Anastasato v. Commissioner
| Decision Date | 06 March 1985 |
| Docket Number | Docket No. 14631-81,14632-81. |
| Citation | 49 TCM (CCH) 893,1985 TC Memo 101 |
| Parties | Pano Anastasato and Janice Anastasato v. Commissioner. Panmarc, Inc. v. Commissioner. |
| Court | U.S. Tax Court |
Alan H. Levine, 1345 Avenue of the Americas, New York, N. Y., for the petitioners. Jack H. Klinghoffer, for the respondent.
Memorandum Findings of Fact and Opinion
In these consolidated cases, respondent determined deficiencies in Federal income tax and additions to tax against petitioners as follows:
Taxable Year Additions to tax
Petitioner Ended Deficiency1 Sec. 6653(b)2
Pano Anastasato and 12/31/74 $350,037.00 $175,0183
Janice Anastasato 12/31/75 279,588.004 139,7943
Docket 14631-81 12/31/76 3,843.994 1,9213
___________ _________
Total $633,468.99 $316,733
Panmarc, Inc. 3/31/74 $ 49,667.00 $ 24,833
Docket 14632-81 3/31/75 426,081.00 213,040
3/31/76 164,938.00 82,469
___________ _________
Total $640,686.00 $320,342
The issues for decision are: (1) Whether respondent's determination of the abovementioned deficiencies was arbitrary, thus shifting the burden of going forward with the evidence to respondent, or whether his statutory notices enjoy their usual presumption of correctness; if the latter, whether petitioners have demonstrated error therein; (2) whether respondent's claim of additional unreported income in both dockets is correct; (3) whether respondent has established by clear and convincing evidence that any underpayment of income tax was due to petitioners' fraud with intent to evade tax under section 6653(b); and (4) whether the assessment of respondent's determinations in Docket 14632-81 is barred by the effective statute of limitations.
Some of the facts have been stipulated and are so found. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
At the time of the filing of their petition herein, Pano Anastasato's (hereinafter "Pano") address was in St. Croix, U. S. Virgin Islands, and Janice Anastasato (hereinafter "Janice") resided in Ft. Lauderdale, Florida.5 Pano and Janice filed joint Federal income tax returns for the calendar years 1974 through 1976.
The petitioner in docket No. 14632-81 is Panmarc, Inc. (hereinafter "Panmarc"), a New York corporation, with its principal office in New York City. Panmarc filed Federal income tax returns for its taxable years ended March 31, 1974, March 31, 1975, and March 31, 1976, on September 16, 1974, September 10, 1975, and September 16, 1976, respectively.
Pano has been involved in various areas of the travel business since 1954. In 1960, after leaving his employment with Alitalia Airlines, Pano established his own travel agency and tour operation businesses under the names Panmarc and Wholesale Tours International (hereinafter "WTI"), respectively. During the years 1974 through 1976, Pano was a 100 percent shareholder of both WTI and Panmarc and president of Panmarc. Pano's operation was not huge, measured by wide industry standards, but was very substantial in his particular segment of the market.
WTI was in the business of packaging, promoting, and marketing travel tours. During the early sixties, Pano approached various airlines, including KLM Royal Dutch Airlines (hereinafter "KLM"), and proposed to them a plan designed to promote the sale of tours to the Bible Lands of Lebanon, Jordan and Egypt. Pano offered to use his expertise to instruct the airlines on how to use their advertising, marketing, and promotional resources to encourage ministers throughout the United States to recruit their parishioners to go on these tours. Pano's idea appealed to KLM's management and an initial promotional effort was made whereby KLM mailed letters to ministers advertising the tours to the Bible Lands, followed by brochures and other correspondence, meetings, seminars, presentations and sales training sessions. The effort was successful to a degree far beyond KLM's expectations.
Panmarc was licensed to write tickets for international air travel, viz., to purchase tickets directly from the airlines, by the International Air Transport Association (hereinafter "IATA"), a trade association of international carriers. The tickets for WTI's customers were purchased through Panmarc.
In order to control the already fierce competition amongst international carriers, IATA established a system of regulations limiting the amount of commissions payable to travel agents and the support that could be extended to tour operators. These regulations were in effect until 1976; the maximum commission allowed by IATA on the sale of airline tickets in tour packages was 10 percent of the ticket price.6 Compliance with this private system was not required by United States law.
It was a widespread practice in the airline industry for airlines to pay commissions in excess of those permitted by IATA (hereinafter referred to, interchangeably, as "overrides" or "override commissions").7 The overrides were extra commissions which were not required to be paid and were aggressively negotiated for on both sides. Override commissions were paid as a means to encourage travel agents and tour operators to generate more business for the airlines. IATA imposed severe sanctions on air carriers who paid, and on travel agents and tour operators who received, commissions or other forms of compensation in excess of the amounts allowed by the regulations, including monetary fines and the deprivation of the right to act for air carriers which were members of IATA. Thus, the strictest confidentiality was required and expected of travel agents and tour operators with respect to the payment of overrides. KLM was amongst the airlines paying such override commissions.8
Bohdan Huzar was employed as a special agent by the Internal Revenue Service from 1972 to January 1982. Huzar's responsibilities included investigating any potential criminal violations of the Internal Revenue laws of the United States. Huzar received an information item from the Federal Trade Commission for his evaluation and consideration. The document reportedly contained information about the alleged receipt of unreported overrides by Pano.9 After studying the document, Huzar requested that the case be assigned to him for further investigation.
In the conduct of his investigation, Huzar issued summonses to Pano's various companies for examination of the financial books and records and to various banks for the records of Pano's accounts. Pano or his attorney instructed various financial institutions not to comply with the summons request; thus, Huzar could not obtain all the financial records covered by the summonses. Huzar summoned Pano to appear at the offices of the Internal Revenue Service. Pano appeared, accompanied by his attorney, proceeded to identify his tax returns and declined to answer relevant questions put to him based on his constitional privilege under the Fifth Amendment.10 Huzar then requested Pano to provide him with a copy of his passport and an exemplar of his writing.
Examination of the books and records of Pano's businesses reflected that Panmarc did substantial business with KLM. Thus, Huzar decided to focus on petitioners' transactions with KLM and, accordingly, summoned documents containing information related to the purported payments to Pano or to his companies by KLM. Huzar also met with Paul Mifsud, general counsel to KLM in the United States, on January 9, 1980. Mifsud provided Huzar with a scheduled list or summary of all the payments that were allegedly made to Pano from oversees sources. The purported payments were made before the commencement of Mifsud's employment with KLM in April 1976. Upon Huzar's request to provide him with copies of the actual documents, arrangements were made for Huzar to have access to the documents in The Netherlands.
Huzar arrived in The Netherlands on March 4, 1980, and was met by Hans Berthold Gimm, an agent with the Office of International Operations of the Internal Revenue Service stationed in Bonn, West Germany. The next day, March 5, 1980, Huzar and Gimm went to KLM's headquarters in Amstelveen, a suburb of Amsterdam, where they met with Mifsud and one Westpladt, an employee in the accounting department of KLM. Westpladt showed Huzar documents allegedly related to the override payments, including: (1) Debit advice issued to KLM by Bank Leu, Ltd. (hereinafter "BL") in Zurich, Switzerland, indicating that $100,000 had been transferred out of KLM's account and into account no. 80659 AR, Code GIGE, with the Swiss Bank Corporation (hereinafter "the SBC account") in Geneva, Switzerland on February 19, 1974; (2) debit advice issued to KLM indicating that $141,008.59 had been transferred from KLM's account to the SBC account on September 19, 1974; (3) debit advice issued to KLM by BL indicating a transfer of $150,000 from KLM's account to the SBC account on October 7, 1974; (4) debit advice issued to KLM by BL indicating that $300,000 had been transferred from KLM's account to the SBC account on December 13, 1974; (5) debit advice issued to KLM by BL indicating that $300,000 had been transferred from KLM's account to the SBC account in March 1975; (6) debit advice issued to KLM by the Pierson, Heldring & Pierson N. V. Bank in Amsterdam indicating that $350,000 had been transferred from KLM's account to the SBC account on August 21, 1975; (7) cash paid out slip in the amount of $6,000 dated October 10, 1975,...
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