Crocker v. Comm'r of Internal Revenue
| Decision Date | 08 May 1989 |
| Docket Number | Docket No. 27245-86. |
| Citation | 92 T.C. No. 57,92 T.C. 899 |
| Parties | OTTIS E. CROCKER, JR. AND KAY E. CROCKER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioners, who are calendar year taxpayers, requested and received automatic extensions of time within which to file their 1981 and 1982 returns. Petitioners filed their 1981 and 1982 returns after April 15th but within the due date, as extended. Respondent determined that petitioners were liable for additions to tax under section 6651(a)(1) for failure to make a timely return for 1981 and 1982 on the basis that the applications for extensions of time were invalid because petitioners failed to comply with the Income Tax Regulations and, therefore, any extensions resulting there from were void ab initio.
Helen C. T. Smith, for the respondent.
Respondent determined additions to petitioners' income taxes for the years and in the amounts as follows:
+-------------------------------------------------------+
¦ ¦Additions to tax ¦
+----+--------------------------------------------------¦
¦Year¦Sec. 6651(a)(1)1 ¦Sec. 6653(a)(1)¦Sec. 6653(a)(2)¦
+----+------------------+---------------+---------------¦
¦1981¦$8,329.33 ¦$3,506.88 ¦* ¦
+----+------------------+---------------+---------------¦
¦1982¦5,261.97 ¦2,484.09 ¦* ¦
+-------------------------------------------------------+
FN* 50% of the interest due on the underpayments.
The issues for decision are: (1) whether petitioners are liable for additions to tax under section 6651(a)(1) because they failed to timely file their Federal income tax returns for each of the years 1981 and 1982; (2) whether petitioners are liable for additions to tax under section 6653(a)(1) and section 6653(a)(2) for the years 1981 and 1982 because their underpayment of tax was due to negligence or intentional disregard of the rules and regulations.
Some of the facts have been stipulated and are found accordingly.
During 1981 and 1982 and at the time of the filing of the petition in this case, petitioners resided in Bruce, Mississippi. During 1981 and 1982, Mrs. Crocker was employed by the Calhoun County, Mississippi Board of Education as a teacher. Mr. Crocker was an attorney licensed to practice law in the State of Mississippi. He was a sole practitioner and maintained an office in Bruce, Mississippi.
Beginning in 1979 and continuing through 1981 and 1982, Mr. Crocker performed legal work for certain oil companies which he referred to as ‘day work.‘ His job was to search county land records and attempt to buy blocks of leases from the record owners of land. In 1981 and 1982, this ‘day work‘ kept Mr. Crocker out of town during most week days. On the weekends, Mr. Crocker would return to Bruce and attempt to maintain his normal practice of law. Mr. Crocker was very busy during this period and often requested extended filing deadlines. Mr. Crocker was also involved in an automobile accident in early 1982 which caused him to fall further behind in his work.
During 1981 and 1982, petitioners earned interest, dividends, and profits from several financial institutions, corporations, and partnerships. Petitioners received Forms 1099 disclosing the amounts earned. In 1981 and 1982, and for several years prior thereto, Mrs. Crocker held an interest in Embry Operations, a family partnership controlled by her father, Mr. Embry. Mr. Embry prepared Embry Operations' K-1 partnership returns and the Forms 1099 issued by the partnership. Mr. Embry lived in Grenada, Mississippi, which is approximately 50 miles from Bruce. Mr. Embry, on behalf of Mrs. Crocker, reinvested her pro rata amount earned from Embry Operations in the partnership.
Petitioners did not keep adequate books of account or records. Mr. Crocker's secretary, Ms. Erma Fay Runer (Ms. Runer), created monthly files in which she would place Mr. Crocker's business and personal bills. However, many of petitioners' financial records, such as the Forms 1099 they received in 1981 and 1982, had been lost prior to the trial of this case.
Mr. Crocker prepared petitioners' 1980, 1981, and 1982 Federal income tax returns. On their 1980 Federal income tax return, petitioners reported total interest and dividend income of $32,493.28. In addition, petitioners reported, on Schedule C, total professional income for 1980 of $8,983.42. They also reported net income of $3,095 from Embry Operations. Relying on the advice Mr. Crocker received from an insurance salesman who sold him a Keogh plan, petitioners deducted $7,500 which Mr. Crocker contributed to the plan in 1980. Petitioners reported total tax due for 1980 of $20,756.84.
On January 21, 1982, petitioners filed an estimated tax declaration for 1981 and paid $8,000 towards their estimated 1981 tax liability. On or before April 15, 1982, petitioners requested and received from respondent a two-month automatic extension of the due date of their 1981 return. On the Form 4868, ‘Application for Automatic Extension of Time to File U.S. Individual Income Tax Return,‘ which they filed pursuant to section 6081 and section 1.6081-4, Income Tax Regs., petitioners estimated their 1981 income tax liability to be $12,000. They paid $2,000 towards this estimated liability.
On June 15, 1982, petitioners requested an additional extension of the time within which to file their 1981 return. They paid an additional $1,000 towards their estimated 1981 tax liability. Respondent granted petitioners' request and extended the filing deadline to July 15, 1982.
On July 15, 1982, petitioners filed their 1981 Federal income tax dividend income of $87,737.34. In addition, petitioners reported, on Schedule C, total professional income of $21,154.80. They also reported a net loss of $242 from Embry Operations and took a deduction of $7,500 for amounts contributed to Mr. Crocker's Keogh plan. They computed their 1981 income tax liability as $41,559.08. Petitioners claimed credit for amounts previously paid towards their estimated 1981 income tax liability, $1,619.93 withheld during 1981 from Mrs. Crocker's wages from teaching, and overpayments of their 1980 income tax liability. After these credits, they showed $22,650.81 as tax due on their 1981 income tax returns and paid this amount.
On December 20, 1982, after being contacted by respondent's agents, petitioners submitted an amended return for their 1980 tax year. The amended return was prepared, after extensive review of petitioner's records, by Mr. Boyd M. Edwards, a long-time acquaintance of petitioners and a certified public accountant. On their amended return, petitioners reported total interest and dividend income of $75,810.32. Petitioners continued to claim entitlement to a $7,500 deduction for their 1980 contribution to Mr. Crocker's Keogh plan. Petitioners submitted a check for $28,454 in payment of their increased tax liability and interest due on the delinquent amount.
On or before April 15, 1983, petitioners requested and received an automatic extension of time to file their 1982 income tax return to August 15, 1983. 2 On the Form 4868 which they filed, petitioners estimated their 1982 income tax liability to be $22,000 and paid $20,403.24 towards that estimated tax liability.
On August 17, 1983, petitioners filed their 1982 Federal income tax return. Petitioners reported total interest and dividend income of $90,424.16. They also reported, on Schedule C, professional income of $11,210.52. In addition, petitioners reported $3,495 in net income from Embry Operations and claimed a $7,500 deduction for amounts contributed to Mr. Crocker's Keogh plan. They reported a total 1982 income tax liability of $36,214.32. Petitioners remitted payment of $14,214.32 with their 1982 return and, this, along with their estimated tax payments plus amounts withheld from Mrs. Crocker's teaching salary, fully satisfied their 1982 tax liability, as reported on their return.
On March 6, 1984, respondent's agent met with petitioners to discuss their 1981 income tax liability. On this same date, respondent began an audit of petitioners' 1982 income tax return. Petitioners appointed Mr. Edwards as their representative and granted him powers of attorney with respect to their 1981 and 1982 income tax liabilities on July 16, 1984 and November 8, 1984, respectively.
As a result of the audit of petitioners' 1981 and 1982 tax returns, respondent's agent proposed an increase in petitioners' 1981 income tax of $28,578.49 and an increase in petitioners' 1982 income tax of $13,374.21 in a report dated February 14, 1985. The proposed increases in tax resulted from the following adjustments:
+-------------------------------------------------+
¦ ¦1981 ¦1982 ¦
+----------------------------+----------+---------¦
¦Interest and dividends ¦$21,093.30¦$5,078.22¦
+----------------------------+----------+---------¦...To continue reading
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