DiZenzo v. Commissioner
| Decision Date | 30 April 1964 |
| Docket Number | Docket No. 72736-72739. |
| Citation | 1964 TC Memo 121,23 TCM (CCH) 677 |
| Parties | Patsy F. DiZenzo and Anna DiZenzo, et al. v. Commissioner. |
| Court | U.S. Tax Court |
Hirsh Freed, 85 Devonshire St., Boston, Mass., and Harold Lavien, for the petitioners. Frederick A. Griffen and Meade Emory, for the respondent.
Memorandum Findings of Fact and Opinion
The respondent determined deficiencies in income tax and additions to tax as follows:
Docket No. 72739, Patsy Frank, Inc.
Income Additions under
Year Tax Deficiency Sec. 293(b)*
1946 ........ $13,555.55 $ 6,777.78
1947 ........ 22,465.36 11,232.68
1948 ........ 20,540.99 10,270.49
1949 ........ 822.82 411.41
1950 ........ 1,269.61 634.81
* All statutory references are to the Internal
Revenue Code of 1939
The respondent also determined that Patsy F. DiZenzo is liable, as transferee of assets of Patsy Frank, Inc., for the deficiencies in tax and additions to tax determined against Patsy Frank, Inc. (Docket No. 72736) and that Anna DiZenzo is, in turn, liable as a transferee of Patsy F. DiZenzo (Docket No. 72737) for such deficiencies and additions.
Certain of the issues raised by the pleadings have been settled by stipulations of the parties. The issues remaining for decision are:
(1) Whether the respondent's determination of gross receipts of the corporation from various contracting jobs performed in certain years in question was excessive;
(2) Whether the corporation is entitled for each year to greater amounts of operating costs than allowed by the respondent in computing gross profit derived by the corporation from the contracting jobs;
(3) Whether assessment and collection of any deficiencies in tax due from the corporation for the taxable years 1946, 1947 and 1948 are barred by the statute of limitations;
(4) Whether any part of any such deficiency for any year in question is due to fraud with intent to evade tax;
(5) Whether, for each year, the respondent's determination of taxable income of the individuals resulting from diversion of corporate receipts was excessive;
(6) Whether the gain from the sale of certain property in 1948 is taxable in full or is taxable as long-term capital gain;
(7) Whether assessment and collection of any deficiencies in tax due from the individuals for any of the taxable years 1946 through 1950 are barred by the statute of limitations;
(8) Whether any part of any such deficiency for any year in question is due to fraud with intent to evade tax;
(9) Whether for each year the individual petitioners are liable for an addition to tax for underestimation of estimated tax;
(10) Whether the petitioner Patsy DiZenzo is liable, as transferee, for any deficiencies in tax and additions to tax due from the corporation; and
(11) Whether the petitioner Anna DiZenzo is liable, as transferee of her husband, for any such deficiencies in tax and additions to tax.
Some of the facts have been stipulated and are incorporated herein by this reference.
Patsy Frank, Inc. (sometimes hereinafter referred to as the corporation), was incorporated under the laws of the State of Connecticut on July 16, 1928, with capital stock of $10,000, to engage principally in the contracting business. At all times material hereto, the corporation reported its taxable income on the cash receipts and disbursements method of accounting and on a calendar year basis. It filed its Federal income tax returns for the taxable years 1946 to 1950, inclusive, with the district director of internal revenue at Hartford, Connecticut.
At all times material hereto the officers and stockholders of the corporation were as follows:
Per
cent of
stock
Name Title held
Patsy Frank DiZenzo President & Treasurer ......... 98
Anna DiZenzo Secretary ..................... 1
William DiZenzo Vice-president and
Assistant Treasurer ......... 1
In June 1950, Patsy Frank, Inc., sold its equipment to William DiZenzo, son of Patsy Frank DiZenzo and Anna DiZenzo, for $2,300 and ceased business operations.
Patsy Frank DiZenzo (also known as Patsy Frank) and Anna DiZenzo, at all times material hereto, were husband and wife and resided at 424 Church Hill Road, Bridgeport, Connecticut. For the years 1946 to 1951, inclusive, they reported their income on the cash receipts and disbursements method of accounting on a calendar year basis. They filed joint Federal income tax returns for those years with the district director of internal revenue at Hartford, Connecticut. Hereinafter Patsy Frank DiZenzo will sometimes be referred to as the petitioner.
In addition to his controlling stock ownership of Patsy Frank, Inc., the petitioner was at all times relevant hereto the controlling officer-stockholder of the Putnam Realty Co., Inc., the principal business of which consisted of the rental and maintenance of an apartment building which it owned in Bridgeport, Connecticut.
The petitioner's formal education terminated in 1913 after his completion of two months in the 9th grade, at which time he went to work in the construction field, later engaging in concrete and masonry work with his father. About 1927 he entered into the general contracting business, including the building of garages and small shops and homes for sale. In 1928 he organized Patsy Frank, Inc., to engage in such activities, investing $10,000 in its stock. Prior to the taxable years in question, the corporate office was in petitioner's home. During the years in question, the office was at 1286 Kossuth Street, Bridgeport, Connecticut. It did not own any real estate. The office equipment consisted of two desks, two chairs, a table, and a filing cabinet. The equipment which the corporation employed consisted of a pick-up truck, a small concrete mixer, wheel barrows, picks, shovels, hoes, rakes, scaffolding, etc.
During the period 1946 through 1950, inclusive, the corporation was engaged in general masonry and carpentry work on shops, stores, garages, gas stations, etc., with all plumbing and electrical work and some masonry and carpentry work being let out on a subcontract basis. The petitioner, in his individual capacity, also engaged in certain business activities, including the ownership, construction, and sale of real property and the receipt of rentals.
The corporation, as well as each of the individual petitioners, maintained a checking account at the First National Bank & Trust Company at Bridgeport. The individuals maintained savings accounts at various banks. The petitioner rented a safe deposit box during each of the years in question. The petitioner drew all corporate checks, making notations of such checks on the stubs. The only other records kept by the corporation consisted of a cash disbursements book containing entries commencing in December 1946 and ending in August 1950, time sheets for employees, some job site notations made by the petitioner, and material invoices from suppliers, except invoices received in connection with cost-plus contracts which were given by the corporation to the customer for the purpose of substantiating the cost involved. The record does not show what, if any, books and records the individual petitioners maintained with respect to their personal transactions.
The corporation did not employ a book-keeper or secretary. It employed on a part-time basis at a fee of $75 per year an accountant, Thomas Adiletta, who made the entries in the cash disbursements book from the check stubs made available to him. All entries in the cash disbursements book represented payments made by check, but it did not contain all of the payments which were made by check. The invoices and notations were customarily retained in one of the filing cabinet drawers and were available to the accountant.
The accountant prepared the income tax returns for the individual petitioners and for the corporation, using such records as were available. However the records kept were inadequate for the purpose of computing the taxable income of the corporation and the individual petitioners. At the time of preparing the corporate tax returns the petitioner would confer with the accountant and furnish information with respect to individual jobs. The accountant prepared work sheets which were customarily attached to the retained copies of the returns. The petitioner on such work sheets customarily made lists of gross receipts of the corporation on a job-by-job basis.
Commencing in early 1952 revenue agent Everett Dowdney and special agent Richard Baker made an investigation of Putnam Realty Co., Inc., covering its taxable years ended May 31, 1948 through May 31, 1951. The investigation was expanded to include the tax liabilities of Patsy Frank, Inc., for the taxable years 1946 through 1950 and of the individual petitioners for the taxable years 1946 through 1951. Agent Dowdney spent about 300 working days in the combined investigations.
In their investigations the revenue agents examined, among other things, such records of the corporation as were available; the corporate and individual tax returns; the corporation's retained copies of its...
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