Beaver v. Comm'r of Internal Revenue, Docket No. 3561-67.
| Decision Date | 20 October 1970 |
| Docket Number | Docket No. 3561-67. |
| Citation | 55 T.C. 85 |
| Parties | ANSON BEAVER AND FRANCES F. BEAVER, PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
William H. Bowen and Jerry T. Light, for the petitioners.
J. C. Linge, for the respondent.
1. Held, that advances received by the petitioner from his employer constituted payments for services to be rendered in the future, rather than loans, and that such advances constituted taxable income to the petitioner in the years received.
2. Held, further, that some part of the underpayment of tax required to be shown on petitioners' return for each of the taxable years 1956 through 1962 was due to fraud with intent to evade tax and that petitioners are therefore liable for additions to tax under sec. 6653(b), I.R.C. 1954.
The respondent determined deficiencies in income tax for the taxable years 1956 through 1962 and additions to tax as follows:
+----------------------------------+
¦ ¦ ¦Addition to ¦
+------+------------+--------------¦
¦ ¦ ¦tax under ¦
+------+------------+--------------¦
¦Year ¦Deficiency ¦sec. 6653(b) ¦
+------+------------+--------------¦
¦1956 ¦$118.48 ¦$122.24 ¦
+------+------------+--------------¦
¦1957 ¦ ¦566.81 ¦
+------+------------+--------------¦
¦1958 ¦175.00 ¦1,743.38 ¦
+------+------------+--------------¦
¦1959 ¦1,249.53 ¦2,408.63 ¦
+------+------------+--------------¦
¦1960 ¦1,574.31 ¦3,209.48 ¦
+------+------------+--------------¦
¦1961 ¦189.03 ¦2,810.63 ¦
+------+------------+--------------¦
¦1962 ¦185.38 ¦3,318.36 ¦
+----------------------------------+
The petitioners having conceded one issue, the issues remaining for decision are whether certain advances received by the petitioner Anson Beaver from his employer constituted taxable compensation or loans and whether any part of any underpayment of tax required to be shown on petitioners' returns for the taxable years 1956 through 1962 was due to fraud.
Some of the facts have been stipulated and are incorporated herein by this reference.
The petitioners are husband and wife and at the time they filed their petition herein resided in Rogers, Ark. On December 9, 1963, they filed joint Federal income tax returns for the taxable years 1956 through 1962 with the district director of internal revenue, Little Rock, Ark., employing thereon the cash recepts and disbursements method of accounting. Inasmuch as Frances F. Beaver is a party hereto only because of having filed joint returns, Anson Beaver will hereinafter be referred to as the petitioner.
Petitioner was born on June 27, 1903, in Atlanta, Ga. During the years 1924 to 1928, he resided in Cuba where he was employed by the Electric Bond & Share Co. as an auditor. In 1928 he accepted employment in New York with a public accounting firm in order to gain the practical experience necessary to become a certified public accountant. He did not receive any formal college training in accounting, but took various extension and other courses in accounting. He successfully passed the required examination and in October 1933 received a certificate authorizing him to practice as a certified public accountant in the State of New York.
From 1933 until 1942 the petitioner was associated with various accounting firms in New York. In 1942 he accepted employment in New York as the treasurer and chief financial and accounting officer of Consolidated Railroads of Cuba. He remained in such position until 1950 during which time his salary increased from about $15,000 to $25,000 annually. In 1950 his employment with Consolidated Railroads of Cuba was terminated. Thereafter he carried on an accounting practice in New York. He subsequently moved to Bangor, Maine, to assume the management of a newspaper.
In November 1954, the petitioner and another accountant formed a partnership in Bangor, Maine, to carry on an accounting practice. Petitioner obtained a certificate which authorized him to practice as a certified public accountant in the State of Maine. In 1955 the petitioner was enrolled to practice before the Treasury Department of the United States and remained so enrolled during the year 1956 through 1960. In August 1955 the partnership was dissolved, after which petitioner continued to practice accounting in Bangor as a sole practitioner. In the course of such practice he engaged in a considerable amount of tax work which included preparing tax returns and handling tax matters at conferences with the Internal Revenue Service.
Petitioner continued in his accounting practice in Bangor until the latter part of December 1956. At that time he and his family (his wife and two daughters) moved to New Jersey where he and his brother formed a joint venture to engage in home-improvement work under an FHA program. To supplement his income, he also worked as an employee of an accounting firm located in Paterson, N.J.
In April 1958, the petitioner obtained employment with the Daisy Manufacturing Co. as vice president in charge of finance and comptroller, a position he retained beyond the years in question. At that time the Daisy Manufacturing Co., hereinafter referred to as Daisy, was in the process of relocating its facilities from Plymouth, Mich., to Rogers, Ark. Petitioner began his new employment in Plymouth and in June 1958 moved to Rogers. During the months of April and May, 1958, his family remained in New Jersey. Thereafter they stayed with relatives in North Carolina until the fall of 1958 at which time they rejoined the petitioner in Rogers. In late 1958, the petitioner's mother came to live with his family in Rogers. She was quite ill at that time and subsequently died in May 1959.
On April 29, 1958, Daisy paid the petitioner the full amount of salary he had earned to that point (namely, from April 21 to April 30), less withholding tax and other amounts withheld. The petitioner requested that the amount of his salary for May be advanced to him. Upon the authorization of Daisy's executive vice president this was done, the petitioner receiving on April 29 an mount equal to his May salary, less withholdings. On May 29, 1958, the petitioner received the amount of agreed monthly salary, less withholdings. This amount was recorded on the payroll records of Daisy as advance salary for June 1958. From time to time further advances were made to the petitioner by Daisy upon his request and with the authorization of Daisy's executive vice president. At the times the advances were made it was the understanding of the parties that the petitioner would satisfy the advances by foregoing some salary payments, but this did not occur frequently enough to ever fully satisfy the advances. As a consequence, each salary check thereafter issued was treated on Daisy's payroll records as advance salary for a future period. As Daisy made further advances to petitioner, the length of time between the date of issuance of salary checks and the period to which they related continuously increased.
During the years 1958 through 1962 the petitioner received from Daisy his authorized salary and bonus as follows:
During such years he also received net advances from Daisy as follows:
+------------------+
¦Year ¦Advances ¦
+------+-----------¦
¦ ¦ ¦
+------+-----------¦
¦1958 ¦$583.34 ¦
+------+-----------¦
¦1959 ¦3,062.46 ¦
+------+-----------¦
¦1960 ¦3,854.20 ¦
+------+-----------¦
¦1961 ¦333.28 ¦
+------+-----------¦
¦1962 ¦500.00 ¦
+------+-----------¦
¦ ¦ ¦
+------+-----------¦
¦ ¦8,333.28 ¦
+------------------+
During the years 1958, 1959, and 1960 Daisy, in its books, treated the advances as an adjustment to its imprest payroll fund account. It did not record them as accounts receivable. During such years it treated the advances as deductible salary expense for Federal income tax purposes and withheld Federal income taxes and F.I.C.A. taxes from such amounts. Sometime in 1961, pursuant to the recommendation of its accountants with respect to a secondary security offering, Daisy began treating the advances as an account receivable in various financial statements which it utilized for purposes of publication. It continued, however, to treat such advances as an adjustment to its imprest payroll fund account on its own books and records and continued to withhold Federal income taxes and F.I.C.A. taxes from such advances.
During the years 1958 through 1962 the petitioner did not execute any notes payable in favor of Daisy, nor did he repay any of the advances. About 1965 the petitioner ceased to be vice president and comptroller of Daisy and was thereafter retained by Daisy in a consulting capacity with annual compensation of $7,500 per year. In 1968 he began making monthly payments of $200 in repayment of the advances referred to above.
Throughout the period 1956 through 1962 the petitioner maintained a check register noting thereon various expenditures which he considered to be deductible items for tax purposes.
During the period 1956 through 1962 the petitioner had severe health problems. In September 1956, while residing in Bangor, he sustained an acute myocardial infarction. After resting at home for about 1 month he was allowed to resume work on a half-time basis and about 3 weeks later he was allowed to resume work on a full-time basis.
In January or February 1958, while residing in New Jersey, he contracted pneumonia and was required to rest at home.
In February 1959, after he had moved to Rogers, a diagnosis revealed that he had diabetes mellitus. From October 15, 1959, to October 20, 1959, he was hospitalized for acute...
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