Weimerskirch v. Comm'r of Internal Revenue

• Decision Date: 17 January 1977
• Docket Number: Docket No. 6317-74.
• Parties: JOHNNY WEIMERSKIRCH, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

67 T.C. 672

JOHNNY WEIMERSKIRCH, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 6317-74.

United States Tax Court

Filed January 17, 1977.

Respondent determined a deficiency against petitioner, his determination being based in part upon statements from confidential informers regarding petitioner's alleged business of selling heroin. Held, based upon the testimony of the revenue agent and in camera inspection by the Court of the confidential informers' statements, respondent's determination was not arbitrary or unreasonable and petitioner therefore had the burden to rebut such determination. Held, further, on the facts, petitioner is not entitled to disclosure of the names of the informers, nor to the confidential file used by respondent's revenue agent to refresh his recollection prior to testifying. Held, further, since petitioner introduced no evidence, respondent's determination is sustained as to the deficiency, late filing penalty, and self-employment tax. Robert E. Kovacevich, for the petitioner.

T. N. Tomashek, for the respondent.

HALL, Judge:

Respondent determined an $8,356 deficiency in petitioner's 1972 Federal income tax. Respondent also asserted a late filing penalty of $1,453.75 under section 6651(a).¹

The issues raised are as follows:

(1) Whether petitioner had unreported income in 1972 from the sale of heroin.

(a) Whether respondent's determination was arbitrary and unreasonable.

(b) Whether petitioner is entitled to the names of two confidential informers upon whose information respondent partially based his determination letter.

(c) Whether petitioner is entitled to review the file used by respondent's revenue agent to refresh his recollection prior to testifying.

(2) Whether the late filing of petitioner's return was due to reasonable cause.

(3) Whether petitioner was subject to the self-employment tax under section 1401.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

At the time petitioner filed his petition he resided in the State of Washington.

Petitioner graduated from high school in Coulee City, Wash., in June 1969. The summer following graduation he worked on his parents' farm. During the academic year 1969-70 he attended Spokane Community College full time. The summer following completion of his first year of college, he returned to his parents' farm to work. He attended Spokane Community College part time during the academic year 1970-71. During that school year he helped his parents by picking up spare parts for their farm machinery from suppliers in Spokane. Thereafter he did not attend school, but did continue to help his parents by doing errands for them.

In 1972 petitioner's parents gave him at least $1,900, including $370 wages which they deducted as a business expense. His parents also made him gifts of groceries.

Respondent determined that petitioner had unreported income from the sale of heroin in 1972. On the basis of information received from two informers, together with additional information from the Drug Enforcement Administration of the Department of Justice, the Yakima Police Department, and the Spokane Police Department, respondent concluded that petitioner had sold heroin from the late spring of 1972 until the end of 1974. In the statutory notice respondent calculated this unreported income in 1972 in the following manner: He first determined that petitioner had sold heroin during at least 25 weeks in 1972; that in each week petitioner sold approximately 70 quarter spoons of heroin, and that a quarter spoon of heroin sold for $30. Respondent thereafter determined petitioner's weekly sales revenue to be $2,100. Respondent next deducted from the weekly revenue figure the cost of the heroin sold, which he determined to be $900 per week. Thus respondent determined that petitioner's weekly net income was $1,200, resulting in net income for the 25 weeks of $30,000. Respondent allowed no other expenses to petitioner in calculating the amount of his unreported income.

Under section 6851 respondent terminated petitioner's 1972 year as of November 30, 1972. Respondent then assessed and collected $3,179 tax for that period. Petitioner did not file his 1972 income tax return until September 4, 1973. On his return he reported wages of $370 and other income of $5,392. Respondent in his statutory notice of deficiency determined that petitioner had $24,608 of additional income which he had failed to report on his return. After allowing petitioner the standard deduction and a personal exemption, respondent calculated that petitioner had a total tax liability of $8,994 and a deficiency in tax of $8,356. Respondent allowed as a credit against the tax owed the $3,179 which he had earlier collected from petitioner.

OPINION

The first issue is whether petitioner has overcome the presumptive correctness of respondent's determination that petitioner had unreported net profits from the sale of narcotics in 1972.

At the trial petitioner made an oral motion to shift the burden of proof to respondent and called the revenue agent as a witness in support of his motion. The revenue agent testified in detail regarding the method he employed in computing petitioner's income for 1972. He obtained the factual basis for his computation of omitted income attributable to sales of heroin from statements of two confidential informers and information from the Drug Enforcement Administration of the Department of Justice, the Yakima Police Department, and the Spokane Police Department. The burden was on petitioner to show that respondent's determination was arbitrary and unreasonable. Helvering v. Taylor, 293 U.S. 507 (1935); Harold E. Harbin, 40 T.C. 373, 376 (1963). On the evidence presented we held that respondent's determination was not arbitrary and unreasonable and denied petitioner's motion to shift the burden of proof. While the revenue agent's testimony was hearsay, not admissible with respect to the substantive issue of whether petitioner had unreported income from narcotics sales, it was admissible to show how respondent arrived at his determination set forth in the statutory notice. Respondent is not required to base his determination solely on admissible evidence. Anthony Delsanter, 28 T.C. 845, 858 (1957); Terry C. Rosano, 46 T.C. 681, 687 (1966); Efrain T. Suarez, 58 T.C. 792, 817 (1972) (concurring opinion). We are still of the opinion that the determination letter was not arbitrary or unreasonable.

In view of our refusal to shift the burden of proof to respondent, the burden remains with petitioner. Rule 142, Tax Court Rules of Practice and Procedure. Petitioner's mother testified that she and her husband paid their son $370 in wages and made him cash gifts of approximately $1,600 in 1972. They also made him gifts of groceries. Petitioner elected not to take the stand and testify in his own behalf, which helps explain the meager record in this case. We conclude from the record before us that petitioner has not overcome the presumption of correctness of the statutory notice with respect to the omitted income from the sales of heroin. ‘The presumption in favor of the Commissioner is a procedural device which requires the taxpayer to come forward with enough evidence to support a finding contrary to the Commissioner's determination.’ Rockwell v. Commissioner, 512 F.2d 882, 885 (9th Cir. 1975), affg. a Memorandum Opinion of this Court, cert. denied 423 U.S. 1015 (1975). Petitioner has failed to do this.

Petitioner asserts that the Court's refusal to order respondent to disclose the names of two confidential informers who provided data upon which the deficiency was based deprived petitioner of a fair trial. We disagree.

Trials before this Court are conducted in accordance with the rules of evidence used by the United States District Court for the District of Columbia. Sec. 7453; Rule 143(a), Tax Court Rules of Practice and Procedure. That District Court uses the Federal Rules of Evidence. Section 501 thereof provides in part:

Except as otherwise required by the Constitution of the United States or provided by Act of Congress or in rules prescribed by the Supreme Court pursuant to statutory authority, the privilege of a witness, person, government, State, or political subdivision thereof shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience. * * *

The Government's privilege not to disclose the identity of its informers existed at common law. Wigmore, Evidence, sec. 2374 (McNaughton ed. 1961). ² The Supreme Court, in Roviaro v. United States, explained the nature and reach of this privilege as follows ( 353 U.S. 53, 59-62 (1957)):

What is usually referred to as the informer's privilege is in reality the Government's privilege to withhold from disclosure the identity of persons who furnish information of violations of law to officers charged with enforcement of that law. * * * The purpose of the privilege is the furtherance and protection of the public interest in effective law enforcement. The privilege recognizes the obligation of citizens to communicate their knowledge of the commission of crimes to law-enforcement officials and, by preserving their anonymity, encourages them to perform that obligation.

The scope of the privilege is limited by its underlying purpose. Thus, where the disclosure of the contents of a communication will not tend to reveal the identity of an informer, the contends are not privileged. Likewise, once the identity of the informer has been disclosed to those who would have cause to resent the communication, the privilege is no longer applicable.

A further limitation on the applicability of the privilege arises from the fundamental requirements of fairness. Where the disclosure of an informer's identity, or of the contents of his communication, is relevant and helpful to the defense of an accused, or is...