31 T.C. 690 (1958), 58018, Reaves v. C. I. R.

Docket Nº:58018.
Citation:31 T.C. 690
Opinion Judge:TURNER, Judge:
Attorney:Vincent F. Kilborn, Esq., and Michael J. Salmon, Esq., for the petitioner. Lester R. Uretz, Esq., for the respondent.
Case Date:December 31, 1958
Court:United States Tax Court

Page 690

31 T.C. 690 (1958)




No. 58018.

United States Tax Court.

December 31, 1958

Vincent F. Kilborn, Esq., and Michael J. Salmon, Esq., for the petitioner.

Lester R. Uretz, Esq., for the respondent.

1. In his income tax returns for each of the years 1942, 1943, 1945, 1946, and 1947, and with intent to evade tax, petitioner failed to report substantial portions of the income received by him in the practice of his profession. Held, that the return for each such year was false and fraudulent with intent to evade tax and there is no limitation against the assessment and collection of deficiencies in tax for those years. Held, further, that an unsigned return form filed for 1944 was not an income tax return within the meaning of the statute even though it did reflect items of income and deductions, and that it did not start the running of the statute of limitations against the respondent for that year.

2. For each of the years 1942 through 1947, substantial portions of petitioner's taxable income were omitted from and not recorded in such accounts and records as were maintained by petitioner, and the books and records which were maintained were wholly inadequate to reflect his true and correct income, and for each such year the respondent, by an analysis of petitioner's bank deposits and expenditures, determined deficiencies in income tax. Held, subject to adjustments required on the basis of facts found herein, that the respondent's determinations of deficiencies are approved.

3. A part of the deficiency for each such year was due to fraud with intent to evade tax. Held, that petitioner is liable for additions to tax for fraud, under section 293 (b) of the 1939 Code.

4. Since petitioner failed to file an income tax return as required by the statute for 1944, and such failure to file was not due to reasonable cause, the respondent's determination of an addition to tax for such year, under section 291 (a) of the 1939 Code, is approved.

Page 691

The respondent determined deficiencies in income tax and additions to tax against the petitioner for the years 1942 through 1947, as follows:

Additions to tax
Year Deficiency
Sec. 291 (a) Sec. 293 (b)
1942 $4,279.98 $2,139.99
1943 15,807.59 7,903.80
1944 22,723.16 $5,227.87 11,361.58
1945 18,625.63 10,210.18
1946 11,186.46 5,593.23
1947 13,756.21 6,878.11

The issues as raised by the pleadings are whether (1) the period within which the respondent may assess and collect deficiencies for the taxable years has run; (2) petitioner had income during the taxable years which he failed to report in his income tax returns for the said years; (3) the respondent erred in his adjustment of claimed depreciation deductions; (4) the gain realized in 1944 on the sale of property located at 2008 Gorgas Street, Mobile, Alabama, was the gain of petitioner; (5) a part of the deficiency for each of the taxable years was due to fraud with intent to evade tax; and (6) petitioner is liable for an addition to tax for the year 1944 for failure to file a timely income tax return for such year. FINDINGS OF FACT. Some of the facts have been stipulated and are found as stipulated. The petitioner is a resident of Mobile, Alabama. He filed individual income tax returns for the years 1942, 1943, 1945, 1946, and 1947 with the collector of internal revenue for Alabama. For the year 1944, he filed an unsigned income tax return form, on which income and deduction items had been entered. The petitioner was born in Anniston, Alabama, on July 30, 1885. After completing his grade school and high school work in the Anniston schools, he attended North Georgia College and the University of Chattanooga. In 1908 he received the degree of Doctor of Medicine from Tulane University, and after serving an internship of 1 year, he was employed by the McCall Lumber Company at Woodbine, Alabama. At intervals from 1907 to 1933, he did postgraduate work at medical and surgical schools in the United States and studied in both Vienna, Austria, and Berne, Switzerland. In 1910, the petitioner moved to Mobile, where, except for the period from October 1918 to April 1919, during which he was serving in the United States Army, and the periods he was away from Mobile pursuing his studies, he has since that time specialized in the practice of urology. He is a member of various medical associations, including Page 692 the Mobile County Medical Society, Alabama State Medical Association, American Medical Association, American Urological Association, and the International College of Surgeons. He has been called on to deliver lectures, and has written and had published in recognized medical journals articles dealing with various aspects of his specialized field of medicine. On October 19, 1910, petitioner married Nell LeCompte. She likewise was a doctor, having received the degree of Doctor of Medicine from the Iowa State University in 1909, and had practiced her profession for about a year and a half. She has not engaged in active practice since her marriage to petitioner, but she has served as president of some of the women's auxiliaries to the medical associations to which petitioner belongs and, as a general rule, has accompanied petitioner to the medical conventions he has attended. She has been a member of the Library Board of Alabama, having been appointed in 1944. During the years herein, she was a member of the Board of the Red Cross and chairman of the Dietetic Committee. During World War II, she served as chairman of the Women's Committee of the United States War Bond Drive in Mobile. In 1910 or 1911, petitioner built a home in Mobile at 259 South Georgia Avenue. He and his wife lived at that address until February 1927, at which time they moved into their present home at 1862 Government street. The lot at 1862 Government Street had been acquired at a cost of $5,000. The house was built for $25,000, plus a fee of $2,000 for the architect or builder. After petitioner and his wife moved to the new home on Government Street, the house on Georgia Avenue was rented. It was ultimately sold in 1947. Prior to entering the Army in 1918, petitioner had acquired some Liberty Loan bonds by purchase and in payment for services rendered. For some indefinite period after his return from Army service in April of 1919, he made some further acquisitions of such bonds. After the death of her father in 1919, Nell LeCompte Reaves received $6,000 under his will and $511 in life insurance. She turned this money over to petitioner, but, except for the portion later expended by her to visit her brother in Iowa, who was sick, the disposition of the money is not known. On July 19, 1920, petitioner gave his demand note for $1,400 to the First National Bank in Mobile. The note was secured by ‘ Two (2) U.S. 4th 4 1/2% L.L. Bonds par value- $1,000.00.’ The final payment on this note was made on August 30, 1920. On September 14, 1920, petitioner gave his demand note for $6,100, also to the First National Bank, which note was secured by the deposit of 8 United States 2d Issue Liberty Loan bonds of a par value of $1,000 each. The final payment on this note was made on February 1, 1922. Page 693 According to the recollection of the petitioner, the following represented a complete list of the securities owned by him at October 5, 1921: [1]

2nd Liberty Loan bonds
13 $1,000
3 $100
2 $50
Total $13,400
3rd Liberty Loan bonds
1 $500
2 $100
1 $50
Total $750
4th Liberty Loan bonds
10 $1,000
3 $100
7 $50
Total 10,650
Grand Trunk Pacific-1962 bonds
10 £ 100 equals 4,860
French 7 1/2's-1941 bonds
5 $1,000 5,000
Uruguay 8's bonds
5 $1,000 5,000
Savings stamps 455
Investment Banking Company 25
Southeastern Express Company (3 shares) 7 per cent 300
Physicians Radium Association (quarterly) 1,500
First mortgage:
M. E. Reaves 2,510
Mrs. Belle Vickers 2,100
Total 46,550

Throughout the taxable years petitioner still owned the above Grand Trunk Pacific bonds and the 5 Republic of Uruguay bonds. The savings stamps were cashed on some undisclosed date, and the Southeastern Express Company was dissolved, but the disposition of any liquidation proceeds received or of the money received for the savings stamps is not known. On some undisclosed date, the $1,500 interest in or stock of the Physicians Radium Association was sold for less than $100. The disposition of the Vickers' mortgage and of any proceeds therefrom is not known. M. E. Reaves was petitioner's brother. He ‘ didn't get much proceeds from that first mortgage.’ On or about May 15, 1923, petitioner sold Liberty Loan bonds having a face value of $15,000, for which he received $14, 616.76. Including the proceeds of the bonds sold, he thereupon loaned $15,000 to J. J. Barry, receiving a mortgage on property located on Dauphin Street in Mobile as security therefor. Page 694 On September 16, 1924, petitioner executed a demand note in favor of the First National Bank for $2,100, and as collateral security therefor deposited 4 $1,000 City of Tuscumbia Street Improvement bonds. This note was subsequently paid in full.[2] The Barry loan was repaid in 1928, and with the proceeds petitioner purchased 5 $1,000 Detroit and Canada Tunnel Corporation First Mortgage 6 Per Cent bonds, 5...

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