude Ridley and his wife that their earnings were about equal in each of the years. There is no evidence of greater income in one year than in another (except the date of the expenditures).

From and including the year 1937, the first year that the evidence shows Claude Ridley to have been in the illicit liquor business, his sources of income were substantially the same from 1937 through 1951, inclusive, said sources of income being: (1) From the illicit liquor business; (2) the farming operations, and (3) the country store and filling station.

It appears without dispute that Claude Ridley did not deposit his money in banks but kept it in cash, all payments for bonds and real estate being made in cash. It appears that on one occasion that he carried from $6,000 to $6,500 in coins to the bank for the purchase of bonds and that the coins had been buried for so long that they were in bad shape, rusted and corroded.

During the ten year period from 1942 through 1951, inclusive, Claude Ridley made expenditures for investment of approximately $120,000, while during the same period only $1308 was deposited in any bank.

These circumstances corroborating the testimony of the taxpayer as to receipt of income, in the opinion of the Court, entitles the testimony of the taxpayer to credit. Furthermore, in the absence of proof to the contrary, it is more logical and reasonable to believe that the income received was in substantially equal amounts in each of the years from 1937 through 1951, inclusive. The evidence preponderates to this theory. From the evidence it is not clear just how much money was expended in the purchase of United States Government Bonds. However, looking to the defendants' answer to the amended complaint, it appears from paragraphs 5 and 6 thereof that the defendants admit purchasing said bonds at a cost of $102,300, while it appears from the original complaint that of said sum $3,750 of said bonds were redeemed, so that the expenditures for the purchase of United States Government Bonds, for tax purposes, would be $98,550. The Court therefore finds that the total income of Claude Ridley for the years 1937 through 1951 was as follows:

Purchases, deposits and expenditures 1942 through 1951, inclusive:

                Savings Bonds              $ 98,550.00
                Realty Purchased             23,030.50
                Improvements on Rogers
                Subdivision Property          2,179.83
                ½ Cost of Grist Mill   1,750.00
                Automobile Truck              1,425.00
                Bank Deposits                 1,308.00
                                            __________
                Total Expenditures         $128,243.33
                

This makes a total income, except for living expenses, of $128,243.33, which income, under the findings here made, will be divided equally over the fifteen year period from 1937 through 1951, inclusive, which will give to Claude Ridley an opening net worth as of December 31, 1941 of $42,414.44, which, is one-third of the total income shown by these expenditures.

For the years 1942 through 1948, inclusive, there will be added the sum of $1,000 per year as income expended for living expenses, and for the years 1949 through 1951, inclusive, there will be added the sum of $1,500 as income expended for living expenses, in accordance with the findings here made. Thus, the Court finds that the taxable income of Claude Ridley for each of the years from 1942 through 1951, inclusive, is as...