Stratton v. Comm'r of Internal Revenue
| Decision Date | 12 February 1970 |
| Docket Number | Docket No. 4166-65. |
| Citation | 54 T.C. 255 |
| Parties | WILLIAM G. STRATTON AND SHIRLEY STRATTON, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
William A. Barnett and George D. Crowley,1 for the petitioners.
George G. Young and Donald W. Wolf, for the respondent.
Petitioner was Governor of the State of Illinois for the 8 years here in question. He personally prepared and filed joint Federal income tax returns for 1953 through 1960, reporting a net income for the 8 years of $171,846.93. Respondent, using the net worth plus nondeductible expenditures method, determined petitioners' net income for the 8 years to be $369,096.29, which he reduced in his brief to $366,184.92. He also determined that at least a part of the deficiencies were due to fraud with intent to evade tax. Prior to this determination, petitioner was indicted, tried, and acquitted before a jury in the U.S. District Court, N. Dist. of Ill., E. Div., wherein he was charged with filing false and fraudulent joint income tax returns for the 4 years 1957 through 1960. Held:
1. Respondent was justified in using the net worth plus nondeductible expenditures method;
2. Petitioners' ‘corrected net income (1953) or taxable income (1954 through 1960)‘ is redetermined by this Court for the 8 years to be $254,032.51;
3. Respondent is not collaterally estopped to contend for the additions to tax here involved;
4. Respondent has not established fraud on the part of the petitioners by the clear and convincing evidence which was his burden; and
5. The statute of limitations bars the assessment and collection of deficiencies, if any, for all the taxable years except the year 1958, in which year petitioner omitted from gross income an amount properly includable therein which was in excess of 25 percent of the amount of gross income stated in the 1958 return, thus making the 6-year statute of limitations applicable for that year.
Respondent determined income tax deficiencies and additions to the tax in this case as follows:
+---------------------------------------------------+
¦ ¦ ¦ ¦ ¦
+-------------+----------+--------------------------¦
¦ ¦ ¦Additions to tax ¦
+-------------+----------+--------------------------¦
¦Calendar year¦Deficiency¦ ¦
+-------------+----------+--------------------------¦
¦ ¦ ¦Sec. 293(b),¦Sec. 6653(b),¦
+-------------+----------+------------+-------------¦
¦ ¦ ¦I.R.C. 1939 ¦I.R.C. 1954 ¦
+-------------+----------+------------+-------------¦
¦ ¦ ¦ ¦ ¦
+-------------+----------+------------+-------------¦
¦ ¦ ¦ ¦ ¦
+-------------+----------+------------+-------------¦
¦1953 ¦$11,646.80¦$5,823.40 ¦ ¦
+-------------+----------+------------+-------------¦
¦1954 ¦14,847.40 ¦ ¦$7,423.76 ¦
+-------------+----------+------------+-------------¦
¦1955 ¦8,288.55 ¦ ¦4,144.20 ¦
+-------------+----------+------------+-------------¦
¦1956 ¦16,556.50 ¦ ¦8,278.28 ¦
+-------------+----------+------------+-------------¦
¦1957 ¦16,779.91 ¦ ¦8,389.95 ¦
+-------------+----------+------------+-------------¦
¦1958 ¦19,833.32 ¦ ¦9,916.66 ¦
+-------------+----------+------------+-------------¦
¦1959 ¦6,074.13 ¦ ¦3,037.06 ¦
+-------------+----------+------------+-------------¦
¦1960 ¦6,440.72 ¦ ¦3,220.36 ¦
+-------------+----------+------------+-------------¦
¦ ¦ ¦ ¦ ¦
+---------------------------------------------------+
Petitioners have assigned 13 errors which may be grouped into three issues, as follows:
(1) Did petitioners understate income for the respective years 1953 through 1960 in the amounts as determined by respondent by the use of the net worth plus nondeductible expenditures method?
(2) Is some part of the deficiency in tax for the taxable year 1953 and underpayments in tax for the taxable years 1954 through 1960 due to fraud with intent to evade tax?
(3) Does the statute of limitations bar the assessment of deficiencies in tax for the taxable years 1953 through 1960?2
On April 11, 1967, respondent filed a motion for an order to show cause as provided in Rule 31(b)(5) of the Court's Rules of Practice why the facts and evidence recited in respondent's proposed stipulation of facts attached to the motion should not be accepted. By order of the Court dated April 12, 1967, the motion was granted. Thereupon petitioners filed a motion to vacate the order of the Court, which motion was duly calendared for hearing. After the hearing, the Court by order dated October 2, 1967, ordered certain facts to be accepted and certain exhibits to be received without prejudice to either party to introduce other and further evidence ‘at the time of the trial of this case.’
At the later trial, the parties filed three separate stipulations of facts, which consisted of substantially all the evidence (some 8,300 pages of testimony and 373 exhibits) that had previously been received in the criminal trial before a jury during the period January 4, 1965, through March 10, 1965, of William G. Stratton in the U.S. District Court for the Northern District of Illinois3 charging him with filing false and fraudulent joint income tax returns for the years 1957 through 1960.
Our order dated October 2, 1967, and the stipulations of facts Nos. I, II, and III together with the exhibits, previously referred to in our opening statement, are incorporated herein by this reference.
On July 12, 1965, the date of filing of the petition herein, petitioners were husband and wife with legal residence at 437 Vine Street, Morris, Ill.
For each of the years 1953 through 1960 petitioners filed joint income tax returns with the district director of internal revenue at Chicago, Ill.
Petitioner William G. Stratton (sometimes hereinafter referred to as petitioner) was born February 26, 1914, in Ingleside, Lake County, Ill. He was educated in the public schools of Lake County, Ill., and the University of Arizona in Tucson, Ariz., where he was graduated in June of 1934 with a bachelor of arts degree in political science.
In the fall of 1934 petitioner was married to Marion Hook (hereinafter sometimes referred to as Marion) of Gurnee, Ill. Two daughters were born of this marriage, Sandra on September 15, 1936, and Diana on May 5, 1939. Sandra married Patrick Gardner on April 22, 1961, and Diana married Norman Weiskopf on September 10, 1960.
On June 1, 1949, petitioner obtained a divorce from Marion on the grounds of desertion. Although custody of the children, Sandra and Diana, was granted to Marion, she nevertheless permitted the children to live with petitioner from 1952 until they attained their majority.
Petitioner was the sole source of support for his family throughout the period of his marriage to Marion.
On December 27, 1950, petitioner married the former Shirley Breckenridge of Chicago, Ill., who was his wife throughout the years involved in this proceeding.
Petitioner Shirley Stratton (formerly Shirley Breckenridge and hereinafter sometimes referred to as Shirley) was born June 11, 1923, in Chicago, attended Lake High School and the University of Chicago, both in that city.
Between July and November of 1942 Shirley was employed as a clerk by the Quaker Oats Co. in Chicago. On October 25, 1943, she secured employment with the LaSalle Hotel, Chicago, at $3.50 per day. The latter employment terminated on January 25, 1944. On January 28, 1944, she married one Clinton DeWitt, from whom she obtained a divorce on March 23, 1949, on the grounds of desertion. No alimony or property was awarded or exchanged hands as a result of the divorce proceedings.
Between November 1, 1947, and December 15, 1950, Shirley was employed by Reinsurance Agency, Inc., Chicago, as a secretary. During that period her salary ranged from a low of $200 per month to a high of $275 per month.
During all of the years here involved Shirley was continuously occupied with her varied and numerous activities as first lady of the State of Illinois.
From the fall of 1934 until April of 1940, petitioner was employed by the Calumet City Light & Power Co. and its successor, the Public Service Co. of Illinois, first as a meter reader and then as a salesman, successively at Calumet City, Lansing, and Ottawa, Ill. During this period (1934-40), he lived in Joliet, Ill., and beginning in 1937, at Morris, Ill.
In 1942 petitioner purchased a house at 437 Vine Street, Morris, Ill., at a cost of $8,300. He paid $3,300 down at the time of purchase and borrowed the $5,000 remaining balance securing the loan with a 5-year mortgage on the property. Title to the property was taken in the names of William G. Stratton and Marion G. Stratton.
In November 1940, petitioner was elected to a 2-year term as U.S. Congressman At Large from the State of Illinois. His salary was $10,000 per year. In November 1942, he was elected to a 2-year term as State Treasurer for the State of Illinois. At that time the salary for State Treasurer was $12,000 per year. His term as State treasurer ended in January of 1945 and shortly thereafter he entered the U.S. Navy as a lieutenant junior grade. While overseas in 1945 his name was entered in the April 1946 primary as a candidate for the Republican nomination for U.S. Congressman At Large from the State of Illinois. He was the successful candidate in that primary. In July 1946 he was mustered out of the service.
In November 1946, petitioner was elected U.S. Congressman At Large from the State of Illinois for the term of office beginning January 1947 and ending January 1949. During his term of...
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