Benes v. Comm'r of Internal Revenue
| Decision Date | 13 May 1964 |
| Docket Number | 43844.,Docket Nos. 43843 |
| Parties | ELMER J. BENES AND FRANCES M. BENES, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTE. J. BENES & COMPANY, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Samuel Byer and Emil Sebetic, for the petitioners.
William O. Allen, for the respondent
1. Held, that petitioner Elmer Benes realized taxable income in each of the years 1947 through 1950, to the extent that in each such year the Benes Co. (of which he was president and owner of 500 of its 503 shares of stock outstanding) paid or incurred expenses in the erection of a residential home which Benes intended from the beginning should be the personal, private residence of him and his family and for which he had no intention of making payment to the corporation at any time, while the residence was being constructed or when the construction was completed.
2. Held, that petitioners Elmer and Frances Benes constructively received salary from the Benes Co., in addition to the salary payments actually received by them in 1947.
3. Held, that petitioners Elmer and Frances Benes are liable for additions to tax under section 294(d)(1)(A) of the 1939 Code, for each of the taxable years 1947 through 1950; but they are not liable for additions to tax under section 294(d)(2) for the same years. Commissioner v. Acker, 361 U.S. 87.
4. Held, that the deficiency in tax on the original return filed by petitioner Benes Co. for each of its fiscal years ended May 31, 1947 through 1950, and the deficiency in tax of the individual petitioners Elmer and Frances for each of the calendar years 1947 through 1950 are due to fraud with intent to evade tax within the meaning of section 293(b). Accordingly, respondent's impositions of additions to tax for fraud under said section are approved.
5. Held, that all of the original returns of the corporate petitioner and all of the returns of the individual petitioners are false or fraudulent with intent to evade tax, within the meaning of section 276(a); and accordingly, assessment and collection of deficiencies and additions to tax of the corporate petitioner for its fiscal year ended May 31, 1947, and of the individual petitioners for their calendar year 1947, are not barred by limitations.
6. Held, that assessment and collection of the deficiency and additions to tax for 1947 in the case of the individual petitioners are also precluded from being barred by limitation, by reason of the fact that said petitioners omitted from income on their 1947 return an amount in excess of 25 percent of the gross income stated in such return. In such circumstance a 5-year (rather than a 3-year) period is allowed for the assessment and collection, sec. 275(c); and the respondent's notice of deficiency to said individual petitioners was mailed within 5 years after their 1947 return was filed. PIERCE, Judge:
The respondent determined deficiencies in the income taxes of the individual petitioners (docket No. 43843) and additions to tax, for the following calendar years in the amounts indicated:
+---------------------------------------+
¦ ¦ ¦Additions to tax ¦
+----+----------+-----------------------¦
¦Year¦Deficiency¦ ¦
+----+----------+-----------------------¦
¦ ¦ ¦Sec. 293(b)¦Sec. 294(d)¦
+----+----------+-----------+-----------¦
¦1947¦$5,780.30 ¦$2,890.15 ¦$416.70 ¦
+----+----------+-----------+-----------¦
¦1948¦44,068.60 ¦22,122.30 ¦7,869.04 ¦
+----+----------+-----------+-----------¦
¦1949¦54,459.10 ¦27,229.55 ¦9,266.36 ¦
+----+----------+-----------+-----------¦
¦1950¦7,477.11 ¦4,488.56 ¦3,645.18 ¦
+---------------------------------------+
The respondent determined deficiencies1 and additions to tax in the case of the corporate petitioner (docket No. 43844), for fiscal years and in amounts, as follows:
+-----------------------------------------------------+
¦Fiscal year ended May 31—¦Deficiency¦Additions to tax¦
+-------------------------+----------+----------------¦
¦ ¦ ¦under sec.293(b)¦
+-------------------------+----------+----------------¦
¦1947 ¦$149.43 ¦$237.89 ¦
+-------------------------+----------+----------------¦
¦1948 ¦ ¦5,826.84 ¦
+-------------------------+----------+----------------¦
¦1949 ¦277.21 ¦16,120.22 ¦
+-------------------------+----------+----------------¦
¦1950 ¦ ¦14,920.34 ¦
+-----------------------------------------------------+
The cases were consolidated for trial.
The issues for decision are:
(1) Do the costs of constructing a residential dwelling house (hereinafter called the County Line residence), portions of which were paid by the corporate petitioner in each of the years involved, constitute income to petitioner Elmer Benes, the president and principal stockholder of said corporation, who has occupied the County Line residence as his home since 1949?
(2) Was the respondent correct in his determination that the individual petitioners constructively received amounts as salary from the petitioner corporation in 1947, in addition to the amounts reported by them as corporate salary for such year? A similar issue respecting the individual petitioners for the year 1948, as to which no evidence was presented at trial and no arguments made on brief, is deemed to have been abandoned by said petitioners.
(3) Are the individual petitioners liable for additions to tax under section 294(d)(1)(A) of the 1939 Code? The respondent (who originally determined that the individual petitioners were liable for additions to tax under said section 294(d)(1)(A) and also under section 294(d)(2)) conceded at the trial that petitioners were not liable for additions to tax under section 294(d)(2)— his concession being in accordance with the Supreme Court's decision in Commissioner v. Acker, 361 U.S. 87.
(4) Are the individual petitioners and the corporate petitioner liable for additions to tax for fraud for each taxable year under section 293(b)?
(5) Are assessment and collection of deficiencies and additions to tax barred by the statute of limitations (1) for the calendar year 1947 in the case of the individual petitioners, and (2) for the fiscal year ended May 31, 1947, in the case of the petitioner corporation?
In addition to the abandonment mentioned in issue numbered (2) above, the individual petitioners are also deemed to have abandoned another issue—respondent's determination that they received interest income of $1,147.27 from the Benes Co. in 1948. No evidence was presented at the trial with respect thereto; and no argument respecting such issue was made in petitioners' brief.
Some of the facts were stipulated. The oral and written stipulations of facts, together with the exhibits identified in the written stipulation, are incorporated herein by reference.
Elmer J. Benes (hereinafter sometimes called Benes) and Frances M. Benes are, and at all times material hereto have been, husband and wife. They filed a joint Federal income tax return on the cash receipts and disbursements basis for each of the taxable calendar years 1947 through 1950 with the collector of internal revenue at Cleveland, Ohio.
E. J. Benes & Co., Inc. (hereinafter sometimes called the company), is an Ohio corporation with its principal place of business in Cleveland. It kept its books of account on an accrual basis; and it filed a corporate Federal income tax return on such basis for each of its fiscal years ended May 31, 1947 through 1950, with the collector at Cleveland. On July 5, 1951, the company and the respondent executed a consent extending the period of limitations (Form 872), under the terms of which the period of limitations for assessment of any income taxes of the company for its fiscal year ended May 31, 1948, was extended to June 30, 1952.
The company was incorporated in 1946 as the successor to a business theretofore operated by Benes as a proprietorship. Benes has at all times been the president, a director, and owner of 500 of the company's 503 shares of common stock outstanding. Frances Benes was the secretary of the company; but neither she nor any of the other officers took an active part in the company's business operations.
The company, as had the predecessor proprietorship, engaged in the business of a general contractor, constructing offices, warehouses, and factory buildings in the northeastern Ohio area. Its job contracts were of three types: (1) Cost plus a percentage of cost; (2) cost plus a fixed fee; and (3) lump-sum fixed fee. The company owned no construction equipment other than small tools; and most of its work was handled through subcontracts. During the period from 1946 through 1950, the number of workmen on the company's payroll fluctuated, ranging from as few as 1 to as many as 70.
The company's books of account consisted of a general journal and a general ledger. The manner in which the costs incurred in its construction business were recorded in its books of account was as follows. Subcontractors and suppliers of materials were instructed to (and did) submit at least two copies of invoices for work performed and materials supplied; and the company's foremen on the construction jobs submitted each week two copies of payroll time sheets, showing the names of the workmen, the hours they had worked, and the construction jobs on which they had been employed. The company's bookkeeper, following receipt of invoices and payroll time sheets, would make an entry in the general journal to reflect these costs. Such costs were then posted from the general journal to a ‘job ledger’ (a separate section in the general ledger), which was made up of a separate sheet or group of sheets for each construction job in progress (except the construction work on the County Line...
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