Dellacroce v. Comm'r of Internal Revenue
| Decision Date | 27 August 1984 |
| Docket Number | 5896–77.,Docket Nos. 5895–77 |
| Parties | ANIELLO DELLACROCE AND MARY DELLACROCE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, RespondentANIELLO DELLACROCE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Base in part on information furnished by an informant, respondent determined that petitioner received a $100,000 labor racketeering payoff in 1965, which he failed to report as income. Respondent also determined that the per-share fair market value of 22,500 shares of stock received by petitioner in 1968 as a labor racketeering payoff, but not reported by him as income, was $4.875. Held, following the Second Circuit's decision in Llorente v. Commissioner, 649 F.2d 152 (2d Cir. 1981), affg. in part and revg. and remanding in part74 T.C. 260 (1980), the notice of deficiency for 1965 was issued arbitrarily. Since the statutory notice for 1965 lacked adequate evidentiary support, the Commissioner's assertion of income tax liability against Dellacroce based on the allege receipt of a $100,000 income payment must be eliminated from the notice of deficiency. Held further, petitioner did not satisfy his burden of proving that respondent's valuation of the stock received by petitioner 1968 was erroneous. Wallace Mussoff and Juris G. Cederbaums, for the petitioners.
William M. Gross, for the respondent.
In these consolidated cases, respondent determined income tax deficiencies and additions to tax as follows:
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¦ ¦ ¦ ¦ ¦Additions to tax under ¦
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¦Docket No. ¦Petitioner ¦Year ¦Deficiency ¦Sec. 6653(b) ¦Sec. 6654(a) ¦
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¦ ¦ ¦ ¦ ¦ ¦ ¦
+------------+------------+------+------------+--------------+--------------¦
¦5895-77 ¦Aniello ¦ ¦ ¦ ¦ ¦
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¦ ¦Dellacroce ¦ ¦ ¦ ¦ ¦
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¦ ¦and Mary ¦1968 ¦$80,109.47 ¦1 $40,054.74 ¦--- ¦
+------------+------------+------+------------+--------------+--------------¦
¦ ¦Dellacroce ¦ ¦ ¦ ¦ ¦
+------------+------------+------+------------+--------------+--------------¦
¦5896-77 ¦Aniello ¦ ¦ ¦ ¦ ¦
+------------+------------+------+------------+--------------+--------------¦
¦ ¦Dellacroce ¦1965 ¦54,731.00 ¦27,366.00 ¦$1,533 ¦
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Respondent has now conceded the addition to tax for fraud under section 6653(b) for the year 1965. After this concession and other concessions by the parties, the primary issues remaining for decision are the following:
(1) whether petitioner, Aniello Dellacroce, received $100,000 of unreported income during 1965 for services rendered in connection with the settlement of labor problems and insuring labor peace.
(2) Whether petitioner, Aniello Dellacroce, is liable for the section 6654(a) addition to tax for failure to make estimated tax payments during 1965.
(3) What was the fair market value of 22,500 shares of common stock of Yankee Plastics, Inc., constructively received by petitioner, Aniello Dellacroce, on April 2, 1968, for services rendered in assisting the merger of Yankee Plastics, Inc. and Mr. Hanger, Inc., and in insuring labor peace for the latter corporation.
Some of the facts have been stipulated and are so found. The stipulation of facts, together with the exhibits attached thereto, is incorporated herein by this reference.
The petitioners in docket No. 5895–77 are Aniello Dellacroce and his wife, Mary Dellacroce. Aniello Dellacroce is also the petitioner in docket No. 5896–77. The petitioners' legal residence at the time they filed their petitions herein was 232 Mulberry Street, New York, New York. Petitioners did not file a Federal income tax return for 1965. They did file a joint Federal income tax return for 1968 with the appropriate office of the Internal Revenue Service. The amounts here in dispute relate to the activities of Aniello Dellacroce, and when used hereafter in the singular, “petitioner” will refer to him alone.
Petitioner had been under criminal investigation for a number of years and remained so in 1982 at the time of the trial in this case. Petitioner was convicted of criminal conspiracy to evade income taxes due from him for 1968 and was additionally found guilty of false filing and tax evasion for 1968 in United States v. Catalano, 491 F.2d 268 (2d Cir. 1974), affg. an unreported district court decision (S.D.N.Y. 1973), cert. denied 419 U.S. 825 (1974). The conviction stemmed from petitioner's failure to return as income in 1968 the value of 22,500 shares of common stock of Yankee Plastics, Inc. received by a nominee as payment for petitioner's assistance in insuring labor peace.
Respondent determined that petitioner received a similar labor racketeering payoff in 1965 in the amount of $100,000, which petitioner failed to report. Respondent based this determination, in part, on information provided by one Frank Terranova, who acted as a Government informant in the Catalano case. Harvey Dratman, the revenue agent assigned to the case, received his lead to speak with Terranova through a special agent's report, which had been prepared in connection with the alleged 1965 payoff. In addition to reviewing the special agent's report, Dratman reviewed grand jury testimony provided by Terranova and others. Dratman thereafter located Terranova, who was at that time in the Federal witness protection program, and interviewed him in a motel in Peekskill, New York. Terranova informed Dratman that Martin Goldman, president and majority shareholder of Royal Crown Bottling Company of Newark, told him that he had paid petitioner $100,000 in 1965 for petitioner's assistance in solving labor problems at Royal Crown Bottling Company and Hoffman Beverages, Inc.2 Terranova admitted that he was not an eye witness to the alleged $100,000 payoff, but informed Dratman that on numerous occasions he had ridden with Goldman to the Ravenite Club and observed the passing of envelopes and suitcases containing money from Goldman to petitioner. Dratman concluded that Terranova was a credible informant. In issuing the deficiency notice, Dratman relied on the information Terranova provided, along with the information in the special agent's report, which among other things, indicated that there was a sudden end to labor strikes against Royal Crown Bottling Company and Hoffman Beverages, Inc.
On their joint Federal income tax return for 1968 petitioners reported $10,400 of “wages, salaries, and tips” and total tax of $1,401.80.
The parties have stipulated that,as a result of his conviction in Catalano v. United States, supra, petitioner is estopped from denying that he received 22,500 shares of Yankee Plastics, Inc. stock on April 2, 1968, that the value of those shares on that date was taxable income which was not reported in petitioners' joint Federal income tax return for that year, and that the omission was fraudulent with intent to evade tax. The parties, however, disagree on the value of that stock.
In the criminal case the Government valued the 22,500 shares at approximately $123,000, or approximately $5.50 per share. The jury in that case did not determine the value of the stock, but the jurors were instructed that, in order to find a defendant guilty of conspiracy, they must find that “a conspiracy existed to evade and defeat a large part of the income taxes due and owing * * * by * * * Dellacroce * * *.” They were further instructed that they could not convict on the tax evasion count unless they found beyond a reasonable doubt “that there was a substantial amount of federal income tax due and owing from the defendant.” They were finally instructed that they could not convict on the false filing count unless they found beyond a reasonable doubt “that the understatement was large and substantial.”
Yankee Plastics, Inc. was formed in January 1957. The corporation was engaged in the business of manufacturing plastic hangers. In August 1965 Yankee Plastics, Inc. went into chapter 11 bankruptcy, from which it emerged on December 19, 1967. It subsequently suffered a further bankruptcy in the late 1970's and went out of business.
The consolidated financial report of Yankee Plastics Inc. for the fiscal year ended January 31, 1968, reflects a deficit in earnings of $217,379 and indicates a book value of approximately $.14 per share of stock.
The consolidated financial statement of Yankee Plastics, Inc. for the fiscal year ended January 31, 1969 reflects a deficit in earnings of $45,067 and indicates a book value of approximately $.40 per share of stock. A note appended to the report states that on January 31, 1969 there were outstanding options to acquire 27,500 shares of common stock at $4.25 per share, exercisable at any time between October 31, 1969 and October 31, 1971, and that in February 1969 the company granted options to two employees to acquire 3,500 common shares at $6 per share, exercisable ratably over the next 5 years. Further, the report states that in April 1969 the company sold for $2,000 a non-transferable warrant to purchase 50,000 common shares at $4.25 per share, exercisable during the 1-year period beginning October 31, 1970. Finally, the report states that in May and June 1969 the company sold 37,000...
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