64 T.C.M. (CCH) 500
Joseph L. and Illauna BRAZWELL, Petitioners,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Joseph L. BRAZWELL, Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Nos. 18762-89, 18763-89.
United States Tax Court
August 17, 1992
James L. Chase, for petitioners.
Linda J. Wise, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
SCOTT, Judge:
Respondent determined deficiencies in petitioners' Federal income tax and additions to tax for the years and in the amounts as follows:
| Joseph L. and Illauna Brazwell-Docket No. 18762-89 |
| Calendar |
Additions to Tax |
|
| Year |
Deficiency |
Sec. 6653(a)(1)(A) |
Sec. 6653(b)(1) |
Sec. 6661 |
| 1984 |
$261,676 |
- |
$133,375 |
$65,359 |
| 1985 |
128,202 |
- |
64,101 |
32,051 |
Respondent also determined an addition to tax pursuant to section 6653(b)(2) for 1984 and 1985 and section 6653(a)(1)(B) for 1986 and 1987 equal to 50 percent of the interest due on the deficiency.
| Joseph L. Brazwell-Docket No. 18763-89 |
| Calendar |
Additions to Tax |
|
| Year |
Deficiency |
Sec. 6653(b) |
Sec. 6653(b)(1) |
Sec. 6661 |
| 1981 |
$117,427 |
$58,714 |
- |
- |
| 1982 |
16,377 |
- |
$ 8,189 |
$4,094 |
| 1983 |
22,717 |
- |
11,359 |
5,669 |
For the years 1982 and 1983, respondent also determined an addition to tax pursuant to section 6653(b)(2)
[1] equal to 50 percent of the interest due on the deficiency. The issues for decision are: (1) The amount of income for the years 1981, 1982, and 1983 not reported on his Federal income tax returns by Joseph L. Brazwell, and whether Joseph and Illauna Brazwell had unreported income for each of the years 1984, 1985, 1986, and 1987; (2) whether Joseph L. Brazwell is liable for an addition to tax for fraud for each of the years 1984 and 1985; (3) whether Joseph L. and Illauna Brazwell are liable for the additions to tax for negligence and intentional disregard of rules or regulations for the years 1986 and 1987; and (4) whether Joseph L. Brazwell, for the years 1982 and 1983, and Joseph L. and Illauna Brazwell, for the years 1984 through 1987, are liable for the additions to tax for substantial understatement of income tax under section 6661. Joseph L. Brazwell conceded that he is collaterally estopped to deny that he filed false and fraudulent returns for each of the years 1981, 1982, and 1983 with the intent to evade tax and for those years is liable for the additions to tax for fraud. Respondent concedes that Illauna Brazwell is not liable for the additions to tax for fraud for the years 1984 and 1985. FINDINGS OF FACT Some of the facts have been stipulated and are found accordingly. Joseph L. Brazwell and Illauna Brazwell resided in Pensacola, Florida, at the time of the filing of their petition in docket No. 18762-89. Joseph L. Brazwell (petitioner) resided in Pensacola, Florida, at the time of the filing of his petition in docket No. 18763-89. Petitioner was born on March 16, 1941. He left high school after completing his sophomore year and completed high school while serving in the United States Army. At age 17 petitioner married Mary Dale Brazwell. Petitioner and Mary Dale Brazwell had a son, Joseph Lamar Brazwell, Jr., born in 1962. Petitioner and Mary Dale Brazwell were divorced in 1966. Under the terms of the divorce, petitioner assigned his interest in the home to Mary Dale Brazwell and made child support payments until their child finished high school. On November 10, 1968, petitioner married Nina June Brazwell and he and Nina June Brazwell adopted a son, Leighton Brazwell, when Leighton was 3 days old. Leighton was born March 27, 1970. Petitioner and Nina June Brazwell were divorced on June 26, 1974. Petitioner was required to pay attorney's fees and child support. Nina June Brazwell was awarded the family residence. Petitioner and Nina June Brazwell were remarried on May 20, 1975, and again divorced on January 21, 1976. Petitioner continued to support Leighton through the time of the trial of this case. On April 9, 1977, petitioner married Janice Menche. Petitioner and Janice Brazwell were granted a divorce on October 1, 1982. Pursuant to the terms of the property settlement, Janice Brazwell received, among other items, the following: her bedroom suite, consisting of four pieces; her IBM typewriter; a desk and chair; her sewing machine and cabinet; a color television set; all the dining room dishes; and her patio and porch furniture. Petitioner and Janice Brazwell were to divide on an equal basis the linens, kitchen pots and pans, small kitchen appliances, utensils, glasses, knickknacks, pictures, and paintings. On May 24, 1984, petitioner married Illauna Gray. Illauna had attended junior college. On a personal financial statement dated June 30, 1986, petitioner stated that he had household furnishings worth $50,000. Petitioner and Illauna Brazwell were still married at the time of trial. Petitioner at some time worked for a Delchamps grocery store. Except for the time he served in the United States Army after being drafted, he worked for MR& R Trucking Co. as a tractor trailer driver and dispatcher from 1965 through part of 1969. In August 1969, petitioner was employed by Gulf Power Co. (Gulf Power). Petitioner worked as a stockhandler in Gulf Power's warehouse shipping and receiving department from the time he was employed until 1971 or 1972. Around 1972, petitioner was transferred to marketing, where he worked in retail sales for the appliance division. In this position petitioner was paid on a commission basis and on this basis made approximately four times the salary he received as a stockhandler. Petitioner worked in the retail sales division until 1978. The minimum salary he earned in this position was approximately $20,000 and the maximum ranged from $40,000 to $50,000. In September 1978, petitioner was promoted to supervisor of the general warehouse. He remained in that position until June 1982. In 1982 petitioner was promoted to supervisor of support services. Support services consisted of the three departments, warehousing distribution, mail distribution, and reproduction copy services. While employed with Gulf Power, petitioner completed several advanced courses in management. Petitioner voluntarily resigned from Gulf Power in February 1984. While employed with Gulf Power, petitioner worked part time with two closely held corporations in which he held the controlling interest, Active Supply Co. and Active Appliance Co. After leaving Gulf Power, he worked with these two companies. During petitioner's employment with Gulf Power, petitioner participated in various schemes, whereby his employer was defrauded. Petitioner received money, materials, and services for his participation in the schemes. An investigation of petitioner's Federal income tax returns for 1981 through 1985 was begun in 1986 by the Criminal Investigation Division of the Internal Revenue Service. On April 6, 1988, a grand jury returned an indictment against petitioner charging him with violating section 7201 by filing false and fraudulent income tax returns for 1981, 1982, and 1983. Under the indictment petitioner was charged with understating his income and income taxes in the following amounts:
The omitted income set forth in the indictment for each of the years 1981, 1982, and 1983 consisted primarily of amounts petitioner received through embezzlement of money and goods from Gulf Power and the value of services he received from suppliers of Gulf Power. However some of this unreported income was from other sources. On April 7, 1988, petitioner entered guilty pleas to the charges against him for 1981 and 1982. On April 12, 1988, petitioner entered guilty pleas to the charges against him for 1983. In his statement to the Court in connection with his pleas petitioner admitted receiving the unreported income as set forth in the indictment. On June 24, 1988, based on his guilty pleas to the charges in the indictment, petitioner was found guilty of evasion of income taxes under section 7201 for the years 1981, 1982, and 1983. He was sentenced to 3 years' imprisonment for each of the three counts to which he pled guilty, to run consecutively, and fined $10,000 for each of the three counts to which he pled guilty. After entering his plea of guilty of income tax evasion for the years 1981, 1982, and 1983, petitioner was called to testify and did testify in a trial involving Richard Leeper which was held June 20 through June 24, 1988. Petitioner testified at that trial that he never participated in a false invoicing scheme involving Gulf Power with Mr. Leeper and John Matthews and denied knowing that the Redco Co., which was owned by Mr. Leeper, or Mr. Leeper, submitted false invoices to Gulf Power. Petitioner filed a motion to have his guilty plea to income tax evasion for the years 1981, 1982, and 1983 set aside, but on the advice of his attorney, who reviewed his testimony before the grand jury, and his testimony at Mr. Leeper's trial, entered into an agreement with the Government to withdraw his motion in return for the Government's agreement not to prosecute him for perjury. Petitioner testified in the instant case that he did participate in schemes to defraud Gulf Power with Mr. Leeper, Mr. Matthews, and the Redco Co. during the years 1981 and 1982 by submitting false invoices to Gulf Power. When the investigation of petitioner's Federal income tax returns for the years 1981 through 1985 was begun in 1986 by the Criminal Investigation Division of the Internal Revenue Service, the case was assigned to Special Agent Sterling. On September 19, 1986, Special Agent Sterling and Special Agent Haywood conducted the initial interview with petitioner. During this interview petitioner stated to the special agents that he had correctly reported his...
