56 T.C. 297 (1971), 858-66, Estate of Beck v. C.I.R.

Docket Nº:858-66- 861-66, 4999-66.
Citation:56 T.C. 297
Opinion Judge:WITHEY, Judge:
Party Name:ESTATE OF DOROTHY E. BECK, DECEASED, JOHN F. WALTHEW, ADMINISTRATOR, ET AL., [1] PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
Attorney:George E. Constable, for the petitioners. Richard H. M. Hickok and Paul G. Wilson, Jr., for the respondent.
Case Date:May 03, 1971
Court:United States Tax Court
 
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Page 297

56 T.C. 297 (1971)

ESTATE OF DOROTHY E. BECK, DECEASED, JOHN F. WALTHEW, ADMINISTRATOR, ET AL., [1] PETITIONERS

v.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Nos. 858-66- 861-66, 4999-66.

United States Tax Court

May 3, 1971

Page 298

George E. Constable, for the petitioners.

Richard H. M. Hickok and Paul G. Wilson, Jr., for the respondent.

During the taxable years 1943 through 1953, inclusive, petitioner Dave Beck was an officer of several union entities, including the presidency of the Western Conference of Teamsters and the Joint Council of Teamsters No. 28, Seattle, Wash. In 1952, he became president of the International Brotherhood of Teamsters which position he held until 1957. During the years 1943 through 1953, Beck traveled extensively on union affairs and received regular monthly expense allowances as well as advancements for special trips from the International Union even though in most instances the International or one of the other related entities paid virtually all of his business expenses by means other than the monthly expense allowance. At no time during the aforementioned period did petitioner keep records of his travel expenses. The petitioners did not report in their Federal income tax returns the receipt of any expense allowances which Beck had received from the various union entities during this period. In January 1954, Beck was advised by the Internal Revenue Service that his returns were being audited and about a month later, he caused the deliberate destruction of the books and records of the Western Conference and the Building Association for 1953 and all prior years involved herein in order to obstruct respondent's investigation. As there were no books and records of petitioners' financial activities available (except those relating to an investment company), respondent reconstructed their income for 1943 through 1953, inclusive, by the net worth method. Shortly after Beck was told by respondent's agents that he and his wife had failed to report a substantial amount of income during the net worth period, Beck paid the Joint Council and Western Conference a total of $370,110.16 in full satisfaction of purported ‘ loans' from those union entities to him over the years.

1. Held: Underpayments of income tax by the Becks for each of the taxable years 1943 through 1953, inclusive, and 1958, determined. A part of such underpayment determined for each of the years 1943 through 1953 on the part of petitioners, and for 1958 with respect to Beck's separate return is due to fraud with intent to evade tax within the purview of sec. 293(b), I.R.C. 1939, and sec. 6653(b), I.R.C. 1954. As to the separate return of Dorothy Beck for 1958, respondent failed to prove fraud against her.

2. Held, that false and fraudulent returns were filed for each of the years 1943 through 1953, inclusive, by petitioners and 1958 by Beck and, therefore, deficiencies for those years are not barred by the statute of limitations. Since the administrator de bonis non of Dorothy Beck's estate waived the statute of limitation and extended the period of assessment of deficiencies against her until Dec. 31, 1965, the deficiency against her for 1958 is not barred by limitations.

3. Held, in each of the years 1945 to 1952, inclusive, petitioners are liable for additions to the tax under sec. 294(d)(2) of the 1939 Code by reason of the Becks' substantial underestimation of taxes in their declaration of estimated taxes for those years.

4. Held, the rental value to the Becks of the home provided for them by the International Union rent-free in the years 1958 and 1959 and at a rental of $400 per month in 1960 and 1961 was $1,000 per month in each of those years.

5. Held, the Becks in 1960 received from Sunset Distributors, Inc., inter alia, a 10-year lease agreement on a building conveyed to petitioner by Sunset in settlement of Beck's lawsuit against the corporation having a fair market value of at least $85,000, which in fact constituted compensation to Beck in that year for services performed in the past,

6. Held, the Becks are not entitled to deduct from their Federal income taxes in 1960 and 1961 alleged interest expenses paid on behalf of two individuals.

Page 299

WITHEY, Judge:

These consolidated proceedings involve the determination of deficiencies in income tax and additions to tax as follows:

Additions to tax
Year Deficiency 1939 Code 1954 Code
Sec. 293(b) Sec. 294(d)(2) Sec. 6653(b)
Estate of Dorothy E. Beck, deceased, docket No. 858-66
1943 $1,489.06 $744.53
1944 1,462.02 732.01
1945 3,628.91 1,814.16 $217.73
1946 8,141.00 4,070.50 488.46
1947 8,714.41 4,357.21 545.97
1958 26,932.45
1959 22,307.15
1960 43,720.90
Dave Beck, docket No. 860-66
1943 $1,444.46 $722.23
1944 1,479.01 739.51
1945 3,698.08 1,849.04 $177.26
1946 8,141.00 4,070.50 487.44
1947 8,714.41 4,357.21 545.97
1958 27,017.46
1959 22,307.15
1960 43,470.50
Estate of Dorothy E. Beck, deceased, docket No. 859-66, Dave Beck, docket No. 861-66
1948 $46,340.22 $23,170.11 $2,987.83
1949 40,641.57 21,041.98 2,518.64
1950 69,594.72 34,797.36 3,974.74
1951 92,987.54 46,493.77 5,497.59
1952 110,155.14 55,077.57 6,688.97
1953 23,476.32 11,738.16
1961 11,808.47
Estate of Dorothy E. Beck, deceased, John F. Walthew, Administrator, docket No. 4999-66
Estate tax deficiency
The cases were consolidated for hearing pursuant to agreement of the parties. The respondent computed deficiencies for the taxable years 1943 through 1953 by use of the net worth and expenditures method. Separate returns were filed for 1943 through 1947 and joint returns were filed for 1948 through 1953. Respondent has asserted the additions to tax for fraud against both Dave and Dorothy Beck for all of the taxable years 1943 through 1953 which are barred by the statute of limitations in the absence of fraud. During the years 1954 through 1957, petitioner paid $370,110.16 to certain unions which, petitioners asset, was the repayment of funds borrowed during 1943 through 1953. Respondent issued no deficiency notices for 1954 through 1957. Respondent determined deficiencies for 1958 on three specific item adjustments. Separate returns were filed for 1958 and both deficiencies Page 300 are barred in the absence of fraud which respondent asserted against both petitioners. Deficiencies for the taxable years 1959 through 1961 are based on technical adjustments. All issues in the estate tax case (docket No. 4999-66) were settled by the parties at the trial with the exception that any deficiencies in income tax and additions to tax which may be found due by the Court in docket No. 858-66 and 859-66, together with interest thereon, will be a deduction allowable in the estate tax case. In addition, attorneys' fees and administrators' fees incurred after trial will be negotiated pursuant to Rule 51. Many of the adjustments which give rise to the deficiencies asserted in these cases have been resolved in whole or in part by the parties and are not in issue herein either by reason of express concession by the parties hereto or because they were not contested in the pleadings. This case was heard in February 1969 during a period of 8 days. The evidence consisted, inter alia, of a 110-page stipulation of facts, 12 supplemental stipulations, and respondent's exhibits A through FQ; also, the parties stipulated that certain portions of the transcript (substantially all pages) which included over 10,600 pages of testimony of the criminal proceedings in the U.S. District Court for the Western District of Washington, Southern Division, entitled United States v. David D. Beck, et al., No. 16515 and No. 16526, is to be regarded as testimony in the instant proceeding. In addition, the evidence in the instant trial consisted of verbal stipulations of the parties, exhibits of petitioners, testimony of 15 witnesses, and about 900 pages of transcript. The principal issues presented for our consideration are: DOCKET NOS. 858-66 TO 861-66, INCLUSIVE (1) Whether petitioners received income in the taxable years 1943 to 1953 and 1958 which they failed to report in their Federal income tax returns filed for those years and the extent thereof; (2) Whether any part of the deficiency determined against petitioners in docket Nos. 858-66 to 861-66, inclusive, for each of the taxable years 1945 to 1953, inclusive, and 1958, was due to fraud with intent to evade tax within the meaning of section 293(b) of the 1939 Code and section 6653(b) of the 1954 Code. (3) Whether the assessment and collection of deficiencies determined for the taxable years 1943 to 1953, inclusive, and 1958 are barred by the statute of limitations as provided by section 275(a) of the 1939 Code and section 6051(a) of the 1954 Code; (4) Whether the petitioners in docket Nos. 858-66 to 861-66, inclusive, Page 301 are liable for additions to tax under section 294(d)(2) of the 1939 Code in the years 1945 to 1952, inclusive, by reason of substantial underestimation of their declaration of estimated tax in those years; (5) Whether the fair market value of living quarters furnished to the Becks by the International Brotherhood of Teamsters in 1958 to 1961, inclusive, was $12,000 per year, as determined by respondent; DOCKET NOS. 858-66 AND 860-66 (6) Whether the amount of $1,514.95 received by Dave Beck as a travel allowance from the International Brotherhood of Teamsters in 1958 was expended by him for a valid business purpose;...

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