Anderson v. Commissioner
| Decision Date | 11 January 1995 |
| Docket Number | Docket No. 3004-90. |
| Citation | 69 T.C.M. 1609 |
| Parties | Robert R. Anderson v. Commissioner. |
| Court | U.S. Tax Court |
Alan T. Durst, 1823 White Pine Ct., Columbus, Ohio, for the petitioner.* Jennifer H. Decker, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in Federal individual income tax and additions to tax under sections 6653(a)1 (negligence, etc.) and 6653(b) (fraud) against petitioner as follows:
Additions to Tax
---------------------------------------------------------------
Year Deficiency Sec. 6653(a) Sec. 6653(a)(1) Sec. 6653(a)(2) Sec. 6653(b)
19761 ..................... $ 37,969.43 -- -- -- $19,297.72
1977 ...................... 160,222.19 -- -- -- 80,111.10
1978 ...................... 42,990.65 -- -- -- 21,495.33
1979 ...................... 52,798.17 -- -- -- 26,399.09
1980 ...................... 7,173.63 $358.68 -- -- --
1981 ...................... 2,868.63 -- $143.43 2 --
1 Apparently, respondent already had assessed an addition to tax of $348.63 under sec. 6651(a)(1) for 1976. Respondent
concedes that this addition to tax must be abated if the Court determines that petitioner is liable for the addition to tax
under sec. 6653(b). Sec. 6653(d)
2 The addition to tax is 50 percent of the interest on $2,868.63
By amendment to answer, respondent asserts increased additions to tax under section 6653(b) in amounts such that the total additions to tax for 1976 through 1979 are as follows:
Total Sec. 6653(b)
Year Additions to Tax
1976 ............................. $24,573.87
1977 ............................. 86,038.10
1978 ............................. 32,245.33
1979 ............................. 44,024.09
This amendment to answer does not affect the amount of the deficiency determined for any year.
After concessions by both sides and a deemed concession by petitioner,2 the issues for decision are as follows:
(1) Whether the assessment and collection of deficiencies and additions to tax for 1976, 1978, and 1979 are barred by the statute of limitations, sec. 6501(a), or are allowed under the fraud exception, sec. 6501(c)(1), to the general period of limitations.
(2) If assessment and collection are not barred for 1976, 1978, and 1979, then, for each of those years and for 1977 —
(a) whether petitioner is liable for civil fraud additions to tax under section 6653(b).
(b) what is the amount of petitioner's unreported taxable income.
(c) what is the amount of petitioner's underpayment, within the meaning of section 6653(c).
(3) To what deductions or credits is petitioner entitled for 1980 and 1981.
Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.
When the petition was filed in the instant case, petitioner3 resided in Independence, Ohio.
Petitioner served in the Navy during World War II. After being discharged from active duty about June 1946, petitioner resumed his formal education by attending the University of Colorado. Petitioner was graduated from the University of Colorado in 1949 with a bachelor of science degree in civil engineering.
After graduation, petitioner went to work for the Special Investigations Branch of the United States Bureau of Reclamation. Petitioner left that job after 8 or 9 months. He then went to work for PrePak Corp. doing laboratory testing and research on concrete engineering. He left Prepak Corp. in 1956.
From 1956 through March 1972, petitioner was employed by the Lee Turzillo Contracting Co. (hereinafter sometimes referred to as Turzillo) a general contractor for heavy construction throughout the United States and in Canada. Petitioner's roles at Turzillo included salesman, sales manager, and executive vice president. As executive vice president, petitioner was second-in-command of Turzillo, and participated in management meetings with other Turzillo officers. Various types of corporate financial statements were reviewed and discussed at these management meetings. Some of the financial statements that petitioner reviewed while at Turzillo showed corporate savings accounts and certificates of deposit held by Turzillo. Petitioner owned about 6 or 7 percent of Turzillo's stock.
In 1972, petitioner left Turzillo and began doing business as a sole proprietorship called The Anderson Company (hereinafter sometimes referred to as the Company), which operated a construction business similar to Turzillo. The Company specialized in structural concrete repairs, augered piles, underwater investigations, and cement base and chemical grouting. On October 8, 1975, petitioner incorporated the Company's business under the name Anderco, Inc. (hereinafter sometimes referred to as Anderco). During each of the years in issue, petitioner owned 94 percent of Anderco's stock and Ella owned the remaining 6 percent.
For the years before Anderco was incorporated, petitioner reported the Company's income and expenses on Schedules C, and identified the business as "The Anderson Company". Although the Company's business was transferred to Anderco, some of the Company's equipment remained titled in petitioner's name. Petitioner reported Schedule C income from the Company, purportedly from equipment rentals, for each of the years 1976 through 1980.
Petitioner was the president and treasurer of Anderco during the years in issue. From May 1976 onward, he was the person who routinely opened mail received by Anderco and deposited Anderco's gross receipts. Petitioner exercised complete control over the management and day-to-day operations of Anderco.
The Company initially was operated out of petitioner's home, in Independence. Then, the Company's office was moved to Brooklyn, Ohio. Then, the Company's office was moved to Parma, Ohio, its location when Anderco was incorporated. Anderco's office remained in Parma through the years in issue. Petitioner's home address continued to be used as the Company's mailing address and, at times, as Anderco's mailing address.
Petitioner hired Paul J. Roberto (hereinafter sometimes referred to as Roberto), a public accountant. Roberto was Anderco's outside accountant, and prepared tax returns for Anderco, and for petitioner and Ella, from 1975 through 1983. Before 1975, Roberto was the Company's outside accountant, and prepared tax returns for the Company's construction business. Roberto prepared petitioner's and Ella's joint tax returns on the basis of Anderco's records and Forms 1099 submitted to Roberto by petitioner and Ella. For the years 1976 through 1981, petitioner was a cash method taxpayer.
Anderco did not keep a cash disbursements journal. Anderco's checking account was the only record kept of Anderco's cash disbursements. Anderco's internal accountant coded each Anderco check stub as to job and type of expenditure. Anderco did not show any cash receipts journal to Roberto. Roberto recorded Anderco's gross receipts, expenditures, and expenses on the basis of Anderco's cancelled checks, bank statements, check stubs, and deposit slips. Roberto's only source of information as to Anderco's receipts was from Anderco's deposit slips. Roberto explained this system to petitioner.
Laura Sledz (hereinafter sometimes referred to as Sledz) worked for petitioner from 1974 to 1983. She was petitioner's secretary and also was purchasing agent and office manager. Sledz recorded receipts for each job on a sheet maintained in the file for that job. At some point, Sledz began to record the receipts in a ledger. She kept the ledger in her unlocked desk. Thereafter, she sometimes also recorded the receipts on the job file sheet, and sometimes she did not. Petitioner was aware of Sledz's ledger. Petitioner told Sledz that the ledger should be kept someplace safer than her desk. In September 1979, Sledz discovered that the ledger was no longer in the office.
Petitioner diverted Anderco receipts, most of which initially were deposited into savings accounts opened in petitioner's name. The items described in table 1 were deposited into savings accounts4 opened in petitioner's name during 1976 through 1979.5 These items were not reported as income on petitioner's 1976 through 1979 tax returns. The interest on these savings accounts was reported as petitioner's interest income on petitioner's tax returns; the interest was not reported as Anderco's interest income on Anderco's tax returns.
Table 1
Savings Account and Year of Receipt Amount
1976
Euclid-2 .............................. $ 40,000.00
Euclid-2 .............................. 4,887.50
Euclid-3 .............................. 6,000.00
Euclid-3 .............................. 10,000.00
Total 1976 .......................... 160,887.50
1977
Euclid-3 .............................. 44,000.00
United-1 .............................. 24,268.00
Union-2 ............................... 51,897.00
Union-2 ............................... 57,374.80
Union-2 ............................... 1,140.00
United-1 .............................. 9,853.00
United-1 .............................. 7,130.00
Union-2 ............................... 15,018.26
Union-2 ............................... 13,678.26
Orleans-2 ............................. 24,838.09
Total 1977 .......................... 249,197.41
1978
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