Carter v. Commissioner, Docket No. 48292
| Decision Date | 30 September 1960 |
| Docket Number | 53519-53521,67601-67604.,Docket No. 48292 |
| Citation | 1960 TC Memo 205,19 TCM (CCH) 1090 |
| Parties | Hilton V. and Gertrude D. Carter v. Commissioner. Hilton V. Carter, Sr. v. Commissioner. Hilton V. Carter, Sr., and Gertrude Coxe v. Commissioner. Gordon H. and Carrie Mae Brame v. Commissioner. Brame & Carter, Inc. v. Commissioner. |
| Court | U.S. Tax Court |
Clint L. Pierson, Esq., and William E. Logan, Esq., Gulfport, Mass., for the petitioners. Towner S. Leeper, Esq., for the respondent.
Memorandum Findings of Fact and Opinion
The respondent determined deficiencies in income taxes and additions thereto against Hilton V. Carter and Gertrude Coxe (formerly Gertrude D. Carter, wife of Hilton V. Carter), as follows:
Docket Additions to Tax1
No. Year Income Tax 293(b) 294(d)(1)(A) 294(d)(2)
48292 1948 ........ $ 5,958.86 ....... ......
48292 1949 .......... 4,655.16 ......... ......
53519 1950 .......... 9,226.18 $ 4,613.09 $ 830.45 $ 553.62
67602 1951 .......... 4,779.96 2,389.98 334.57 286.78
67602 1952 .......... 10,400.34 5,200.17 728.03 624.02
1 All statutory references are to the Internal Revenue Code of 1939
In Docket Nos. 48292 and 67602 by amended answer or amendment to answer the respondent made claim for deficiencies in tax and additions thereto for certain years, in lieu of those originally determined, as follows:
Docket Additions to Tax
No. Year Income Tax 293(b) 294(d)(1)(A) 294(d)(2)
48292 1948 ..... $15,175.02 $ 7,587.51 $1,108.26 $ 949.93
48292 1949 ..... 15,203.02 7,601.51 1,064.20 912.18
67602 1951 ..... 10,061.50 5,030.75 704.31 603.69
67602 1952 ..... 12,564.94 6,282.47 879.54 753.90
The respondent determined a deficiency in income tax and additions thereto against Hilton V. Carter for 1953 as follows:
Docket Additions to Tax
No. Year Income Tax 293(b) 294(d)(1)(A) 294(d)(2)
67601 1953 ..... $ 1,984.70 $ 992.35 $ 167.33 $ 143.42
By amended answer in Docket No. 67601, the respondent made claim for increased deficiency in tax and additions thereto, in lieu of those originally determined, as follows:
Docket Additions to Tax
No. Year Income Tax 293(b) 294(d)(1)(A) 294(d)(2)
67601 1953 ..... $ 5,227.98 $2,613.99 $ 394.35 $ 338.02
The respondent determined deficiencies in income tax and additions thereto against Gordon H. and Carrie Mae Brame as follows:
Docket Additions to Tax
No. Year Income Tax 293(b) 294(d)(1)(A) 294(d)(2)
53520 1948 ..... $18,219.38 $ 9,109.69 $1,726.70 $1,151.13
53520 1949 ..... 26,082.06 13,041.03 2,400.77 1,600.51
53520 1950 ..... 15,040.34 7,520.17 1,378.91 919.28
67603 1951 ..... 5,868.98 2,934.49 420.89 360.76
67603 1952 ..... 4,375.78 2,187.89 319.36 273.74
67603 1953 ..... 1,986.90 993.45 174.27 149.38
By amended answer in Docket No. 67603, the respondent made claim for increased deficiencies in income tax and additions thereto, in lieu of those originally determined, as follows:
Docket Additions to Tax
No. Year Income Tax 293(b) 294(d)(1)(A) 294(d)(2)
67603 1951 ..... $10,757.82 $ 5,378.91 $ 763.09 $ 654.09
67603 1952 ..... 7,850.44 3,925.22 562.58 482.22
67603 1953 ..... 6,003.24 3,001.62 455.42 390.36
The respondent determined deficiencies in income tax and additions thereto against Brame and Carter, Inc., as follows:
Docket No. Fiscal Year Ending Income Tax Additions to Tax 293(b)
53521 Jan. 31, 1949 ... $20,139.27 $10,069.64
53521 Jan. 31, 1950 ... 21,770.08 10,885.04
53521 Jan. 31, 1951 ... 24,364.25 12,182.13
67604 Jan. 31, 1952 ... 4,317.69
With respect to the individual petitioners the principal issues are: (1) whether certain weekly payments received by them from the corporate petitioner and designated as travel and entertainment expense, and monthly payments received from the corporation are taxable as dividends or salary; (2) whether they also received other taxable income, computed by the respondent by the bank deposit and cash expenditure method, by diverting to themselves payments of accounts receivable of the corporation and other payments due the corporation from finance companies including payments upon discounting of notes and payments from dealer reserves; (3) whether they are entitled to deduct losses sustained in the operation of farms; and (4) whether they are liable for certain additions to tax, including additions to tax for fraud under section 293(b). Certain other issues have been disposed of by stipulations at the hearing, which will be referred to hereinafter.
With respect to the corporate petitioner, the respondent conceded on brief that it is not liable for additions to tax under section 293(b) on account of fraud. The principal issues are whether the corporation had large amounts of unreported income as held by the respondent, and whether the respondent erred in disallowing deductions claimed for travel and entertainment expense.
Some of the facts are stipulated orally at the hearing, and such stipulations are incorporated herein by reference.
The petitioners Hilton V. Carter and Gertrude Coxe were husband and wife during the years 1948 through 1952, residing in Baton Rouge, Louisiana. They filed joint Federal income tax returns for those years with the collector or district director of internal revenue at New Orleans, upon the cash receipts and disbursements method of accounting. Hilton V. Carter similarly filed a separate return for 1953.
The petitioners Gordon H. and Carrie Mae Brame are husband and wife, residing in Baton Rouge. They filed joint Federal income tax returns for the calendar years 1948 through 1953 with the collector or district director of internal revenue at New Orleans, upon the cash receipts and disbursements method of accounting.
The wives are parties to this proceeding only by virtue of having filed joint returns. Hereinafter Hilton V. Carter and Gordon H. Brame will be referred to by their surnames or as the petitioners.
The petitioners Brame & Carter, Inc., hereinafter referred to as the corporation, kept its books and filed its income tax returns on the basis of a fiscal year ending January 31, and upon an accrual method of accounting. It filed Federal income tax returns for the fiscal years ending January 31, 1949 through January 31, 1954, with the collector or district director of internal revenue at New Orleans.
About 1937 Brame and Carter became associated as partners and engaged in the business of selling Chrysler and Plymouth automobiles and parts. In 1942 the business was incorporated, the petitioner Brame & Carter, Inc. being created, with principal place of business at Baton Rouge. The corporation continued in the same type of business which also included buying and selling used cars. Each petitioner owned one-half of the stock of the corporation and they actively managed and had complete charge of the corporation. The investment in capital stock of the corporation is shown on its returns as being $10,000. Carter was its president and Brame was its vice-president. They devoted their full business time to the affairs of the corporation.
The corporation employed a bookkeeper and maintained books and records. However, these books were not accurate. They contained many errors and many items were not included therein. The inaccuracy of the books resulted, at least in part, from the manner in which the petitioners dealt with their corporation. The individual petitioners did not keep books. Carter had practically no records of his financial transactions in the years in question. Brame kept some invoices and cancelled checks, but these were incomplete. Neither of the petitioners kept records which were adequate for the computation of taxable income.
The corporation occupied and used two properties, one known as the Florida Street property and the other identified as the warehouse on North Leo or Beck Street. These properties were held in the name of Brame and Carter individually. No charge was made by them to the corporation for the use of these properties and the corporation did not pay them any rental.
Brame and Carter as indiivduals from time to time borrowed money from the Fidelity National Bank. One account was carried on the books of the bank in their joint names, representing amounts which they had borrowed on notes which they had signed jointly and secured by their jointly owned property which was used by the corporation. Each of them individually also borrowed money on his individual note secured by his individually owned property, and the bank kept an individual account for each of them. The balances shown due by the bank records in each of these accounts was as follows:
Date Brame & Carter G. H. Brame H. V. Carter
Jan. 31, 1947.. $ 42,000.00 $1,000.00
Jan. 31, 1948.. 33,500.00 1,000.00
Jan. 31, 1949.. 23,000.00 3,000.00 ..........
Jan. 31, 1950.. 27,000.00 5,500.00 $ 3,000.00
Jan. 31, 1951.. 40,000.00 17,500.00 11,000.00
Jan. 31, 1952.. 60,800.00 10,500.00 7,000.00
Jan. 31, 1953.. 68,000.00 29,500.00 3,000.00
Jan. 31, 1954.. 105,000.00 62,700.00 ........
The amounts which the two...
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