Breland v. United States, 19997.

Decision Date17 September 1963
Docket NumberNo. 19997.,19997.
PartiesWilliam B. BRELAND, Appellant, v. UNITED STATES of America, Appellee. UNITED STATES of America, Appellant, v. William B. BRELAND, Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

William E. Logan, Gulfport, Miss., for appellant.

Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Atty., Dept. of Justice, Washington, D. C., Robert E. Hauberg, U. S. Atty., E. R. Holmes, Jr., Asst. U. S. Atty., Jackson, Miss., Alec A. Pandaleon, Atty., Dept. of Justice, Washington, D. C., Joseph M. Howard, Atty., Dept. of Justice, Washington, D. C., for appellee.

Before PHILLIPS,* WISDOM and GEWIN, Circuit Judges.

GEWIN, Circuit Judge.

This case involves cross-appeals from a judgment holding the taxpayer liable for income tax and penalties resulting from a failure to file income tax returns. In the cross-appeal the Government complains of the holding that no fraud was proven for the years 1952, 1953 and 1954, and a denial of fraud penalties for failure to file returns and declarations of estimated tax. The taxpayer challenges the lower court's findings as to taxable income for the years 1952, 1953, 1954 and 1955, and the assessment of a fraud penalty for failure to file a return for the year 1955.

On November 21, 1958, the District Directors' 90 day letter was received by taxpayer informing him of income tax liability as follows:

                                                       TAX          PENALTY
                  Taxable year ended 12/31/52       $3,068.16        $2,779.07
                  Taxable year ended 12/31/53        1,792.98         1,618.65
                  Taxable year ended 12/31/54        1,373.26           889.07
                  Taxable year ended 12/31/55        1,080.44           566.95
                                                    _________        _________
                     TOTALS                         $7,314.84        $5,853.75
                

On June 23, 1959, taxpayer paid the assessment for the year 1955, then subsequently was informed by another 90 day letter that there was an additional $238.36 due for the year 1955.1 Taxpayer paid this additional sum, and then filed a claim for refund on the ground that he had no taxable income in 1955; and therefore, owed no tax and was guilty of no fraud in failing to file a return. The claim was rejected and taxpayer filed suit. The Government counterclaimed for the above mentioned taxes and penalties due for the years 1952, 1953 and 1954. The lower court found the taxes as set out in the 90 day letters were due and owing, but expressly found that there was no fraud involved in the evasion of the taxes except for the year 1955.

The case presents the following basic questions: Was the District Court justified in finding that the District Director made correct determinations that there was taxable income for the years in question; if so, was the amount determined to be due reasonable under the facts; and were penalties imposed by the District Director authorized? For answers to these questions we must look to the record.

The taxpayer testified that he had not been employed during any of the years involved and had no taxable income from any source. He claims that when he was discharged from the Marine Corps in the year 1945, he had a cash hoard of $15,000.00 which he had won by gambling; that he obtained some funds from his second wife Romaine; and that he borrowed $3,000.00 from a friend. These funds are claimed to be the chief source of money used for living expenses. As to the cash hoard, the taxpayer stated it had not been deposited or invested in any assets, tangible or intangible, and that it had been "hid". His former wife, Pauline Morgan, to whom he was married in early 1949 and with whom he lived for almost a year, denied the existence of the cash hoard, or at least any knowledge of its existence; and she detailed financial difficulties while she and the taxpayer were living together, during which period she was employed on a part-time basis. At times, she stated, she and the taxpayer did not have sufficient food to eat. They purchased a home in Kentucky on which they made a downpayment of $500.00, accumulated through savings derived from their separate employments. The parties were divorced and the taxpayer conveyed his interest in the home located in Kentucky to his ex-wife and she paid him the sum of $250.00 cash. Four other witnesses, who testified on behalf of the taxpayer and who claimed to be his close friends, denied any knowledge of the existence of the cash hoard.

Appellant's case was investigated by Government Agent Haynes, a graduate accountant who had practiced accounting privately for a short period, and had been in the employ of Internal Revenue Service for a period of 6 years. He thoroughly and carefully investigated the affairs of the taxpayer, which included interviews with the taxpayer and his acquaintances, visits to taxpayer's home, and close scrutiny of facts relating to the standard of living of the taxpayer for the period involved. The taxpayer made a downpayment on a $10,500.00 home in the year 1952 in the amount of $3,500.00. Of that sum, $2,500.00 was paid in cash; and he obtained a loan of $1,000.00 which he repaid. He owned 2 automobiles part of the time; a 26 foot Chris-Craft motorboat purchased in 1952 for $2,500.00 and sold in 1953 for $2,000.00; played golf; spent considerable time fishing, and some time hunting, and gambling.

He married again in December 1951, or shortly thereafter. His second wife's name was Romaine Knight, and for a period of over six months after marriage they rented an apartment at a monthly rental of $70.00. There were mortgage payments on the home after it was purchased. In addition, taxpayer owned a racing car which initially cost approximately $175.00 and he participated in racing in addition to his other sporting activities. During the critical period he also purchased a lot for $200.00. His second wife, Romaine, lived with him during all of the years involved, but left about September of the year 1955. Both she and the taxpayer smoked, and at times indulged in drinking alcoholic beverages. The home occupied by them was a 3 bedroom house, "nicely furnished" and well maintained. At times his boat was kept at a harbor for which rent was paid.

In June of the year 1952, before the home was purchased, taxpayer made application for an FHA loan in which there was a financial statement reflecting a bank deposit in the amount of $1,500.00; savings bonds in the amount of $1,000.00; the 2 automobiles mentioned at a value of $3,000.00; the lot at a value of $200.00; and additional personal property at a value of $4,000.00. The financial statement shows no liabilities whatever. On this form taxpayer's annual base income was listed at $6,000.00 and a question mark was placed in the bracket calling for overtime or other employment earnings. Annual fixed charges listed Federal and State income tax at $500.00 a year, and monthly rental payments for the past year were shown to be $70.00. The testimony of Agent Haynes and the taxpayer conclusively prove that the financial statement contained in the application was a deliberate fabrication in order to obtain the loan and was false in many respects.

In estimating the taxpayer's income, the District Director determined the sum of $5,000.00 per year to be a reasonable estimate of taxpayer's living expenses. The taxpayer strongly asserts that he has disproved the District Director's determination of his income. In addition to his contentions as to the cash hoard; a rather indefinite statement relative to funds possessed by his second wife; and the loan from his friend, he centers a vigorous attack upon the $5,000.00 determination of annual living expenses. To support his contentions, he used the testimony of 4 friends with whom he had spent a great deal of time in pursuit of the sports above mentioned and other activities. His friends estimated his living expenses at figures ranging from $15.00 to $40.00 per week, although each of them disclaimed any particular or accurate knowledge or information as to the actual living expenses of the taxpayer. Their testimony was based on a most casual observation. Each of these 4 friends testified that taxpayer always paid his share of expenses on hunting and fishing trips. One of them stated that he was not a "penny pincher". These friends also testified that the home of the taxpayer was well furnished and presented a neat and respectable appearance; one of them stating that the taxpayer's home was better than his own.

The circumstances of the $3,000.00 loan are rather unusual to say the least. Agent Haynes testified that taxpayer first contended, in an interview prior to trial, that he had borrowed $5,000.00 from his friend. All the testimony from the taxpayer and his friend however, fixed the amount at $3,000.00. The friend, Bonham, who is alleged to have made the $3,000.00 loan, and who testified in a vague way as to the living standard of the taxpayer, concurred in the testimony of the taxpayer that the $3,000.00 loan was made in cash and not by check. Bonham further testified that although he was familiar with notes in general use, the note he had from the taxpayer was not of that type, but was on something "like tablet paper"; that the "note" was lost in high water, but no duplicate or other evidence of the existence of the debt was ever requested and no record of it established; no payment was ever made on the debt; no security was taken; and at the time the loan was made, the taxpayer had no job. In addition to the loan mentioned, both taxpayer and Bonham also testified...

To continue reading

Request your trial
30 cases
  • Webb v. CIR
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • April 23, 1968
    ...of taxable income by the Commissioner is presumptively correct. Anson v. C.I.R., 10 Cir. 1964, 328 F.2d 703, 706; Breland v. United States, 5 Cir. 1963, 323 F.2d 492, 496; Mendelson v. C.I.R., 7 Cir. 1962, 305 F.2d 519, 522, cert. den., 371 U.S. 877, 83 S.Ct. 149, 9 L.Ed.2d 114; Klassie v. ......
  • Marcello v. CIR
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • August 29, 1967
    ...B. 11 September 15 to October 3. 12 Logan Lumber Co. v. Commissioner of Internal Revenue, 5 Cir. 1966, 365 F.2d 846; Breland v. United States, 5 Cir. 1963, 323 F.2d 492, 497. See 3 A.L.R.2d 617 for a discussion on what amounts to "reasonable cause" for failure to file tax returns. 13 See Co......
  • Furman v. Commissioner
    • United States
    • U.S. Tax Court
    • April 30, 1998
    ...Co. v. Commissioner [66-2 USTC ¶ 9605], 365 F.2d 846, 853 (5th Cir. 1966) (citing Breland v. United States [63-2 USTC ¶ 9716], 323 F.2d 492 (5th Cir. 1963)), affg. in part and remanding in part [Dec. 26,785(M)] T.C. Memo. 1964-126; Home Builders Lumber Co. v. Commissioner [48-1 USTC ¶ 9182]......
  • Platshorn v. Commissioner
    • United States
    • U.S. Tax Court
    • December 7, 1992
    ...need only be reasonable in light of all surrounding facts and circumstances. Breland v. United States [63-2 USTC ¶ 9716], 323 F.2d 492, 496 (5th Cir. 1963); Giddio v. Commissioner [Dec. 30,254], 54 T.C. 1530, 1533 (1970); Schroeder v. Commissioner [Dec. 26,063], 40 T.C. 30, 33 Because petit......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT