Foster v. C.I.R., 091465 FEDTAX, 84095

Docket Nº:84095, 84644, 89864.
Opinion Judge:RAUM, Judge:
Party Name:GRANT FOSTER and BARBARA DUNN FOSTER, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Robert J. Bird and Paul E. Waring, for the petitioners. Kenneth G. Anderson, George L. Hudspeth and Marshall H. Barkin, for the respondent.
Case Date:September 14, 1965
Court:United States Tax Court
 
FREE EXCERPT

24 T.C.M. (CCH) 1268 (1965)

T.C. Memo. 1965-246

GRANT FOSTER and BARBARA DUNN FOSTER, Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 84095, 84644, 89864.

United States Tax Court.

September 14, 1965

          Robert J. Bird and Paul E. Waring, for the petitioners.

          Kenneth G. Anderson, George L. Hudspeth and Marshall H. Barkin, for the respondent.

          MEMORANDUM FINDINGS OF FACT AND OPINION

         The deficiencies and additions to tax determined by the respondent for each of the taxable years in the notices of deficiencies were as follows:

Additions to Tax

Sec. 293(b) Sec.294(d)(2)

I.R.C. 1939: Sec. 294(d) I.R.C. 1939

Sec. 6653(b) Sec. 291(a) (1)(A) Sec. 6654(a)

Years Income Tax I.R.C. 1954 I.R.C. 1939 I.R.C. 1939 I.R.C. 1954

1949 $ 6,522.66 $ 3,261.33 $ 1,630.67 $ 621.69 $ 414.46

1950 31,241.96 15,620.98 7,810.49 2,811.78 1,874.52

1951 229,890.54 114,945.27 57,472.64 20,690.14 13,793.43

1952 406,583.18 203,291.59 101,660.68 36,601.67 24,401.11

1953 444,374.92 222,187.46 88,874.98 40,005.61 26,670.42

1954 218,670.98 109,469.02 20,257.94

1955 111,179.33 56,190.23 63.06

1956 48,830.74 24,539.16 13.00

         In amended answers filed by respondent he claims the following increases in the deficiencies and additions to tax determined by him in notices of deficiencies:

Additions to Tax

Sec. 293(b)

I.R.C. 1939: Sec. 294(d)

Sec. 6653(b) Sec. 291(a) (1)(A)

Years Income Tax I.R.C. 1954 I.R.C. 1939 I.R.C. 1939

1949 $120,637.99 $ 60,319.00 $ 30,159.33 $10,857.91

1950 165,879.98 82,939.99 41,469.98 14,929.20

1951 352,297.74 176,148.87 88,074.43 31,706.81

1952 402,407.30 201,203.65 100,601.84 36,216.65

1953 49,863.68 24,931.84 34,691.27 4,487.26

1954 407,416.36 203,574.65 37,686.02

1955 358,444.79 178,621.83

1956 439,974.21 219,863.48

         In an amendment to his amended answer respondent claims additional increases in deficiencies and additions to tax for the years 1954 and 1955 as follows:

Additions to Tax

Sec. 6653(b) Sec. 294(d)(1)(A)

Years Income Tax I.R.C. 1954 I.R.C. 1939

1954 $ 8,600.00 $ 4,300.00 $795.50

1955 102,481.05 51,240.52 -

         The principal question for decision involves the determination of the amounts includable in the gross income of petitioners in each of the years 1949 through 1956 for amounts withdrawn by Grant Foster From the account ‘ Foster Construction, C.A.‘ maintained at the Bank of London & South America, Ltd., New York Agency which were diverted to his personal use. Petitioners have conceded that certain checks drawn by Foster on this account during the taxable years were used by him to make personal expenditures, and respondent has conceded that some of the other checks drawn by Foster on this account during those years were used by him for corporate purposes. The checks in controversy are dealt with in the findings of fact.          Other questions presented are (1) whether Grant Foster was a bona fide resident of a foreign country during the period September 1, 1952 through December 31, 1956; (2) whether assessment of any deficiencies in tax for the years 1949, 1950, 1952, 1955 and 1954 are barred by the statute of limitations; (3) whether petitioners are liable for additions to tax for fraud for the years 1949 through 1956; (4) whether petitioners realized unreported rental and interest income in some of the taxable years; (5) whether petitioners are liable for additions to tax for the years 1949 through 1953 for failure to file timely returns for those year; (6) whether petitioners are liable for additions to tax for failure to file declarations of estimated tax for the years 1949 through 1954; and (7) whether petitioners are liable for additions to tax for 1955 and 1956 for underpayment of estimated tax.          Respondent concedes that petitioners are not liable for additions to tax under Section 294(d)(2) of the Internal Revenue Code of 1939 for the years 1949 through 1953.          FINDINGS OF FACT          Some of the facts have been stipulated, and, as stipulated, are incorporated herein by reference.          Grant Foster and Baroara Dunn Foster, petitioners, were husband and wife during the calendar years 1949 through 1956. Grant Foster will sometimes hereinafter be referred to as the petitioner. For the taxable years 1949, 1950, 1952, 1953 and 1954, joint Federal income tax returns of petitioners were filed with the district director of internal revenue, Baltimore, Maryland. For the taxable years 1955 and 1956, joint Federal income tax returns of petitioners were filed with the Director of International Operations of the Internal Revenue Service, Washington, D.C. Petitioners failed to file any individual Federal income tax return for the taxable year 1951.          Grant Zoster was born at Fairview, Arizona, on January 10, 1915. He attended high school at McCammon, Idaho. He also resided at Farmington, Utah; Pocatello, Idaho; and San Diego, California, until approximately 1939. On September 14, 1932, he married Anna Neiser (now Mrs. Anna Martin), from whom he was divorced on April 3, 1936. They had one son, Lynn Grant Foster. On January 6, 1943, he married Barbara Dunn, of San Diego, California. Two children were born of this marriage: a daughter, Jeannette, born on February 4, 1945, and a son, Michael, born on November 29, 1950.          In April, 1939, petitioner went to Venezuela and was employed by the Martin Engineering Company which was engaged in heavy construction work at Maracaibo, Venezuela. He remained in that country working for Martin Engineering Company until August, 1943, first as a heavy equipment operator, and later as a foreman and as job superintendent. In August, 1943, he returned to the United States to volunteer for service in the United States Army. During his Army service he attended the U.S. Army Engineers Officers Training School. In 1944, while in that school, he suffered a training accident which partially paralyzed his left hand. After spending approximately 12 months in various hospitals, he was honorably discharged from the Army about September, 1945. Immediately thereafter, accompanied by his wife and daughter, he returned to work for the Martin Engineering Company in Venezuela as a general foreman of equipment and highway construction, on the maintenance of about 150 miles of roads in the oil fields near Lake Maracaibo, at a salary of $325.00 per month, plus living expenses. In July, 1946, he resigned from the Martin Engineering Company and went into the construction business, as a sole proprietor, operating under the name of Foster Construction.          Foster Construction performed highway construction, asphalt surfacing jobs and airport construction work during the years 1947 through 1949. During this period, Foster Construction also began airport and highway construction projects for oil companies and for the public Works Department of the Government of Venezuela.          For this period, Grant Foster reported, in income tax returns filed with the Government of Venezuela, the following gross income and net income of Foster Construction:

Period Ending

April 30,

1947 1948 1949

Gross receipts Bs. 197,000.00 Bs. 1,118,832.89 Bs. 589,417.34

Expenses 168,083.00 986,792.99 572,308.66

Net Income Bs. 28,917.00 Bs. 132,039.90 Bs. 17,108.68

         Bs. is an abbreviation for the bolivar, a unit of Venezuelan money. For the years 1949 through 1956, the official rate of exchange between the United States dollar and the Venezuelan bolivar was as follows:

One dollar = Bs. 3.35

One bolivar = $ .2985

         For the years 1947, 1948, and 1949, the petitioner reported earned income, for Federal income tax purposes, from his proprietorship, Foster Construction, through April 30, 1949, as follows, on his individual income tax returns:

Period Ending

April 30

1947 1948 1949

Net income-Foster Construction

*** (individually owned business) $ 9,687.20 $44,233.37 $5,731.41

Salary withdrawn by owner

and charged as business expenses 6,693.30 9,871.78 -

Total income from business $16,380.50 $54,105.15 $5,731.41

Less-earned income limited

by Section 116(a) of IRC

to 20% of net profits 3,276.10 9,871.78 1,146.28

Total U.S. Taxable Income $13,104.40 $44,233.37 $4,585.13

         In the early part of 1949, petitioner was approached by a person connected with the Ministry of Public Works in Venezuela. That person, in behalf of himself and two other officials in the Ministry of Public Works, proposed an arrangement whereby Foster's company would profit greatly through contracts with the Venezuelan Government. The three officials consisted of the Director of Highways, The Director of Public Works for the State of Falcon, and the Director of Airports and Ports in the Caracas office of the Ministry of Public Works. The spokesman for the three officials outlined to Foster a program of expansion of...

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