Carter v. Campbell, Civ. 7636.
| Decision Date | 26 October 1959 |
| Docket Number | Civ. 7636. |
| Parties | B.B. CARTER v. Ellis CAMPBELL, Jr., Director of Internal Revenue. |
| Court | U.S. District Court — Northern District of Texas |
Wentworth T. Durant, Robert J. Hobby, Durant & Hobby, Dallas, Tex., for plaintiff.
Arthur C. Flinders, Tax Division, Department of Justice, Washington, D. C., for defendant.
This is a suit for the refund of an income tax fraud penalty which was assessed and collected from the taxpayer for the year of 1946 pursuant to the provisions of Sec. 293 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 293.
On March 10, 1947, the plaintiff-taxpayer, B. B. Carter, filed his 1946 income tax return and paid the tax shown to be due of $2,858.29. A subsequent audit of this return by the Internal Revenue Service revealed that the taxpayer had understated his net income for 1946 in the amount of $82,127.81, and that the understatement was at least partially the result of fraudulent concealment of income. On the basis of the above determination the Commissioner of Internal Revenue levied a deficiency assessment against the taxpayer in the amount of $23,849.21, and assessed a civil fraud penalty in the amount of $11,924.60.
Although the taxpayer agreed to the tax deficiency and penalty for 1946 and paid such amounts plus interest in April of 1955, a claim for refund was filed in August of 1955. The claim for refund was denied and the taxpayer filed this action seeking a return of both the deficiency and the civil fraud penalty.
At the first trial of this case before Judge William Hawley Atwell, the Court found that the taxpayer was not entitled to a refund of either the deficiency or civil fraud assessment. The taxpayer did not appeal from the determination of the trial Court that he was not entitled to a refund of the deficiency, and the existence of such deficiency is therefore judicially acknowledged. The taxpayer did appeal from that part of the decision which upheld the fraud penalty.
The Court of Appeals for the Fifth Circuit reversed and remanded the case insofar as a refund of the fraud penalty was denied saying that it was not clear that the trial Court had applied the correct legal standard. Carter v. Campbell, 1959, 264 F.2d 930. That opinion stressed the importance of an awareness that the Government had the burden of showing a fraudulent omission of income with intent to evade a tax by clear and convincing evidence; that Court further underlined the necessity of sufficiently definite findings to support the judgment rendered.
In this trial the Government's case of fraud centers around two admittedly unreported items of income which took the form of checks from the Santa Fe Grain Company to the taxpayer totalling $20,752.69. In June of 1946 the taxpayer agreed to purchase a tract of land for $6,400. To obtain the money to purchase the tract the taxpayer sold to the Santa Fe Grain Company all of his wheat which was left in the company's elevator at that time. At the taxpayer's request the grain company paid $7,612.00 therefor in the form of two consecutively numbered checks, both of which were issued on the same day. One check was in the amount of $1,212 and was deposited in the taxpayer's bank account in the customary manner; the second check was in the amount of $6,400, the exact amount of the purchase price of the land, but was not deposited. This latter check was used to purchase a cashier's check from the bank which was in turn used to pay the purchase price of the land.
The second item omitted from income was a $14,352.69 check which was from the Santa Fe Grain Company for the sale of wheat. This check was never deposited in the taxpayer's bank account, as was customary, but was instead credited directly against an outstanding loan from the bank. These two unreported grain sales almost equalled in amount the income from reported sales during that year of $23,820.95.
Beginning with the year of 1940, and continuing down to 1948, the taxpayer continuously relied on an attorney-accountant, Walter G. Russell, to prepare and file his income tax returns. The testimony of Mr. Russell and Mrs. Hancock, a member of his staff, revealed that the taxpayer clearly understood the sources of information to be used in the preparation of his returns: deposit slips, cancelled checks, bank statements, and such other information as the taxpayer might himself furnish his accountant. The taxpayer also understood that Russell and his staff would not undertake to make independent investigations to ferret out transactions not revealed from the above sources. This above procedure was satisfactorily used in the...
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Carter v. Campbell
...was not entitled to a refund of the fraud penalty. Its written opinion, a portion of which is copied in the margin,2 is reported in 179 F.Supp. 359-362. The handling by appellant of these two checks convinced the trial court that, because they were handled in a way other than the usual way ......