Schneider v. Comm'r of Internal Revenue (In re Estate of Schneider)
| Decision Date | 25 February 1958 |
| Docket Number | Docket Nos. 54289-54296. |
| Citation | 29 T.C. 940 |
| Parties | ESTATE OF HARRY SCHNEIDER, DECEASED, MOLLY SCHNEIDER, ADMINISTRATRIX, AND MOLLY SCHNEIDER, EL AT.,1 PETITIONERS, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.2 |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Solomon M. Lowenbraun, Esq., and Phillip Leavitt, Esq., for the petitioners.
Charles M. Greenspan, Esq., and John A. Dunkel, Esq., for the respondent.
1. Held, the returns of Harry Schneider were false and fraudulent and a part of each deficiency was due to fraud with intent to evade tax for each of the years 1944 through 1950.
2. Held, beneficiaries of various ‘Totten trusts' are liable as transferees, to the extent of trust assets individually received, for deficiencies and additions to tax determined against decedent for years 1944 through 1950.
3. Held, transferees of assets of decedent are liable to the extent of assets received for deficiencies and additions to tax determined against decedent for years 1944 through 1950.
Respondent determined deficiencies in income tax and additions to tax under section 293(b), I.R.C. 1939, in the joint returns of Harry Schneider and Molly Schneider for the taxable years 1948, 1949, and 1950.
In Docket No. 54289, the following deficiencies and additions to tax originally determined by the respondent against the Estate of Harry Schneider, deceased, Molly Schneider, administratrix, and Molly Schneider, petitioners, were put in issue:
In an amended answer the respondent recomputed the deficiencies and additions to tax in Docket No. 54289 with the following result:
Each of the following-named petitioners was determined by the respondent to be liable to the extent shown as a transferee of the assets of Harry Schneider. Respondent levied a jeopardy assessment against each of the alleged transferees.
Incidental to determining the transferee liability of the individual petitioners, respondent determined deficiencies and additions to tax for the years 1944 through 1947 in the individual returns of decedent in the following amounts:
There are three issues involved. First, whether Harry Schneider filed false and fraudulent income tax returns with intent to evade tax for each of the taxable years 1944 through 1950.
Second, whether the respondent correctly determined deficiencies in the individual income tax returns of Harry Schneider for the years 1944 through 1947, and in the joint returns of Harry Schneider and Molly Schneider for the years 1948, 1949, and 1950.
Third, whether petitioners Molly Schneider, Katherine Schneider, Ruth Schneider, Manny Schneider, Leo Schneider, Jules Schneider, and Catherine Smith are liable as transferees of the assets of Harry Schneider.
Some of the facts were stipulated and are incorporated herein by this reference.
Harry Schneider (hereinafter referred to as decedent) graduated from Boston University School of Medicine in 1922 and was licensed to practice in that year. He married Mary (Molly) Gray (hereinafter referred to as Molly Schneider) on December 27, 1928. From 1934 until his death decedent maintained his personal resident at 200 East 16th Street, New York, New York. He died intestate April 20, 1951. Returns for the tax years in question were filed with the collector of internal revenue for the second New York district.
From 1922 until 1929 decedent was a general practitioner. In 1929 he began to specialize in obstetrics. By 1942 he had limited his practice to the specialities of obstetrics, gynecology, and related surgery.
From 1939 until 1951 Catherine Smith was employed by decedent as a nurse and secretary. During this period decedent never took a vacation. He maintained office hours Monday through Thursday, but frequently emergencies forced him to be in the office on Friday and Saturday. Decedent visited the clinic at Beth Israel Hospital three times a week, usually in the morning. Sometimes he was at the hospital 6 or 7 nights a week, at times all night along. Throughout the years 1944 and 1951, inclusive, there were four other doctors who substituted for decedent in case of illness or emergency.
In was usual procedure in the decedent's office to make out a patient card for each new patient who came in for obstetrical care. The patient's name, address, and other pertinent information were recorded on the face of the card (hereinafter sometimes called obstetrical card). The cards were filed alphabetically and segregated by years. There were approximately 200 such cards for each of the years 1945 and 1946. There were 205, 451, 422, and 278 cards for the years 1947, 1948, 1949, and 1950, respectively.
The fee charged was usually entered on the reverse side of the card in the upper lefthand corner, either by the decedent or Catherine Smith. The fees recorded on the cards during 1945 and 1946 varied from $75 to $100.
The records of United Medical Service, a prepayment medical care plan, indicate that in the years 1949 and 1950 payment was made to the decedent for 27 claims. In 17 of these claims the decedent's fee, as filed with the Medical Service, exceeded that recorded on decedent's patient cards. In some instances the differential was $25; in others, $50.
In addition to the obstetrical cards decedent maintained a file of gynecological cards for 1935 through 1951. These gynecological cards indicate that during the years 1944, 1945, 1946, 1947, 1948, 1949, and 1950 decedent received respectively 252, 222, 271, 301, 243, 235, and 153 visits from gynecological patients. Fees for gynecological consultation varied from $3 to $5, except in the case of an operation. One gynecological card indicates a fee of $1,000 for a Caesarian section. Other cards, reflecting various surgical procedures, show fees of $100, $75, and $50.
Decedent was associated only with the Beth Israel Hospital. The admissions register of the hospital shows every admission and every patient of every doctor. The admissions register, in conjunction with microfilmed patient records, establishes that approximately 644 individuals were admitted to the hospital in 1946 as patients of decedent. In 1947 there were 607 of decedent's patients admitted. There are no patient cards in his file for 430 of these 1947 cases. In both 1948 and 1949, 456 of decedent's patients were admitted. These figures do not include charity cases.
A large majority of the admissions were for pregnancy and delivery of a child; some were for legal abortions, gynecological operations, or other reasons. There were instances in which patients were admitted to the hospital for labor more than once during a given 30-day period.
On May 8, 1926, decedent opened savings bank account No. 1,487,575 in his own name with the Bowery Savings Bank, New York, New York. On December 7, 1945, the name of this account was changed to ‘Harry Schneider, in trust for Catherine M. Smith, friend.’
On December 28, 1942, he opened savings bank account No. 287,704 in his own name with the Union Square Savings Bank, New York, New York. On December 7, 1945, the name of this account was changed to ‘Harry Schneider, in trust for Catherine Marie Smith.’
On January 25, 1943, he opened in his own name account No. 1,536,228 with the Bank for Savings, New York, New York. On December 7, 1945, the name of this account was changed to ‘Harry Schneider, in trust for Catherine M. Smith.’
During 1944 and thereafter decedent opened numerous savings bank accounts in trust for various persons. In 1944 he deposited a total of $6,345 in these savings accounts; in 1945, $23,638; in 1946, $41,378; and in 1947, $42,817. These trust accounts were what are known in New York as ‘Totten trusts.’
At the time of his death, there were in existence 37 such accounts in 37 different banks, distributed in the following manner:
These accounts accumulated interest, as follows:
+----------------+
¦Year ¦Amount ¦
+------+---------¦
¦1944 ¦$128.76 ¦
+------+---------¦
¦1945 ¦295.12 ¦
+------+---------¦
¦1946 ¦729.23 ¦
+------+---------¦
¦1947 ¦1,549.57 ¦
+------+---------¦
¦1948 ¦2,070.38 ¦
+------+---------¦
¦1949 ¦2,517.90 ¦
+------+---------¦
¦1950 ¦2,623.70 ¦
+----------------+
After each of the 11 accounts in trust for Catherine Smith was established, she was given possession of the passbook and she retained general possession of the books until after decedent's death, when she surrendered them to her attorney. She personally made no withdrawals from these...
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