Fisher v. Commissioner

Decision Date12 April 1988
Docket NumberDocket No. 39308-85.
Citation55 TCM (CCH) 585,1988 TC Memo 151
PartiesPaul Fisher and Melinda Fisher v. Commissioner.
CourtU.S. Tax Court

Towner Leeper, 661 Mesa Hills Dr., El Paso, Tex., for the petitioners. Byron Calderon, for the respondent.

Memorandum Findings of Fact and Opinion


Respondent determined deficiencies in and additions to petitioners' income taxes as follows:

                Addition to
                Tax Section
                Year Deficiency 6653(b)1
                  1976 ............... $27,822       $13,911
                  1977 ............... $43,453       $21,727

The issues for decision are: (1) whether additions to tax for fraud as provided by section 6653(b) are due from Paul Fisher2 for the years 1976 and 1977; (2) whether the assessment of any deficiency due from the petitioners for 1976 or 1977 is barred by the statute of limitations; and (3) the amounts, if any, by which the adjusted gross incomes of petitioners for the years 1976 and 1977 are understated.

Findings of Fact

Some of the facts have been stipulated and are so found. The stipulations of facts and the exhibits associated therewith are incorporated herein by reference.

Petitioners, Paul and Melinda3 Fisher, husband and wife, resided in El Paso, Texas, during 1976 and 1977 and at the time of filing their petition. Their joint income tax returns for 1976 and 1977 were timely filed on or before April 15, 1977 and April 15, 1978, respectively, with the Internal Revenue Service Center in Austin. The returns reflected adjusted gross incomes of $12,261 in 1976 and $11,925 in 1977.

Paul Fisher graduated in 1957 from the University of Texas with a degree in business administration. While earning his degree, he completed a number of courses in accounting, business law and finance.

During 1970 or 1971, Paul Fisher entered into an oral partnership agreement with Albert McCardle. The partnership, known as McCardle and Fisher, continued through 1977. Under the oral agreement the only partners in the partnership were Paul Fisher and Albert McCardle; McCardle's contribution to the partnership was labor and services; Fisher's contribution to the partnership was money; and McCardle conducted the day-to-day operations of the partnership and was responsible for its banking transactions.

On April 10, 1972, Paul Fisher purchased from his father (J.L. Fisher) a one-half interest in a store building in Lampasas for $21,000. In 1976, Paul Fisher's liability for part of the purchase price was reduced by payments made by petitioner to his father totalling $7,479. In 1977, the liability was further reduced by similar payments totalling $3,150.

On June 19, 1974, petitioner borrowed $30,000 from the First National Bank of Lampasas which he invested in a real estate limited partnership known as Crystal Park. This $30,000 was petitioner's total investment in the partnership and on the 1974 and 1975 joint returns, petitioner deducted losses from Crystal Park of $3,454.12 and $26,538.00, respectively. Petitioner's returns for 1976 and 1977 reflect no income or loss from the partnership but Paul Fisher made payments on the loan from the First National Bank of $4,000 in 1976 and $20,895.23 in 1977.

During 1976 and 1977 and for several years prior thereto, Paul Fisher was an inveterate gambler. His gambling activities included substantial wagers on games of golf, poker, gin rummy, and football, as well as at the casinos in Las Vegas, Reno and other gambling resorts. He was also an accomplished golfer with a zero handicap and had been the proud winner in 1973 of the amateur section of the National Open of Mexico with his longtime friend and professional partner Lee Trevino.

Paul Fisher was a member of several local clubs including El Paso Country Club, Coronado Country Club and Vista Hills Country Club. He joined these clubs after concluding that he could make more money playing golf and poker at the clubs than his total costs of belonging.

Nearly every day during the years at issue, Fisher played one or more golf matches on which wagers were made at one of the country clubs. Subsequent to the golf matches, he usually played poker or gin rummy at one of the clubs or at a private residence. Almost all wagers were paid in cash and no record was made of his winnings or losses.

During the same period, Fisher also bet on football games by placing wagers by telephone with B.J. Chapman, also known as Bobby Chapman or Bobby Joe Chapman, a bookmaker in Dallas. Petitioner was not a bookmaker but he occasionally placed bets at no gain or loss in his name with Chapman for a friend or friends.

Chapman did not attempt to settle up4 with Fisher after each bet or at the end of each day or even at the end of each week of wagering. Instead, Chapman maintained a temporary record of their dealings and, when either of them wanted to settle up, payment would be promptly made by the net loser, usually by mailing a cashier's check or checks to the other.

The cashier's checks obtained by Fisher and sent to Chapman were not made payable to Chapman because Chapman's activities were illegal in Dallas and he did not want a record made of the payments to him. Instead, petitioner's cashier's checks were made out to fictitious payees. Chapman never deposited and seldom cashed one of the checks. When he had to cash one he just endorsed it for the fictitious payee and passed it on to some other party to deposit or cash. Most of the cashier's checks were used by Fisher and Chapman as cash because Chapman would simply hold the checks made payable to fictitious payees by Fisher until such time as Chapman had a balance due Fisher. At that time, the checks were returned to Fisher in settlement of the balance due.

Fisher kept no record of the football wagers he made with Chapman. From one settlement date to the next Chapman kept a running account of the amount owed by or to Fisher but these records were destroyed when payment was made because Chapman did not want any incriminating records available to the local authorities. The record contains no evidence that petitioner ever objected to the use of the cashier's checks being made payable to fictitious parties or to their use as a substitute for cash. In fact, at trial Chapman was under the impression that these arrangements were equally satisfactory to Fisher, and one of petitioner's former representatives, Gonzalo Diaz, told respondent's agent that Fisher had told him that the use of such cashier's checks was frequently employed by "dopers and gamblers" in order to avoid the tracing of the funds represented by the checks. The record contains no evidence of any denial of this statement by petitioner. It does contain a statement by respondent's agent that his investigation failed to reveal any evidence that Fisher was a "doper."

Petitioners' income tax returns for 1976 and 1977 were prepared by Raymond M. Larkin, a certified public accountant in El Paso with 31 years of experience. Mr. Larkin also prepared the 1976 and 1977 information returns for the McCardle and Fisher partnership.

For use in the preparation of petitioners' 1976 income tax return, Fisher provided Mr. Larkin with the books and records of the partnership and information regarding the rental of the store building in Lampasas. Fisher did not provide Mr. Larkin with any record of his gambling activities in 1976 or advise Mr. Larkin that any gambling transactions had occurred during the year. The 1976 income tax return reflected all income and expenses with respect to which information was given to Mr. Larkin.

In the course of preparing the 1977 return for the McCardle and Fisher partnership, Mr. Larkin had a discussion with Fisher concerning a cash transaction that occurred in 1978. The discussion prompted Mr. Larkin to ask whether petitioner had any gambling income in 1977. In reply, Fisher advised Mr. Larkin that he had received $15,000 in gambling income in 1977 but did not produce any record of his gambling transactions. The gambling income of $15,000 was reported on the 1977 return as "miscellaneous income."

On November 16, 1977, Paul Fisher gave $27,700 in currency to University Bank in El Paso and caused $5,000 of the currency to be deposited in his personal checking account and the balance of $22,700 to be used to purchase three cashier's checks (numbers 15703, 15704 and 15705). University Bank prepared and filed with the Internal Revenue Service a Currency Transaction Report, Form 4789, regarding the transaction. The report was received by the Internal Revenue Service no later than February 10, 1978.

Philip Rocha, one of respondent's agents, began an examination of petitioners' 1976 and 1977 income tax returns with an interview of Paul Fisher on October 18, 1978. At that time, Mr. Rocha was aware of the November 16, 1977 currency transaction between petitioner and the University Bank. Fisher appeared at the interview without counsel and without any books or records.

At the initial interview, Fisher stated that the $15,000 of miscellaneous income reported on the 1977 income tax return was from gambling, that the $15,000 was all the gambling income he received in 1977, and that he had no books or records reflecting his gambling activities. Fisher also told Mr. Rocha that during 1976 he had more gambling losses than winnings.

During the initial interview, petitioner also stated to the agent that in 1976 and 1977 he realized no income other than the amounts shown on the returns, that he had no expenses or deductions which were not reported on the returns, that the returns were correct as filed, that he had not received or made any loans during 1976 and 1977, and that the mortgage on his home represented the only loan he had outstanding during those years.

When questioned by the agent about the currency transaction in November 1977, Fisher said that he could not recall the transaction and did not remember purchasing any cashier's checks at that date. Petitioner stated that he...

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