Franklin v. Commissioner
| Decision Date | 26 April 1993 |
| Docket Number | Docket No. 15188-89. |
| Citation | 65 T.C.M. 2497 |
| Parties | William Franklin v. Commissioner. |
| Court | U.S. Tax Court |
Robert M. Simels, for the petitioner. Robert A. Walker, Jr., and Mary Corrigan Gorman, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in petitioner's Federal income tax and additions to tax as follows:
Additions to Tax
---------------------------------------------
Year Deficiency Sec. 6653(b)(1) Sec. 6653(b)(2) Sec. 6661
1982 $155,214 $ 77,607 50% of the $38,804
interest due
on $155,214
1983 213,767 106,884 50% of the 53,442
interest due
on $213,767
The deficiency notice explained the determinations as being based on receipt of $305,245 and $423,611 in unreported income from heroin sales in 1982 and 1983, respectively. Petitioner has challenged the determinations and additions to tax.
Unless otherwise noted, all section references are to the Internal Revenue Code of 1954 in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts are stipulated and are so found. The stipulations of fact filed by the parties and attached exhibits are incorporated by this reference.
Petitioner was incarcerated in the Federal Correctional Institution in Memphis, Tennessee, when he filed the petition in this case.
In 1977, petitioner was convicted in the United States District Court for the District of Maryland of conspiracy to distribute heroin. Petitioner pled guilty to conspiracy and subsequently was sentenced to a 12-year prison term. Petitioner served a portion of his sentence in a Federal penitentiary and was released to the Volunteers of America Halfway House in Baltimore, Maryland, in June 1982. On July 17, 1987, pursuant to a superseding indictment, petitioner was indicted by a Federal grand jury on 28 counts of narcotics and Internal Revenue Code violations. Petitioner pled guilty to counts 9, 12, and 23 of the superseding indictment and is currently serving a nonparolable sentence of 10 years.
With regard to the superseding indictment, count 23 charged petitioner with possession of a firearm by a convicted felon and is not relevant to the present case. Count 12 charged petitioner with violating section 7206(1) by willfully making a false return by failing to include in his 1983 Federal income tax return gross income and expenses from the business of distributing heroin. Count 9 charged petitioner as follows:
A. From in or about June, 1982, and continuing thereafter up to and including the date of this Indictment, in the State and District of Maryland, defendant
did unlawfully, knowingly and intentionally engage in a Continuing Criminal Enterprise in that he did on numerous occasions violate Title 21, United States Code, Section 841(a)(1), which violations, including, but not limited to, those set forth in Counts One, Two, Three, Four, Five, and Eight of this Indictment, were part of a continuing series of violations of said statute undertaken by the said Defendant in concert with at least five other persons, with respect to whom WILLIAM E. FRANKLIN occupied a position of organizer, supervisor or other position of management, and from which continuing series of violations WILLIAM E. FRANKLIN obtained substantial income and resources.
B. From his engagement in the aforesaid Continuing Criminal Enterprise, the Defendant WILLIAM E. FRANKLIN obtained property, profits and interests which are subject to forfeiture to the United States, including, but not limited to approximately $44,080 United States currency seized from WILLIAM E. FRANKLIN'S home at 6713 Yataruba Drive, Baltimore, Maryland, on November 15, 1983 by agents of the United States. 21 U.S.C. section 848.
The counts referred to in count 9 charged petitioner as follows: Count 1 charged petitioner with conspiring to distribute heroin from at least January 1980 to the date of the indictment. Counts 2 through 5 charged petitioner with distributing approximately 50-dosage unit bags of heroin on each of four occasions in Maryland during a period beginning in or after June 1982 and ending in or before November 1982. Count 8 charged distribution of 1500-dosage unit bags of heroin in Maryland on or before October 7, 1983. Section 848 of title 21, U.S.C. (1988), whose violation forms the gravamen of count 9, is commonly known as the "Drug Kingpin Statute." See United States v. Johnson, 575 F.2d 1347, 1358 (5th Cir. 1978).
Prior to the District Court's accepting petitioner's plea agreement with regard to the superseding indictment, petitioner was rearraigned in the United States District Court for the District of Maryland on February 22, 1988. In anticipation of the court's accepting petitioner's plea agreement, counsel for the United States represented to the court that, if the case were to go to trial, the United States would show that petitioner, either alone or in conjunction with another, did on numerous occasions in 1982 and on at least one occasion in 1983 distribute heroin. Also, counsel for the United States represented that the United States at trial would be able to show that petitioner's 1983 Federal income tax return falsely failed to disclose income from an ongoing business of heroin distribution. Petitioner's counsel conceded that the United States would be able to obtain a conviction on the three counts to which petitioner was prepared to plead. Petitioner's counsel objected to the court, however, that the United States could not establish through the testimony of the witnesses who had been made known to petitioner that petitioner had been engaged in any criminal activities with them or with anyone else. Petitioner's counsel stated that such witnesses had recanted their prior allegations. Nevertheless, petitioner's counsel agreed with the court that guilt could have been proven by the "accumulation of the totality of the evidence", wholly apart from whether it could be proven by the witnesses in question. The court asked petitioner why he was pleading guilty. Petitioner first answered ambiguously Then, in response to the court's further question as to whether petitioner believed that the United States could prove its case and that is why petitioner was pleading guilty, petitioner answered: "Yes, Your Honor." The court accepted the plea agreement. The court convicted petitioner of the counts to which he had pled guilty and sentenced him to prison for 10 years. The judgment of the court was filed on May 13, 1988.
Petitioner filed his Federal income tax return for 1982 on April 4, 1983. He filed his Federal income tax return for 1983 on April 16, 1984. Petitioner reported no income related to heroin sales on either return. On March 31, 1989, respondent issued the notice of deficiency here at issue, determining that petitioner had unreported income from heroin sales for 1982 and 1983 in the amounts of $305,245 and $423,611, respectively. That notice provides no further information about such items of income and, in particular, no basis for determining how such amounts were calculated. A petition to this Court timely was made and a trial was held on January 16 and 18, 1991. At that trial, petitioner's only witness was Gregory Welsh, Esq., Assistant United States Attorney, Office of the United States Attorney, Baltimore, Maryland. Mr. Welsh's testimony related primarily to records of petitioner's that had been seized and Mr. Welsh's activities preparatory to petitioner's 1988 conviction. Petitioner did not testify. In response to a question by the Court, petitioner's counsel stated that it was petitioner's view that petitioner's returns spoke for themselves and that Mr. Welsh's testimony was offered only to corroborate that the documents that supported those returns had been seized by the Government and had at some point, in some way, been used by the Government. Counsel further stated that the only remaining issue was whether the Government could demonstrate that petitioner had income beyond that shown on the returns. Counsel insisted that the Government could not, and that the plea that resulted in petitioner's 1988 conviction was not evidence that petitioner had additional income but was part of a resolution of the case that needed to be made to satisfy the various agencies involved.1
Respondent also called Mr. Welsh, whose testimony was elicited in support of respondent's fraud case. Respondent presented no other witnesses. No witness testified as to how respondent calculated the unreported income items here at issue or as to how respondent determined that petitioner underreported his income or underpaid his tax for the years here in question.
OpinionPetitioner asserts that respondent's notice of deficiency is without foundation and is inherently arbitrary. Accordingly, petitioner argues that the notice of deficiency constitutes a "naked assessment," which is "invalid" within the rule of Helvering v. Taylor [35-1 USTC ¶ 9044], 293 U.S. 507 (1935).2 See United States v. Janis [76-2 USTC ¶ 16,229], 428 U.S. 433, 441 (1976). Petitioner continues that, respondent having failed otherwise to offer any basis for her calculations or contentions that was not rebutted by petitioner, this Court should redetermine deficiencies in tax to be zero and sustain no section 6661 additions to tax. Petitioner...
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