Balot v. Commissioner
| Decision Date | 23 March 2001 |
| Docket Number | Docket No. 19077-98. |
| Citation | 81 T.C.M. 1409 |
| Parties | Rogelio R. Balot and Zanaida V. Balot v. Commissioner. |
| Court | U.S. Tax Court |
Respondent determined deficiencies in individual income tax and additions to tax under sections 66631 (fraud) and 6662(a) (negligence) against petitioners as follows:
Additions to Tax
Year Deficiency Sec. 6662(a) Sec. 6663
1991 ....... $3,910 -- $2,933
1992 ....... 7,686 -- 5,765
1993 ....... 2,968 $594 --
After concessions by respondent2, the issues for decision are as follows:
(1) Whether petitioners are liable for civil fraud additions to tax under section 6663 for 1991 and 1992.
(2) Whether petitioners are liable for a negligence addition to tax under section 6662(a) for 1993.
(3) What is the amount of petitioners' unreported income for 1991 through 1993.
Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.
Petitioners Rogelio R. Balot (hereinafter sometimes referred to as Rogelio) and Zenaida V. Balot (hereinafter sometimes referred to as Zenaida) filed joint tax returns for the years in issue, but have since divorced. Petitioners resided at separate addresses in Fort Washington, Maryland, when they filed their joint petition.
From 1967 to April 1989, Rogelio served in the United States Navy as a logistician; that is, a person who is responsible for logistics. Logisticians attend to the details of acquiring equipment and other supplies, making sure that these supplies meet specifications, and making sure that these supplies are sent to the right place at the right time. During the last 3 years of his military service, Rogelio was the enlisted supervisor of about 25 people who dealt with logistics for the Presidential helicopter in Quantico, Virginia. Rogelio received pension distributions from the Navy in each of the years in issue.
In 1989, shortly after retiring from the Navy, Rogelio obtained full-time employment as a logistician with Validity Corporation, a defense contractor that deals with the Government. Rogelio attended to the requisitioning of supplies for the Validity Corporation, a task similar to his Navy duties. He did not have any supervisory responsibilities in this Validity Corporation position. Validity Corporation compensated Rogelio on a biweekly basis using the direct deposit method of payment during the years in issue.
Although Rogelio does not hold a college degree, he did complete 3 years of college course work. Rogelio also completed several courses in business management, accounting, and business law at the University of Maryland and Prince George's Community College.
During the years in issue, Zenaida was employed full-time as a branch manager for First American Bank. In this position, Zenaida was (1) in charge of branch sales, (2) in charge of branch operations, and (3) responsible for keeping branch expenditures within budget determinations that were made at higher levels. She supervised 9 to 10 employees, including bank tellers and personnel in charge of establishing new accounts with the bank. First American Bank entrusted Zenaida with responsibilities such as ordering supplies in accord with the branch's operating budget, ensuring the branch had sufficient cash on hand to transact business for the day, and ensuring the automated teller machines contained sufficient cash for the operation thereof. At the time of the trial, Zenaida was a branch manager for Crestar Bank.
Zenaida earned a Bachelor of Science Degree in Elementary Education from the University of the Philippines in or about 1967. Before beginning her career in the banking industry, Zenaida worked as a schoolteacher.
The Combined International Philippines America Association (hereinafter sometimes referred to as CIPAA) was organized sometime in the 1970's. CIPAA operated a casino (hereinafter sometimes referred to as the CIPAA Casino) in Prince George's County, Maryland, during the years in issue. Proceeds from the CIPAA Casino were to aid in the construction and operation of a Philippine cultural center to be located in the Washington, D.C., metropolitan area.
The CIPAA Casino employed dealers and pit bosses to operate the tables at the casino premises. Dealers accepted bets and received or paid out chips as required by the results of the bets; they dealt cards, spun wheels, and otherwise interacted directly with the bettors. Pit bosses supervised dealers. During the years in issue there generally were about 70 to 80 dealers, and one pit boss for each 6 to 8 dealers.
The CIPAA Casino recorded on daily time sheets the number of hours each employee worked. Employees generally signed their names and recorded the times at which they arrived at the casino premises for work, on the time sheet kept for that particular day, although pit bosses occasionally recorded the time one or another employee came to work. If an employee left the casino premises before closing time, then that employee recorded the time at which he or she left. If an employee worked until closing time, then a pit boss entered the time the CIPAA Casino closed as the time the employee's shift ended. The CIPAA Casino's Tuesday sessions closed at 11:00 p.m.; the Saturday sessions closed at 2:00 a.m. Sunday morning.
The CIPAA Casino paid its employees an hourly amount for their services even though the CIPAA Casino management and staff, including dealers, understood that Maryland gaming laws expressly prohibited the practice. During the years in issue, pit bosses and dealers earned compensation of $12 and $10 per hour, respectively. The CIPAA Casino paid this compensation to its employees in cash on a weekly basis. Beginning about July of 1993, the CIPAA Casino began to pay its employees by check instead of cash.
CIPAA Casino employees did not complete Forms W-4, and the CIPAA Casino did not withhold Social Security taxes or income taxes, in 1991 and 1992 from any of the compensation it paid to its employees. The CIPAA Casino recorded the amount of compensation its employees received in 1991 and 1992 on individual affidavits executed by each employee. The CIPAA Casino issued Forms W-2 to its employees for the first time for 1993.
To create the appearance of compliance with Maryland law, the CIPAA Casino's management and staff, including dealers, (1) characterized all remuneration they received from the CIPAA Casino as tips, the receipt of which was believed to be legal, and (2) referred to themselves as volunteers rather than employees. The CIPAA Casino's management told the staff that amounts received from the CIPAA Casino were not to be reported to the Internal Revenue Service as wages.
CIPAA Casino employees also received tip income through the CIPAA Casino. On each gaming table at the casino premises were two boxes: One for cash that bettors exchanged for chips at the table, and one for chips and cash that the bettors gave to the dealers as tips. The latter box is sometimes hereinafter referred to as a tip box. Each hour a "runner" collected both boxes. The moneys in the tip boxes were then commingled and distributed to the pit bosses and dealers in proportion to their hourly compensation; i.e., hourly rate times amount of time worked. The CIPAA Casino distributed tip income about every 3 weeks.
Some pit bosses and dealers also received tips directly from casino patrons. These tips were not placed into the table's tip box and were not divided in the manner described above. Rather, the recipient of the tip simply kept it for personal use. The record does not show that either petitioner received any such direct tips.
Rogelio and Zenaida became members of CIPAA to help with the cultural center project. In 1991, Rogelio and Zenaida applied for and obtained positions with the CIPAA Casino; each of them worked for the CIPAA Casino during each of the years in issue. After receiving extensive training from the CIPAA Casino's management, Rogelio became a low-stakes blackjack dealer; Zenaida became a roulette dealer. Rogelio began working for the CIPAA Casino on or about March 30, 1991; Zenaida began on or about November 23, 1991. Rogelio and Zenaida maintained their full time positions with Validity Corporation and First American Bank, respectively, in addition to the positions they held at the CIPAA Casino.
Each petitioner worked for the CIPAA Casino most Saturdays and most Tuesdays. For 1991 and 1992, each petitioner typically worked for the CIPAA Casino 14 hours on Saturdays. Rogelio typically worked for the CIPAA Casino 11 hours on Tuesdays; Zenaida typically 6 hours on Tuesday. (The record does not include time sheets or equivalent information for 1993.)
Rogelio became a pit boss at some point. (See infra note 3). Rogelio became treasurer of the CIPAA Casino in 1994. Zenaida became a pit boss at some point and an assistant to the president of the CIPAA Casino at a later point.
Rogelio worked 882.5 hours at the casino premises in 1991, for which the CIPAA Casino paid $8,825 of hourly compensation to him. Zenaida worked 105.5 hours at the casino premises in 1991, for which the CIPAA Casino paid $1,055 of hourly compensation to her. Petitioners did not report any of their CIPAA Casino hourly compensation on their 1991 tax return.
Rogelio worked 947.5 hours in 1992, for which the CIPAA Casino paid hourly compensation to him.3 Zenaida worked 654.75 hours in 1992, for which the CIPAA Casino paid $6,548 (rounded) of hourly compensation to her. Petitioners did not report any of their CIPAA Casino hourly compensation on their 1992 tax return.
...
To continue reading
Request your trial