Acker v. Commissioner of Internal Revenue

• Decision Date: 03 September 1958
• Docket Number: No. 13320.,13320.
• Citation: 258 F.2d 568
• Parties: Fred N. ACKER, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Sixth Circuit

258 F.2d 568 (1958)

Fred N. ACKER, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 13320.

United States Court of Appeals Sixth Circuit.

June 18, 1958.

Rehearing Denied September 3, 1958.

COPYRIGHT MATERIAL OMITTED

Fred N. Acker, in pro. per.

Helen A. Buckley, Washington, D. C., Charles K. Rice, Asst. Atty. Gen., Joseph F. Goetten, Lee A. Jackson, Robert N. Anderson, Charles B. E. Freeman, Dept. of Justice, Washington, D. C., on brief, for respondent.

Before SIMONS, Chief Judge, MILLER, Circuit Judge, and MATHES, District Judge.

MATHES, District Judge.

The Tax Court sustained in toto respondent's determinations of deficiencies in petitioner's income tax and additions thereto under Int.Rev.Code of 1939 §§ 291(a), 294(d) (1) (A), and 294(d) (2), 26 U.S.C.A. §§ 291(a), 294(d) (1) (A), (2) for the years 1947-1950 inclusive.

Petitioner does not question here the correctness of the additions to tax under § 291(a), but challenges the validity of all the deficiency determinations and additions to tax under §§ 294(d) (1) (A) and 294(d) (2) for each of the years involved.

The facts, as set out in the Tax Court's Memorandum Findings of Fact and Opinion 16 CCH Tax Ct. Memo. 89 (1957), are not in controversy. Petitioner is an attorney and a resident of Ohio. During the relevant period petitioner was a stockholder, in some instances the sole stockholder, in several corporations. All but one of the deficiency determinations in issue upon this review concern activities of petitioner with respect to one or more of those corporations.

Petitioner not only disputes the correctness of the Tax Court's application of the Code sections involved; he also attacks the constitutionality in general of the income tax provisions of the Internal Revenue Code of 1939, and the constitutionality in particular of the requirement that a declaration of estimated tax be filed.

Inasmuch as the constitutional issues need not be reached if, as petitioner contends, the Tax Court incorrectly interpreted and applied the pertinent sections of the Internal Revenue Code of 1939, we turn first to the statutory questions. See: Rescue Army v. Municipal Court, 1947, 331 U.S. 549, 568-575, 67 S.Ct. 1409, 91 L.Ed. 1666; Ashwander v. Tennessee Valley Authority, 1936, 297 U.S. 288, 341, 345-348, 56 S.Ct. 466, 80 L.Ed. 688 (concurring opinion of Mr. Justice Brandeis).

In 1947, 1948, and 1949, petitioner personally paid real estate taxes on Ohio property owned by a corporation which in turn was wholly owned by him. Petitioner admits that title was kept in the corporation solely for his own convenience, that the property taxes were assessed against the corporation, and that within the period in question the corporation transacted business by selling some of the property. The Tax Court was clearly correct in sustaining respondent's determination that under the circumstances the property taxes were not deductible by petitioner. Int.Rev. Code of 1939, § 23(c) (1), 26 U.S.C.A. § 23(c) (1); Treasury Regulation 111 § 29.23(c)-1, 26 C.F.R. (1949); Moline Properties, Inc., v. Commissioner, 1943, 319 U.S. 436, 63 S.Ct. 1132, 87 L.Ed. 1499; Magruder v. Supplee, 1942, 316 U. S. 394, 62 S.Ct. 1162, 86 L.Ed. 1555; Gilken Corp. v. Commissioner, 6 Cir., 1949, 176 F.2d 141; Brudno v. Commissioner, 6 Cir., 1943, 138 F.2d 779; and see Simon J. Murphy Co. v. Commissioner, 6 Cir., 1956, 231 F.2d 639.

In 1950 petitioner was convicted and imprisoned for willful failure to file an income tax return for 1946. In his unsuccessful defense of this criminal prosecution petitioner expended $2,290 for legal expenses and bond costs which he urges are deductible, apparently under Int.Rev.Code of 1939, § 23(a), on the theory that defending against criminal charges is "an absolute necessity" for an attorney and that his fight in the criminal case greatly enhanced his reputation. The Tax Court properly sustained respondent's disallowance of this deduction. "A taxpayer who has been prosecuted under a federal or state statute and convicted of a crime has not been permitted a tax deduction for his attorney's fee." Commissioner of Internal Revenue v. Heininger, 1943, 320 U.S. 467, 473, 64 S.Ct. 249, 253, 88 L.Ed. 171, note 8; Estate of Albert E. MacCrowe, 14 CCH Tax Ct. Memo. 958 (1955), affirmed, on this point and reversed on other grounds, MacCrowe's Estate v. C. I. R., 4 Cir., 1956, 240 F.2d 841; see: Tank Truck Rentals, Inc., v. Commissioner, 1958, 356 U.S. 30, 78 S.Ct. 507, 2 L.Ed. 2d 562; Hoover Motor Express Co. v. United States, 1958, 356 U.S. 38, 78 S.Ct. 511, 2 L.Ed.2d 568.

In 1947 petitioner loaned $8,500 to a corporation in which he owned stock, and the loan became worthless during that year. In 1948 petitioner was required to pay a note which he had guaranteed for another corporation in which he owned stock, resulting in a $3,465.49 loss to him. Respondent determined that both of these losses were deductible only as non-business bad debts, required to be treated as short term capital losses Int. Rev.Code of 1939, § 23(k) (4), and so subject to the amount limitation specified in § 117(d) (2) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 117(d) (2). The Tax Court found that petitioner failed to show that he was in the business of lending money to or guaranteeing the loans of corporations, and so sustained respondent's determinations. We agree. Treasury Regulation 111 § 29.23(k)-6, 26 C.F.R. (1949); Putnam v. Commissioner, 1956, 352 U.S. 82, 92-93, 77 S.Ct. 175, 1 L.Ed.2d 144; Wheeler v. Commissioner, 2 Cir., 1957, 241 F.2d 883; Commissioner of Internal Revenue v. Schaefer, 2 Cir., 1957, 240 F.2d 381; and see McNeill v. Commissioner, 4 Cir., 1958, 251 F.2d 863, 866-867.

For the years 1947 through 1950 respondent imposed on petitioner and the Tax Court sustained additions to tax both under § 294(d) (1) (A) for failure to file a declaration of estimated tax, and under § 294(d) (2) for substantial underestimation of estimated tax. Petitioner does not rely on the statutory excuse of "reasonable cause and not * * * willful neglect" to justify his failure to file the declarations. Rather, he maintains that the statutory provisions requiring the filing of a declaration of estimated tax are unconstitutional because "the enumerated powers of the Congress do not include any power to compel a citizen to prophesy. It is beyond any human ability and therefore not a subject for Congressional intervention."

Since petitioner makes no attempt to establish the statutory excuse, the Tax Court correctly applied the statute in sustaining imposition of the additions to tax under § 294(d) (1) (A) for failure to file the declarations of estimated tax. And we hold with the Tax Court that petitioner's attack upon the constitutionality of the provisions of the Internal Revenue Code of 1939 requiring the filing of a declaration of estimated tax, and imposing penalties for failure to file, is "wholly without merit." Such requirements are a valid exercise of the taxing power conferred by Article 1, § 8, and the Sixteenth Amendment of the Constitution. Erwin v. Granquist, 9 Cir., 1958, 253 F.2d 26; Walker v. United States, 5 Cir., 240 F.2d 601, certiorari denied, 1957, 354 U.S. 939, 77 S.Ct. 1402, 1 L.Ed.2d 1538.

Petitioner next contends that imposition of concurrent penalties under §§ 294(d) (1) (A) and 294(d) (2) of the 1939 Code is without statutory warrant. The Tax Court held that petitioner's failure to file any estimate at all amounted to a zero estimate which, in turn, resulted in a substantial underestimate within the purview of § 294(d) (2). This holding is in accord with Treasury Regulation 111 § 29.294-1(b) (3) (i) 26 C.F.R. (1949), and is supported by a long line of Tax Court decisions see, among others: Clarence F. Buckley, 1957, 29 T.C.No. 50; Marcel Garsaud, 1957, 28 T.C. 1086, 1090; Harold C. Marbut, 1957, 28 T.C. 687, 692; J. D. Abbott, 1957, 28 T.C. 795, 808-809; Anthony Delsanter, 1957, 28 T.C. 845, 861-862; Walter H. Kaltreider, 1957, 28 T.C. 121; Marvin Maxey, 1956, 26 T.C. 992, 996; Harry Hartley, 23 T.C. 353, 360, modified 1954, 23 T.C. 564; G. E. Fuller, 1953, 20 T.C. 308, 316, affirmed, on other grounds, 10 Cir., 1954, 213 F.2d 102, and by some District Court decisions Palmisano v. United States, D.C.E.D.La. 1958, 159 F.Supp. 98; Farrow v. United States, D.C.S.D.Cal.1957, 150 F.Supp. 581; Peterson v. United States, D.C.S.D. Tex.1956, 141 F.Supp. 382.

While this court has affirmed three Tax Court decisions which have sanctioned imposition of penalties under both § 294(d) (1) (A) and § 294(d) (2) where no declaration of estimated tax had been filed, examination of the briefs and appendices in these cases discloses that the propriety of imposing the penalty for substantial underestimation where no estimate at all had been filed was not raised in this court. John Federika, 14 CCH Tax Ct. Memo. 652, 658 (1955), affirmed, per curiam, 6 Cir., 1956, 237 F.2d 916, certiorari denied, 1957, 352 U.S. 1025, 77 S.Ct. 590, 1 L.Ed. 2d 596; Robert Fogel, 14 CCH Tax Ct. Memo. 718, 728 (1955), affirmed, per curiam, 6 Cir., 1956, 237 F.2d 918; R. M. Clayton, 15 CCH Tax Ct. Memo. 105, 109 (1956), affirmed, per curiam, 6 Cir., 1957, 245 F.2d 238. The question remains open for examination then as res integra here.

Even though this problem of concurrent penalties exists only under the 1939 Code, and cannot arise under the 1954 Code which expressly provides but a single penalty for underpayment of estimated tax Int.Rev.Code of 1954, §§ 6651(c), 6654, 26 U.S.C.A. §§ 6651(c), 6654, and see 3 U.S.Code Cong. & Adm.News (1954), pp. 4544, 4567, 5241-5242, the problem remains an important one because of cases yet to be decided which will be ruled by the 1939 Code see Int. Rev.Code of 1954, § 6654(h).

The argument in support of the validity of that part of Treasury Regulation 111 § 29.294-1(b) (3) (i) 26 C.F.R. (1949) declaring that "in the event of a failure to file the required...