Petzoldt v. Comm'r of Internal Revenue
| Decision Date | 29 March 1989 |
| Docket Number | 34408-85.,Docket Nos. 34853-84 |
| Citation | 92 T.C. 661,92 T.C. No. 37 |
| Parties | CHARLES PETZOLDT, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
In May 1984 P was arrested for speeding in Florida. The arresting officer found $610,712.42 in cash in the automobile P was driving, as well as some marijuana, two controlled substances, drug paraphernalia, and P's passport. P claimed ownership of the cash. P further, through certain ‘drug ledgers,‘ was linked with drug purchases totaling $3,053,430 made in 1983 and 1984. Using the cash expenditures method of income reconstruction, R determined that P had unreported income from drug trafficking for 1983 in the amount of the drug purchases and for 1984 in the amount of the drug purchases, the cash found in his possession, and estimated living expenses for that year. P objected to the admission of the drug ledgers as hearsay. P further refused to appear at trial, claiming a blanket Fifth Amendment privilege against testifying. R requested the Court apply a negative inference from P's reliance on the Fifth Amendment. HELD, the drug ledgers are admissible under Rule 803(24) of the Federal Rules of Evidence. HELD FURTHER, R submitted sufficient substantive evidence linking P to the sale of marijuana; therefore, P has the burden of going forward as well as the burden of proving through substantive evidence that R's determination is arbitrary or erroneous. HELD FURTHER, to indiscriminately draw a negative inference from P's refusal to testify would improperly impinge upon P's right to claim the Fifth Amendment privilege against self-incrimination, but to draw no negative inferences here would permit P to use the Fifth Amendment privilege as a sword rather than as a shield. Therefore, negative inferences only as specified are drawn from P's failure to testify. HELD FURTHER, R's deficiency determination upheld. HELD FURTHER, self-employment tax upheld. HELD FURTHER, the addition to tax for fraud upheld. HELD FURTHER, the addition to tax for failure to pay estimated tax upheld. Jordan Green and David C. Alexander III, for the petitioner.
James J. Everett, for the respondent.
Respondent determined deficiencies and additions to tax in petitioner's Federal income taxes as follows:
+-------------------------------------------------+
¦ ¦ ¦Additions to tax ¦
+----+----------+---------------------------------¦
¦ ¦ ¦Sec. ¦Sec. ¦Sec. ¦
+----+----------+--------------+----------+-------¦
¦Year¦Deficiency¦6653(b)(1) 1 ¦6653(b)(2)¦6654 ¦
+----+----------+--------------+----------+-------¦
¦1983¦$861,136 ¦$430,568 ¦* ¦$52,737¦
+----+----------+--------------+----------+-------¦
¦1984¦963,717 ¦481,859 ¦** ¦60,589 ¦
+----+----------+--------------+----------+-------¦
¦ ¦ ¦ ¦ ¦ ¦
+-------------------------------------------------+
FN* 50 percent of the interest due on $861,136.FN** 50 percent of the interest due on $963,717.FN1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954, as amended and in effect for the years in issue, and all rule references are to the Tax Court Rules of Practice and Procedure.
The issues for determination are:
1. Whether petitioner had unreported income for the years in issue in the amount determined by respondent.
2. Whether petitioner is liable for the addition to tax under section 6653(b) for fraud.
3. Whether petitioner is liable for the failure to pay addition to tax under section 6654(a) for failure to pay estimated income tax.
Some of the facts are stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Petitioner resided in Chatsworth, California, when he filed his petition in this case.
Petitioner met William Muniz (hereinafter referred to as ‘Muniz‘) at the Flying Tigers Air Museum in Paris, Texas, sometime in March 1980. At that time, Muniz was repairing a DC-4 to prepare the airplane to fly to Colombia, South America, to pick up a load of marijuana to bring back to this country.
Petitioner at that time was involved with the crew of a different DC-4 which also was being prepared to fly to Colombia, South America, for a load of marijuana to be brought back to the United States. The pilot of petitioner's airplane asked Muniz to teach petitioner the duties of a flight engineer so that he could go along on that mission.
Muniz and petitioner were together in Paris, Texas, in March and April, 1980 off and on for a period of between four to six weeks. During this time, petitioner told Muniz that petitioner recently had returned from Colombia, South America, where he had gone on a ‘scouting mission‘ for the landing strip there and procedures and/or techniques in coming into Colombia and leaving with marijuana. Petitioner's passport reflects that he made a trip to Colombia, South America, in 1979.
During the time Muniz and petitioner were together in Paris, they exchanged stories on how each man previously had smuggled marijuana across the border from Mexico into the United States.
While in Paris, Texas, petitioner was called ‘Chuch,‘ ‘Chuck,‘ and a couple of other derivatives of ‘Chuch.‘ Muniz heard petitioner's friends and certain unnamed Mexicans call petitioner a name which sounded something like ‘Chack.‘
After he left Paris, Texas, Muniz did not see petitioner again until August 1982.
At this meeting petitioner told Muniz that petitioner had just flown in a load of marijuana from Mexico to Colorado in an Aero Commander airplane recently purchased by petitioner. He also told Muniz that petitioner wanted to hire a new pilot to do the same thing. Petitioner wanted to replace the old pilot because petitioner was having trouble getting the money for the marijuana the pilot was given to sell.
Petitioner hired Muniz to pilot petitioner's airplane to smuggle marijuana into the United States from Mexico. Muniz was to be paid $50,000 for this purpose.
After this meeting, petitioner returned to California to collect additional money from the sale of the marijuana he recently had smuggled into the country. One week later Muniz flew to San Diego to begin the new drug smuggling venture with petitioner.
Petitioner was in charge of running the whole operation pertaining to the smuggling of marijuana from Mexico to Colorado in his Aero Commander. Other individuals were involved with petitioner in this endeavor, 2 including the ‘head man‘ who lived in the Laurel Canyon area of Los Angeles, California. In September 1982, petitioner located a ‘stash house‘ 3 to store the marijuana which Muniz was to fly in from Mexico for petitioner. Petitioner also made arrangements for the vehicles and ground crews needed for this operation.
In September 1982, Muniz flew petitioner's airplane to Guadalajara, Mexico, to bring back a 600- to 850-pound load of marijuana. The mission was aborted, however, when Muniz's guide was not able to locate the landing strip there. Muniz returned to the United States and landed in McAllen, Texas, where the plane was met by agents of the United States Customs Service, the Drug Enforcement Administration (hereinafter referred to as ‘DEA‘), and others. Since there was no contraband on the plane, the government agents let Muniz go on his way.
As soon as Muniz saw petitioner following the aborted mission, Muniz suggested that the operation be terminated. Petitioner, however, told Muniz that petitioner was under pressure and that he wanted to follow through with the operation. Petitioner offered Muniz $75,000 and some marijuana to sell as an inducement to continue the operation. Furthermore, at the suggestion of the ‘head man‘ in Los Angeles, petitioner gave Muniz the Aero Commander. The airplane at the time was worth between $30,000 and $40,000. Muniz and petitioner parted company sometime after this; Muniz never actually flew a load of marijuana with or for petitioner.
Muniz testified at the trial under a grant of immunity pursuant to an arrangement with the United States Attorney, Tucson, Arizona. The terms of the grant of immunity are not in the record.
On March 23, 1984, officers of the Pima County, Arizona, Sheriff's Office (hereinafter referred to as ‘the Sheriff's Office‘) responded to a burglary-in-progress call at a residence at 11481 East Speedway, Tucson, Arizona (hereinafter referred to as ‘the Speedway residence‘). Upon entering the Speedway residence, the officers observed a large quantity of marijuana. The officers then arrested the persons found on the premises.
An officer with the Sheriff's Office contacted Roger Wallace, an agent with the DEA in Tucson, about the marijuana found at the Speedway residence. After the DEA agents arrived at the Speedway residence, the Sheriff's Office asked the DEA to assume jurisdiction over the case.
The DEA agents that day obtained warrants authorizing the search of the Speedway residence and a residence at 521 South Placita Quince, Tucson, Arizona (hereinafter referred to as ‘the Placita Quince residence‘). Under these search warrants, the DEA agents seized approximately 30,000 pounds of marijuana, drug ledgers 4 and other papers, some weapons, and some drug paraphernalia at the Speedway residence and approximately 10,000 pounds of marijuana, drug ledgers and other papers, and drug paraphernalia at the Placita Quince residence.
Based on the information seized at the Speedway and Placita Quince residences, the DEA agents obtained search warrants on March 26, 1984, for a residence at 1000 North Camino Cordon, Tucson, Arizona (hereinafter referred to ‘the Camino Cordon residence‘), and 3492 East Calle Chica, Tucson, Arizona (hereinafter referred to as ‘the Calle Chica residence‘). The DEA agents seized additional drug ledgers at the Camino Cordon and Calle Chica residences.
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