Conti v. Commissioner
| Decision Date | 19 October 1992 |
| Docket Number | Docket No. 15131-90. |
| Citation | 64 T.C.M. 1093 |
| Parties | Guilio J. and Edith Conti v. Commissioner. |
| Court | U.S. Tax Court |
Respondent determined deficiencies in income tax of $116,410.57 for 1986 and $390,227.28 for 1987, and additions to tax for fraud under section 6653(b) and substantial understatement of income tax under section 6661.
In the answer respondent alternatively asserted the addition to tax for negligence under section 6653(a). By amended answer, respondent asserted that petitioners' deficiency was $217,237 for 1986 and $339,021 for 1987. On brief respondent concedes that petitioners' deficiencies do not exceed $206,702 for 1986 and $322,343 for 1987.
After concessions, the issues for decision are:
1. Whether respondent's determination, including that petitioners had a $150,000 cash hoard on December 31, 1985, was arbitrary. We hold that it was not.
2. Whether petitioners had an $800,000 cash hoard on December 31, 1985, or received $550,000 in loans from their son during 1986 and 1987. We hold that they did not.
3. Whether petitioners are entitled to a $5,047 deduction for sales tax for 1986, and a $410 deduction for tax return preparation fees for 1987. We hold that they are not.
4. Whether petitioners have additional income of $893 for 1986 from the sale of their residence. We hold that they do.
5. Whether petitioners are liable for additions to tax for fraud under section 6653(b). We hold that they are.
6. Whether petitioners are liable for additions to tax for substantial understatement of tax under section 6661. We hold that they are.
7. Whether petitioners are liable for additions to tax for negligence under section 6653(a). We need not reach this issue in light of our holding on fraud.
Petitioners offered into evidence the results of polygraph tests to corroborate their cash hoard claim. We previously ruled that the results of these tests are not admissible. Conti v. Commissioner [Dec. 48,547], 99 T.C. 20 (1992).
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated and are so found. References to petitioners are to Mr. and Mrs. Conti.
Petitioners are husband and wife who resided in Birmingham, Michigan, when the petition was filed. They were married in 1949 and had three sons, Chris, Gary, and Mark (the oldest). Petitioners' sons were in their late twenties to late thirties and petitioners were in their late sixties during the years at issue.
Mr. Conti was born in 1921. He has a fifth grade education, and began work at age 14. Mr. Conti worked for Ford Motor Co. (Ford) beginning in 1937, and retired in 1985. From 1971 through 1985 he received $679,206 in wages from Ford. He was in reasonably good health during the years at issue.
Mr. Conti served in the United States Army from 1942 through 1945. He fought in World War II in North Africa and Europe. He was paid $60 per month by the Army.
Mr. Conti inherited $10,000 from his father in 1970, and $12,637 from his brother in 1984. Mr. Conti never made bank deposits. He gave all of the cash he acquired to Mrs. Conti.
Mr. Conti purchased a deferred annuity for $150,000 on November 27, 1981. He withdrew $152,020.51 from the annuity account in July 1984, and received a final distribution of $38,610.33 on February 9, 1988.
Mrs. Conti is a high school graduate with varied work experience before her marriage. She handled the family finances.
In 1986 and 1987 she made more than 300 deposits in at least three banks totaling over $950,000. At least 130 of the deposits were cash, totaling over $375,000. Also in those years petitioners bought and sold at least 12 real properties. These activities are discussed below.
Mrs. Conti is a little hard of hearing and has high blood pressure.
Mark Conti, petitioners' son, is a college graduate. In the 1980s, he syndicated video games, financed and developed racket clubs, and rehabilitated real estate. In 1986 and 1987 he worked from 80 to 90 hours per week in his parents' real estate activity and in other business activities. His parents paid him about $30,000 in 1986 and $20,000 in 1987 for his services. During those years he also worked for Kathy Wilson Management Co. and Kathy Wilson individually. His total reported adjusted gross income was $43,000 for 1986 and $29,000 for 1987.
David D'Annunzio, Mrs. Conti's father, was born in 1881 and died in 1960. Rosa D'Annunzio, Mrs. Conti's mother, was born in 1881 and died in 1973. From about 1953 to 1966, petitioners and Mrs. Conti's mother lived together in Detroit, Michigan.
Alfred D'Annunzio, Mrs. Conti's brother, died in 1981 following an extended illness. He had $2,907 in Federal and State income tax refunds for 1981, all of which Mrs. Conti received. Alfred D'Annunzio bequeathed all of his property to Mrs. Conti. His property, except for cash and other personal property, was held jointly by himself and Mrs. Conti.
Petitioners had personal living expenses including Federal income tax payments of $38,487.69 for 1986 and $22,658.29 for 1987. They received Social Security payments of $12,313 in 1986 and $13,459 in 1987. Their lifestyle was not lavish.
Petitioners maintained several bank and brokerage accounts. The bank accounts were at Bloomfield Savings & Loan Association, Standard Federal Bank, Sterling Federal Bank, Sterling Federal Savings & Loan Association, Comerica Bank, First America Bank, Manufacturers National Bank, National Bank of Detroit, and Michigan National Bank. The brokerage accounts were with Merrill Lynch and E.F. Hutton. Petitioners also had individual retirement accounts at Comerica Bank.
Mrs. Conti made at least the following deposits to their bank accounts in 1986 and 1987 (see appendix A):
All Deposits Cash Deposits Coin Deposits
------------------------------- ------------------------------ ---------------
Number Total Average Number Total Average Number Total
Bloomfield Savings & Loan, 1986
26 $137,772.81 $5,298.95 25 $47,550.00 $1,902.00 9 $2,170
Standard Federal Bank, 1986
14 78,023.96 5,573.14 14 30,100.00 2,150.00 6 1,882
Sterling Federal Savings, 1986
4 9,800.00 2,450.00 4 9,800.00 2,450.00 0 0
Bloomfield Savings & Loan, 1987
37 124,919.78 3,376.21 20 67,650.00 3,382.50 0 0
Standard Federal Bank, 1987
38 201,286.95 5,297.03 33 85,125.00 2,579.55 8 2,200
Sterling Federal Savings, 1987
133 399,403.69 3,003.04 35 138,083.90 3,945.00 0 0
Mrs. Conti and her brother had joint bank accounts with a $160,894.42 total balance when closed in 1981. As of June 27, 1980, Mrs. Conti and her brother jointly owned common stock which cost $72,391.
Petitioners had the following account balances in banks at the end of the years indicated:
Bank 1985 1986 1987
Bloomfield Savings .............................. $ 78,400.39 $ 22,457.43 $ 40,454.90
Comerica ........................................ 34,590.50 33,160.27 62,583.22
Standard Federal ................................ 1 13,690.66 32,069.51
Manufacturers National Bank ..................... 19,493.31 26,863.82 70,154.94
First America ................................... 21,621.64 1 59,584.61
Michigan National Bank .......................... 8,354.91 22,181.61 1
National Bank of Detroit ........................ 40,664.35 26,078.62 46,888.83
Sterling Federal Savings ........................ 1 3,722.74 2,387.02
___________ ___________ ___________
Total ......................................... $203,125.10 $148,155.15 $314,123.03
1 Not in record
Petitioners sold 1,734 shares of stock from 10 companies in 1982 for a $7,635 profit. Petitioners sold 406 shares of stock from two corporations in 1985 for a $10,900 profit. Petitioners invested $77,979 in 12 companies in 1985 and $26,047 in 7 companies in 1986.
Petitioners began investing in real property in the early 1980s at the suggestion of their son Mark. They bought, sold, rented, and renovated real estate. Mrs. Conti handled the banking activity for the business. Petitioners had an office suite on Adams Street with two rooms. The sign on the door said, "Edith J. Conti". They had four employees. Petitioners had business assets with cost of acquisition values on the last day of 1986 and 1987 as follows:
Business Assets 1986 1987
Phone ....................... $ 640 $ 640
Furniture ................... 25,221 25,221
Dump truck ............................ 15,547
Truck ................................. 8,135
Petitioners' real estate purchases and sales included the following:
Date Address Activity Comments
Oct. 31, 1983 31491 Bellvine Purchase $51,315.52 outstanding
Birmingham, MI mortgage
Oct. 26, 1984 552 Hannah Purchase...To continue reading
Request your trial