Estate of Johnson v. Commissioner

• Decision Date: 20 July 2001
• Docket Number: Docket No. 14518-97.,Docket No. 14519-97.,Docket No. 14522-97.,Docket No. 14521-97.,Docket No. 14520-97.
• Parties: Estate of Frank Johnson, Deceased, Larry T. Johnson, Personal Representative and Estate of Katherine Johnson, Deceased, Larry T. Johnson, Personal Representative, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner.
• Court: U.S. Tax Court

82 T.C.M. 206

T.C. Memo. 2001-182 Estate of Frank Johnson, Deceased, Larry T. Johnson, Personal Representative and Estate of Katherine Johnson, Deceased, Larry T. Johnson, Personal Representative, et al.¹ v. Commissioner.

Docket No. 14518-97.

Docket No. 14519-97.

Docket No. 14520-97.

Docket No. 14521-97.

Docket No. 14522-97.

United States Tax Court.

Filed July 20, 2001.

Kenneth B. Wheeler, Winter Park, Florida, for the petitioners. James F. Kearney, for the respondent.

CONTENTS

                FINDINGS OF FACT ........................................................................   210
                I.  Facts Relating to Issues Involving Deficiencies .....................................   210
                    A. Background .......................................................................   211
                    B. Tax Returns ......................................................................   211
                       1. Frank and Katherine's Returns .................................................   211
                       2. Larry's Returns ...............................................................   212
                       3. Ronnie's Returns ..............................................................   213
                       4. Sylvia's Returns ..............................................................   213
                    C. IRS Audits and Notices of Deficiency .............................................   214
                       1. Frank and Katherine's Audit and Notices of Deficiency .........................   214
                       2. Larry's Audit and Notice of Deficiency ........................................   215
                       3. Ronnie's Audit and Notice of Deficiency .......................................   215
                       4. Sylvia's Audit and Notice of Deficiency .......................................   215
                    D. Source and Application of Funds Analyses .........................................   215
                    E. Cash Hoard .......................................................................   218
                    F. Other Facts ......................................................................   219
                    G. Capital Gain for 1989 ............................................................   220
                II. Facts Relating to Issues Involving Transferee Liability .............................   221
                    A. Larry ............................................................................   221
                    B. Ronnie ...........................................................................   221
                    C. Sylvia ...........................................................................   222
                    D. Specific Transfers ...............................................................   223
                       1. U.S. Savings Bonds ............................................................   223
                       2. Account At Glendale Federal Savings and Loan ..................................   223
                       3. Longwood Property .............................................................   223
                       4. Port St. Lucie Property .......................................................   223
                       5. Automobiles ...................................................................   223
                OPINION .................................................................................   223
                I.  Issues Relating to Deficiencies .....................................................   223
                    A. Background .......................................................................   223
                    B. Statute of Limitations and Fraud Issues ..........................................   223
                       1. In General ....................................................................   223
                       2. Fraud .........................................................................   224
                          a. Existence of an Underpayment ...............................................   224
                             (1) Likely Sources of Income ...............................................   225
                             (2) Nontaxable Source ......................................................   226
                             (3) Summary Relating to Existence of an Underpayment .......................   228
                          b. Intent To Evade Taxes ......................................................   228
                             (1) Pattern of Unreporting Substantial Amount of Income ....................   229
                             (2) Lack of Records ........................................................   229
                             (3) Filing History .........................................................   229
                             (4) Dealings in Cash .......................................................   230
                             (5) Concealing Transactions ................................................   230
                             (6) Failure To Cooperate with Respondent ...................................   230
                             (7) Credibility of Witnesses ...............................................   231
                             (8) Level of Education, Age, and State of Health ...........................   231
                             (9) Summary Regarding Intent ...............................................   231
                          c. Conclusion Regarding Fraud and Statute of Limitations ......................   231
                    C. Amount of Understatement of Income ...............................................   231
                       1. Adjustments to BLS Figures ....................................................   232
                       2. Adjustment for Specific Gift ..................................................   233
                

                       3. Adjustment for Proceeds of Automobile Transactions ............................   233
                       4. Adjustment for Larry's Audit Results ..........................................   233
                       5. Adjustment for Sylvia's Gambling Expenditures .................................   234
                       6. Additional Items Identified as in Dispute .....................................   234
                          a. Withholding on Gambling Winnings ...........................................   234
                          b. Birthing Costs for Nicole ..................................................   234
                          c. Estimated Tax Payments .....................................................   234
                          d. Tax Payment ................................................................   234
                          e. Wedding Ceremony for Sylvia ................................................   235
                          f. Detective Expenses .........................................................   235
                          g. Janie's Living Expenses ....................................................   235
                          h. Duplications Regarding Johnson Limousine ...................................   235
                       7. Other Adjustments .............................................................   235
                          a. Rental Income ..............................................................   235
                          b. Duplication of Rental Expenses and Mortgage Payments .......................   236
                          c. Depreciation ...............................................................   236
                          d. Cash and Jewelry ...........................................................   236
                       8. Summary Relating to Amount of Understatement of Income ........................   236
                    D. Capital Gain for 1989 ............................................................   236
                    E. Taxable Social Security Benefits .................................................   237
                    F. Self-Employment Taxes ............................................................   237
                    G. Self-Employment Deduction ........................................................   238
                    H. Married Couples Deduction ........................................................   238
                    I. Additions to Tax and Penalties ...................................................   238
                       1. Sections 6653(b) and 6663 .....................................................   238
                       2. Section 6661 ..................................................................   239
                II. Issues Relating to Transferee Liability .............................................   239
                    A. Background .......................................................................   239
                    B. Florida's Statutory Provisions ...................................................   240
                       1. Pre-1988 Transfers ............................................................   240
                       2. Post-1987 Transfers ...........................................................   240
                    C. Discussion .......................................................................   241
                Appendix A ..............................................................................   243
                Appendix B ..............................................................................   247
                Appendix C ..............................................................................   247
                Appendix D ..............................................................................   248
                Appendix E ..............................................................................   250
                Appendix F ..............................................................................   251
                Appendix G ..............................................................................   252
                Appendix H ..............................................................................   254
                Appendix I ..............................................................................   256
                Appendix J ..............................................................................   258
                Appendix K ..............................................................................   263
                Appendix L ..............................................................................   266
                Appendix M ..............................................................................   269
                Appendix N ..............................................................................   272
                

MEMORANDUM FINDINGS OF FACT AND OPINION

HALPERN, Judge:

These five cases have been consolidated for trial, briefing, and opinion. Respondent, by two notices of deficiency dated April 4, 1997,...