Grosshandler v. Comm'r of Internal Revenue
| Decision Date | 02 October 1980 |
| Docket Number | Docket No. 5260-76. |
| Citation | 75 T.C. 1 |
| Parties | STANLEY GROSSHANDLER, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
P, an attorney engaged in private law practice, admitted he failed to file Federal income tax returns for the years 1966 through 1969, but contended that he did file returns for the years 1963, 1964, and 1965. His direct testimony at trial and memory regarding facts was purportedly refreshed by use of hypnosis. Held:
1. P's testimony, as purportedly refreshed through hypnosis, was too dubious to render it admissible. But even if admissible, the Court gives no weight to it under the particular circumstances.
2. P failed to file Federal income tax returns for the years 1963, 1964, and 1965.
3. Assessment of the taxes is not barred by the statute of limitations.
4. Respondent proved the sec. 6653(b), I.R.C. 1954, additions to tax for fraud by clear and convincing evidence.
5. P is liable for the sec. 6654 additions to tax for failure to make timely estimated tax payments. Richard M. Kates, for the petitioner.
Francis J. Emmons, for the respondent.
Respondent determined the following deficiencies in petitioner's Federal income taxes and additions to tax:
+-------------------------------------------------------+
¦ ¦ ¦Addition to tax ¦Addition to tax ¦
+------+------------+-----------------+-----------------¦
¦Year ¦Deficiency ¦sec. 6653(b) ¦sec. 66541 ¦
+------+------------+-----------------+-----------------¦
¦ ¦ ¦ ¦ ¦
+------+------------+-----------------+-----------------¦
¦1963 ¦$4,203.84 ¦$2,101.92 ¦0 ¦
+------+------------+-----------------+-----------------¦
¦1964 ¦17,464.89 ¦8,732.45 ¦$443.69 ¦
+------+------------+-----------------+-----------------¦
¦1965 ¦5,872.99 ¦2,936.50 ¦157.19 ¦
+------+------------+-----------------+-----------------¦
¦1966 ¦9,862.97 ¦4,931.48 ¦264.81 ¦
+------+------------+-----------------+-----------------¦
¦1967 ¦30,210.14 ¦15,105.07 ¦966.72 ¦
+------+------------+-----------------+-----------------¦
¦1968 ¦3,148.89 ¦1,574.45 ¦98.55 ¦
+------+------------+-----------------+-----------------¦
¦1969 ¦25,681.26 ¦12,840.63 ¦755.87 ¦
+-------------------------------------------------------+
In the alternative, the respondent has alleged that, if the Court should decide that the petitioner is not liable for the section 6653(b) additions to tax for fraud for any year at issue, the petitioner is liable for the additions to tax for delinquency under section 6651(a) and for the additions to tax for negligence under section 6653(a) with respect to each year.
The parties have agreed as to the amounts of taxable income received by the petitioner for all of the years before the Court. Oral concessions have been made by the petitioner. The issues remaining for our decision are:
(1) Whether that portion of petitioner's direct testimony relating to his memory, as allegedly refreshed by hypnosis, is admissible in the circumstances present in this case and, if so, the weight that should be given to such testimony.
(2) Whether the petitioner failed to file Federal income tax returns for the years 1963, 1964, and 1965.
(3) Whether the assessment and collection of petitioner's Federal income taxes for each of the taxable years 1963, 1964, and 1965 are barred by the statute of limitations.
(4) Whether any part of the underpayment of income tax for each of the years 1963 through 1969 was due to petitioner's fraud with intent to evade tax.
(5) Whether, alternatively, the petitioner is liable for the additions to tax under sections 6651(a) and 6653(a), respectively, for the years 1963 through 1969.
(6) Whether the petitioner is liable for the additions to tax under section 6654 for failure to make estimated tax payments for each of the years 1964 through 1969.
Some of the facts are stipulated. The stipulations of facts, together with the exhibits attached thereto, are incorporated herein by this reference.
Stanley Grosshandler (petitioner) was a legal resident of Highland Park, Ill., during the taxable years 1963 through 1969 and on June 14, 1976, when he filed his petition in this case. The statutory notice of deficiency herein was mailed to petitioner on March 15, 1976.
During the years 1963 through 1969, the petitioner was an attorney who was licensed to practice law by the State of Illinois. He maintained a law office at 4 South Genesee Street, Waukegan, Ill. Except for a short period of time during late 1969 when petitioner was employed by the real estate development company of Kaufman & Broad Homes, Inc., he was actively engaged in the practice of law as a sole practitioner.
During the taxable years 1963 through 1969, the petitioner's legal practice and his employment at Kaufman & Broad Homes, Inc., generated the following gross receipts:
+------------------------+
¦Year ¦Gross receipts ¦
+------+-----------------¦
¦ ¦ ¦
+------+-----------------¦
¦1963 ¦$27,924.00 ¦
+------+-----------------¦
¦1964 ¦62,185.50 ¦
+------+-----------------¦
¦1965 ¦68,917.85 ¦
+------+-----------------¦
¦1966 ¦60,368.12 ¦
+------+-----------------¦
¦1967 ¦93,883.34 ¦
+------+-----------------¦
¦1968 ¦41,630.99 ¦
+------+-----------------¦
¦1969 ¦64,136.03 ¦
+------+-----------------¦
¦Total ¦419,045.83 ¦
+------------------------+
During the taxable years 1963 through 1969, the petitioner incurred the following business expenses in the operation of his law office:
+---------------------------+
¦Year ¦Business expenses ¦
+------+--------------------¦
¦ ¦ ¦
+------+--------------------¦
¦1963 ¦$10,870.44 ¦
+------+--------------------¦
¦1964 ¦36,386.02 ¦
+------+--------------------¦
¦1965 ¦48,368.88 ¦
+------+--------------------¦
¦1966 ¦41,664.00 ¦
+------+--------------------¦
¦1967 ¦72,544.49 ¦
+------+--------------------¦
¦1968 ¦22,291.25 ¦
+------+--------------------¦
¦1969 ¦29,383.64 ¦
+------+--------------------¦
¦Total ¦261,508.72 ¦
+---------------------------+
During the taxable years 1963 through 1968, the petitioner's distributive share of losses generated by a real estate partnership were as follows:
+-----------------------------+
¦ ¦Petitioner's share ¦
+------+----------------------¦
¦Year ¦of partnership loss ¦
+------+----------------------¦
¦ ¦ ¦
+------+----------------------¦
¦1963 ¦$658.44 ¦
+------+----------------------¦
¦1964 ¦292.89 ¦
+------+----------------------¦
¦1965 ¦215.79 ¦
+------+----------------------¦
¦1966 ¦287.19 ¦
+------+----------------------¦
¦1967 ¦363.82 ¦
+------+----------------------¦
¦1968 ¦186.53 ¦
+------+----------------------¦
¦Total ¦2,004.66 ¦
+-----------------------------+
For the taxable years 1963 through 1969, the petitioner's adjusted gross income was as follows:
For the taxable years 1963 through 1969, the petitioner had the following amounts of allowable itemized deductions:
+-----------------------------+
¦ ¦Allowable ¦
+------+----------------------¦
¦Year ¦itemized deductions ¦
+------+----------------------¦
¦ ¦ ¦
+------+----------------------¦
¦1963 ¦$3,183.54 ¦
+------+----------------------¦
¦1964 ¦2,800.24 ¦
+------+----------------------¦
¦1965 ¦2,923.56 ¦
+------+----------------------¦
¦1966 ¦2,395.42 ¦
+------+----------------------¦
¦1967 ¦3,727.51 ¦
+------+----------------------¦
¦1968 ¦4,881.19 ¦
+------+----------------------¦
¦1969 ¦3,299.66 ¦
+------+----------------------¦
¦Total ¦23,211.12 ¦
+-----------------------------+
During the taxable years 1963, the petitioner was entitled to claim dependency exemptions for himself, his wife, and three dependent children. During the remaining years at issue, he was entitled to claim dependency exemptions for the same individuals plus one additional child.
Petitioner's taxable income for the years 1963 through 1969 was as follows:
+------------------------+
¦Year ¦Taxable income ¦
+------+-----------------¦
¦ ¦ ¦
+------+-----------------¦
¦1963 ¦$10,211.58 ¦
+------+-----------------¦
¦1964 ¦19,196.35 ¦
+------+-----------------¦
¦1965 ¦13,809.62 ¦
+------+-----------------¦
¦1966 ¦12,421.51 ¦
+------+-----------------¦
¦1967 ¦13,647.52 ¦
+------+-----------------¦
¦1968 ¦10,672.02 ¦
+------+-----------------¦
¦1969 ¦27,852.73 ¦
+------+-----------------¦
¦Total ¦107,721.33 ¦
+------------------------+
Petitioner obtained his undergraduate degree from Roosevelt College, Chicago, Ill. He also did some of his undergraduate study at Ohio State University and the University of Pittsburgh. He obtained his law degree at Northwestern University School of Law in 1953.
After graduation from law school, the petitioner was employed by the city of Highland Park, Ill., as an assistant corporation counsel. During this period of time, he also maintained a small private law office in Highland Park, Ill.
During the years 1958 through...
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