Durovic v. Comm'r of Internal Revenue , Docket No. 1633–65.
| Citation | 54 T.C. 1364 |
| Decision Date | 24 June 1970 |
| Docket Number | Docket No. 1633–65. |
| Parties | MARKO DUROVIC, Petitionerv.COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
1. Held, the good-faith filing of a Form 1065 partnership return reflecting petitioner's only source of income was not sufficient to start the running of the statute of limitations where petitioner had failed to file an individual return, as required by sec. 6012(a).
2. Held, petitioner incorrectly used the ‘official’ rate of exchange (as opposed to the ‘commercial’ rate of exchange) in converting the cost of Argentinian expenditures, incurred prior to petitioner's emigration to this country, into dollars.
3. Held, respondent's determination not arbitrary or unreasonable where respondent's agents were denied access to various books and records of a discontinued partnership to which petitioner had belonged, notwithstanding that such refusal was predicated on the presence of a special agent and the attendant possibility that such books and records might have been used against petitioner in a criminal proceeding.
4. Held, that in determining petitioner's distributive share of partnership income, respondent erred in disallowing in toto partnership cost of goods sold. (Partnership cost of goods sold determined.) Held, further, though not properly includable in partnership cost of goods sold, petitioner's investment in 72,200 ampules of the product Kositerin constituted a sec. 1231 loss in the year in which such ampules were destroyed as a result of spoilage.
5. Held, petitioner did not act fraudulently in failing to pay income tax for each of the years in issue.
6. Held, reasonable cause existed for petitioner's failure to file a timely declaration of estimated tax during 1954. Held, further, additions to tax for underpayment of estimated tax during the years 1955 through 1958 were proper.
7. Held, petitioner and his wife could not (subsequent to respondent's notice of deficiency) elect to file joint returns for years during which they were married and for which neither filed a return, where respondent had already employed individual taxpayer rates in determining petitioner's deficiency. Douglas L. Barnes and R. Thomas Howell, Jr., for the petitioner.
Sheldon Chertow, for the respondent.
Respondent determined deficiencies in petitioner's income tax and additions thereto for the following years:
+--------------------------------------------------+
¦ ¦ ¦Additions to tax ¦
+----+----------+----------------------------------¦
¦ ¦ ¦ ¦ ¦Sec. 294(d)¦
+----+----------+------------+---------+-----------¦
¦Year¦Deficiency¦Sec. 6653(b)¦Sec. 6654¦(1)(A) 1 ¦
+----+----------+------------+---------+-----------¦
¦1954¦$27,353.08¦$13,676.54 ¦ ¦$2,520.17 ¦
+----+----------+------------+---------+-----------¦
¦1955¦55,039.77 ¦27,519.89 ¦$1,537.58¦ ¦
+----+----------+------------+---------+-----------¦
¦1956¦34,152.29 ¦17,076.15 ¦952.74 ¦ ¦
+----+----------+------------+---------+-----------¦
¦1957¦83,875.51 ¦41,937.76 ¦2,344.54 ¦ ¦
+----+----------+------------+---------+-----------¦
¦1958¦63,926.05 ¦31,963.03 ¦1,785.95 ¦ ¦
+--------------------------------------------------+
The issues for decision are:
(1) Whether the good-faith filing of a Form 1065 partnership return reflecting petitioner's only source of income is sufficient to start the running of the statute of limitations where petitioner has failed to file an individual return, as required by section 6012(a).
(2) Whether petitioner should have used the ‘commercial’ rate of exchange as opposed to the ‘official’ rate of exchange in converting the cost of Argentinian expenditures, incurred prior to petitioner's emigration to this country, into dollars.
(3) Whether respondent's determination was arbitrary and unreasonable so as to negate the presumption of correctness which normally attaches thereto.
(4) Whether respondent erred in disallowing in toto partnership cost of goods sold and in assessing petitioner with his distributive share of the partnership income generated by such disallowance.
(5) Whether petitioner was fraudulent in failing to pay tax for each of the years in issue.
(6) Whether respondent properly determined additions to tax for failure to file a timely declaration of estimated tax during 1954 and for underpayment of estimated tax during the years 1955 through 1958.
(7) Whether, subsequent to respondent's notice of deficiency, petitioner and his wife may, contrary to respondent's determination, elect to file joint returns for years during which they were married and in which no returns were filed on the mistaken but good-faith belief that no tax was due.
Some of the facts have been stipulated by the parties. The stipulation of facts, together with the exhibits attached thereto, are incorporated herein by this reference.
Marko Durovic (hereinafter Marko or petitioner) was a resident of Winnetka, Ill., at the time the petition herein was filed. For each of the years in question Marko lived with his wife, Olga, and their then two minor children. On March 10, 1965, petitioner and his wife filed joint income tax returns for the years 1954 through 1958, inclusive, with the district director of internal revenue at Chicago, Ill.
Marko was born in Ulcinj, Yugoslavia (then Montenegro), in 1900. He was educated at the University of Paris and the University of Belgrade, receiving a law degree from the latter in 1923; whereupon for 3 years, he served as an assistant to a judge in a district court in Belgrade. Subsequent to his resignation from the judiciary, Marko engaged in the private practice of law. He was also a director and a one-third shareholder of the Vistad Corp., a company engaged in the large-scale production of armaments and munitions.
Marko practiced law in Yugoslavia until 1941. On April 6, 1941, Yugoslavia was attacked by the Axis powers, and after 2 weeks of resistance the Yugoslav army capitulated. The northern sector of the country (where petitioner lived) was overrun by the Germans, and the southern sector was occupied by the Italians. Petitioner and his young wife of 5 days fled to the southern Italian-occupied sector, where they obtained permission to travel to Rome. Marko's first instinct had been to escape through Switzerland where he maintained sizable bank accounts; however, the then position of the German army necessitated the abandonment of this course of action.
Five months after they arrived in Rome, Marko and Olga were joined by petitioner's brother, Dr. Stevan Durovic (hereinafter Stevan). Stevan had been imprisoned in a concentration camp. His release was accomplished through Marko's efforts and in accordance with certain terms of the Geneva Convention relating to imprisoned physicians. During the latter half of 1942, petitioner, his wife, and brother obtained authorization to leave Italy, and with the assistance of the Vatican obtained visas permitting them to emigrate to Argentina, where, in 1942, they established residence.
Stevan had received the degree of doctor of medicine in 1930. As early as 1931, Stevan (who was an assistant professor at the University of Belgrade) had conducted extensive research in the field of cancer. It was Stevan's theory that if a proper stimulant for the reticuloendothelial system could be found, the defensive and reparative cells comprising this system could be made to produce a substance which would control malignant growth.
In November 1942 (after arriving in Argentina) Stevan contacted a Dr. Canepa, Dean of the Veterinary Faculty of the University of Buenos Aires and proposed that he (Stevan) be allowed to pursue his research at the university. Stevan was thereafter allowed free use of the university's animal clinic facilities as well as its laboratories.
In researching for the above-described stimulant, Stevan conducted experiments on horses and cattle. Briefly, these experiments consisted of the following steps: First, the experimental stimulant developed by Stevan would be introduced into the animal's system by intravenous injection. About a month later the animal would be bled, the blood serum being extracted by means of an organic solvent such as petroleum ether or benzene. There would then follow a series of steps calculated to dissolve the solvent, evaporate the water content, and separate the insoluble component which, when filtered and centrifugated, would yield a white powder—the active substance. Employing this process, the serum extracted from one horse yielded powder sufficient for only forty 1/100-milligram ampules of the active substance. Most of the horses were supplied free by the university; however, Stevan supplied the 18 or 20 cattle used in the experiments.
Beginning in 1943, Stevan was assisted in his work by several distinguished scientists, one of whom, Dr. Fabio Damonte (hereinafter Damonte) was a professor at the Veterinary Faculty. Damonte helped inject the animals with the solution prepared by Stevan. Damonte also aided in extracting the blood serum which was then processed by Stevan in his laboratory. This laboratory was established in 1944. In addition to the laboratory, Stevan also maintained a farm in Villa Elisa which he apparently also used for experimentation.
In 1944, still searching for an active substance against malignant tumors, Stevan, using the stimulant actinobacilus lignieresi, unexpectedly separated a substance which showed activity against hypertension. This substance was named Kositerin.
At about the time of this discovery, Stevan was being assisted by a fellow scientist, Dr. Carlos de la Serna (hereinafter La Serna). La Serna continued to collaborate with Stevan until the latter's departure from the United States in 1949.
Stevan was very interested in his new discovery, and continued his experiments with the new substance,...
To continue reading
Request your trial
-
Rauenhorst v. Comm'r of Internal Revenue
... ... Instead, the Court of Appeals found the Commissioner's reliance on our prior decision in Durovic v. Commissioner, 54 T.C. 1364, 1970 WL 2212 (1970), affd. in part, revd. in part, and remanded 487 F.2d 36 (7th Cir.1973), to be substantially ... ...
-
Petzoldt v. Comm'r of Internal Revenue
... ... Durovic v. Commissioner, 54 T.C. 1364, 1390 (1970), affd. in part, revd. in part, and remanded in part 487 F.2d 36 (7th Cir. 1973), cert. denied 417 U.S. 919 ... ...
-
Rhone-Poulenc Surfactants & Specialties, L.P. v. Comm'r of Internal Revenue
... ... See Stahl v. Commissioner, 96 T.C. 798, 801, 1991 WL 96626 (1991); Durovic v. Commissioner, 54 T.C. 1364, 13841385, 1970 WL 2212 (1970), affd. in part, revd. and remanded in part 487 F.2d 36 (7th Cir.1973). 25 Petitioner ... ...
-
Riss v. Comm'r of Internal Revenue
... ... See Ray Durden, 3 T.C. 1 (1944); Fay v. Helvering, 120 F.2d 253 (C.A. 2, 1941); and Marko Durovic, 54 T.C. 1364 (1970). Instead it appears to us that the destruction of the wall was the product of a ‘steadily operating cause,‘ Fay v ... ...