96 T.C. 858 (1991), 22366-86, DiLeo v. C.I.R.

Docket Nº:22366-86, 22367-86, 15778-87.
Citation:96 T.C. 858
Opinion Judge:NIMS, CHIEF JUDGE:
Party Name:JOSEPH R. DiLEO AND MARY A. DiLEO, ET AL.,[1] Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Jared J. Scharf and Morton A. Smith, for the petitioners. Christopher B. Sterner, for the respondent.
Case Date:June 24, 1991
Court:United States Tax Court
 
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Page 858

96 T.C. 858 (1991)

JOSEPH R. DiLEO AND MARY A. DiLEO, ET AL.,[1] Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos. 22366-86, 22367-86, 15778-87.

United States Tax Court

June 24, 1991

P1 and P2 each owned 50 percent of P3, a C corporation, and served as its president and secretary/treasurer, respectively. P3 was engaged in the business of printing and lithography. P1 and P2 ran P3's day-to-day operations and maintained its books and records. P1 and P2 opened secret bank accounts and deposited a portion of P3's gross receipts into the accounts. P1 and P2 withdrew funds from the secret bank accounts. P1 and P2 did not maintain any books or records reflecting transactions made with respect to the secret bank accounts. P3 did not report any of the gross receipts deposited into the secret bank accounts on its corporate income tax returns for the years in issue. P1 and P2 did not report any of the funds withdrawn from the secret bank accounts on their individual income tax returns for the years in issue.

HELD, P1, P2 and P3 understated the taxable income required to be shown on their income tax returns for the years in issue. HELD FURTHER, P1, P2 and P3 are liable for additions to tax for fraud under I.R.C. sec. 6653(b) for the years in issue. HELD FURTHER, P3 is liable for an addition to tax under I.R.C. sec. 6661 for 1982. HELD FURTHER, the statute of limitations does not bar assessment and collection of the deficiencies in and additions to tax due from P1, P2 and P3. HELD FURTHER, the spouses of P1 and P2 are not entitled to relief from any tax liability under the innocent spouse provisions of I.R.C. sec. 6013(e) for the years in issue. HELD FURTHER, R's use of a special agent who participated in the grand jury investigation of P1 and P2 to assist him in this case did not violate Rule 6(e), Federal Rules of Criminal Procedure, or give R an " unfair discovery advantage" because the special agent did not disclose information about matters occurring before the grand jury.

Page 859

Jared J. Scharf and Morton A. Smith, for the petitioners.

Christopher B. Sterner, for the respondent.

NIMS, CHIEF JUDGE:

Respondent determined the following deficiencies in and additions to petitioners' Federal income tax:

Additions to tax
Sec. Sec. Sec. Sec.
Petitioners Year Deficiency 6653(b) 6653(b)(1) 6653(b)(2) 6661
Joseph R. 1978 $5,068.00 $2,534.00 __ __ __
and Mary 1979 10,635.37 5,317.69 __ __ __
A. DiLeo 1980 10,303.75 5,151.87 __ __ __
1981 11,157.51 5,578.75 __ __ __
1982 12,209.45 __ $6,104.72 1 __
Walter E. and 1978 4,681.00 2,340.50 __ __ __
Michele A. 1979 12,867.89 6,433.94 __ __ __
Mycek, Jr. 1980 11,405.99 5,703.00 __ __ __
1981 5,789.00 2,894.50 __ __ __
Arcelo 1978 25,724.76 12,862.38 __ __ __
Reproduction 1979 21,959.47 10,979.74 __ __ __
Co., Inc. 1980 25,698.78 12,849.39 __ __ __
1981 21,663.52 10,831.76 __ __ __
1982 24,384.82 __ 12,192.41 2 $6,096.21
Page 860 (Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.) The issues for decision are whether (1) petitioners understated their income tax in the amounts determined by respondent in his notices of deficiency for the years in issue; (2) petitioners are liable for additions to tax for fraud under section 6653(b) for the years in issue; (3) Arcelo Reproduction Company, Inc., is liable for an addition to tax under section 6661 for 1982; (4) respondent is barred from assessing the income tax due from petitioners by the statute of limitations for the years in issue; (5) Michele Mycek and Mary DiLeo are entitled to relief from any liability for tax as innocent spouses under section 6013(e) for the years in issue; and (6) respondent's use of a person who participated in the grand jury investigation to assist him in this civil case was a violation of Rule 6(e), Federal Rules of Criminal Procedure, or gave respondent an unfair discovery advantage. FINDINGS OF FACT Some of the facts have been stipulated. The stipulation of facts and the attached exhibits are incorporated herein by this reference. Petitioner Arcelo Reproduction Company, Inc. (Arcelo), is a corporation with its sole place of business at 7 North Lawn Avenue, Elmsford, New York. Petitioners Walter E. Mycek, Jr., and Michele A. Mycek (Myceks) are married individuals with legal residence at 34 Green Valley Road, Armonk, New York. Petitioners Joseph R. DiLeo and Mary A. DiLeo Page 861 (DiLeos) are married individuals with legal residence at 55 Park Circle, White Plains, New York. Arcelo filed corporate income tax returns (Forms 1120) with respondent for the taxable years 1978, 1979, 1980, 1981 and 1982. The Myceks filed joint individual income tax returns (Forms 1040) with respondent for the taxable years 1978, 1979, 1980 and 1981. The DiLeos filed joint individual income tax returns (Forms 1040) with respondent for the taxable years 1978, 1979, 1980, 1981 and 1982. From 1978 through 1982, Arcelo was engaged in the business of printing and lithography. From 1978 through 1982, petitioner Walter E. Mycek, Jr. (Mycek) was the president of Arcelo and owner of 50 percent of its stock. From 1978 through 1982, petitioner Joseph R. DiLeo (DiLeo) was the secretary/treasurer of Arcelo and owner of 50 percent of its stock. Mycek and DiLeo were responsible for the day- to-day operations of Arcelo and the maintenance of its books and records concerning income it received and expenses it paid. On or about June 21, 1977, Mycek and DiLeo opened checking account number 408-1-018923 in the name of Arcelo at the Chase Manhattan Bank (Chase account) which served as a depository for a portion of Arcelo's gross receipts. On or about October 12, 1979, Mycek and DiLeo opened checking account number 1620-9247 in the name of Arcelo at Citibank (Citibank account) which served as a depository for a portion of Arcelo's gross receipts. On or about August 17, 1981, Mycek and DiLeo opened checking account number 1-65509-8 in the name of Arcelo at the Connecticut Bank and Trust Company (CBT account) which served as a depository for a portion of Arcelo's gross receipts. On or about December 14, 1982, Mycek and DiLeo opened checking account number 699-876 in the name of Arcelo at Bank Mart (Mart account) which served as a depository for a portion of Arcelo's gross receipts. (Hereinafter, the Chase, Citibank, CBT and Mart accounts will be collectively referred to as the secret bank accounts.) From 1978 through 1982, Mycek and DiLeo deposited the following amounts of Arcelo's gross receipts into the Chase, Citibank, CBT and Mart accounts:
Deposits 1978 1979 1980 1981 1982
Chase $78,147.32 $80,865.62 $7,992.17 $7,466.23 __
Citibank __ 2,581.28 94,841.18 46,232.42 __
CBT __ __ __ 30,253.31 $81,448.39
Mart __ __ __ __ 5,458.00
Total 78,147.32 83,446.90 102,833.35 83,951.96 86,906.39
Page 862 None of the deposits which were made to the secret bank accounts were included in the gross receipts which were reported by Arcelo on its corporate Federal income tax returns. From 1978 through 1981, Mycek received certain funds from the Chase, Citibank and CBT accounts by his receipt and negotiation of checks made payable to him on said accounts. The Myceks did not report any of the funds received from the Chase, Citibank and CBT accounts on their Federal income tax returns. The Myceks received the following amounts from the Chase, Citibank and CBT accounts:
Checks drawn 1978 1979 1980 1981
Chase $14,204 $29,777.26 $3,200 $600.00
Citibank __ __ 22,380 15,102.16
CBT __ __ __ 9,534.00
Total 14,204 29,777.26 25,580 25,236.16
From 1978 through 1982, DiLeo received certain funds from the Chase, Citibank and CBT accounts by his receipt and negotiation of checks made payable to him on said accounts. The DiLeos did not report any of the funds received by DiLeo from the Chase, Citibank and CBT accounts on their Federal income tax returns. The DiLeos received the following amounts from the Chase, Citibank and CBT accounts:
Checks drawn 1978 1979 1980 1981 1982
Chase $14,880.69 $28,444.33 $2,000.00 $2,400 __
Citibank __ __ 28,824.51 16,050 __
CBT __ __ __ 10,675 $30,640
Total 14,880.69 28,444.33 30,824.51 29,125 30,640
From 1978 through 1982, checks made payable to cash and negotiated were drawn on the Chase, Citibank and CBT accounts. The checks made payable to cash were drawn on the Chase, Citibank and CBT accounts in the following amounts:
Checks drawn 1978 1979 1980 1981 1982
Chase $2,868 $3,112 $250.00 $950 __
Citibank __ __ 7,555.30 5,372 __
CBT __ __ __ 2,750 $2,200
Total 2,868 3,112 7,805.30 9,072 2,200
Page 863 (During 1978, 1979, 1980 and 1981, checks in the amounts of $650, $950, $150 and $240, respectively, made payable to cash were drawn on the Chase and Citibank accounts and negotiated by Mycek.) Mycek and DiLeo failed to inform the accountant who prepared Arcelo's income tax returns of the existence of the secret bank accounts. Petitioners do not currently possess or have control of any books, records or other documents reflecting transactions made with respect to the secret bank accounts during the taxable years 1978 through 1982. On its corporate Federal income...

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