Gajewski v. Comm'r of Internal Revenue

• Decision Date: 10 November 1976
• Docket Number: Docket No. 3518—74.
• Citation: 67 T.C. 181
• Parties: LOREN R. AND MERVIN A. GAJEWSKI, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

67 T.C. 181

LOREN R. AND MERVIN A. GAJEWSKI, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 3518—74.

United States Tax Court

Filed November 10, 1976.

For calendar years 1967 through 1970, petitioners, who are farmers, filed Forms 1040 reporting no gross income or deductions but simply claiming that because the United States had gone off the gold standard, petitioners had no income in ‘dollars.’ Petitioners relied on 31 U.S.C. secs. 314 and 821 which provide the standard gold content of a dollar. Petitioners had been previously convicted for willfully failing to file returns for 1967 through 1970, and their convictions had been affirmed on appeal, their ‘gold standard’ defense having been rejected. Respondent's deficiency notices for 1967 through 1969 were issued more than 3 years after the Forms 1040 for those years were filed. Held, since the Forms 1040 filed by petitioners have previously been held not to constitute ‘returns,‘ petitioners are collaterally estopped to assert the contrary. The statute of limitations therefore did not bar the asserted deficiencies. Held, further, on the merits, the statutory gold content of the dollar is irrelevant for purposes of computing taxable income. Held, further, since petitioners maintained inadequate inventory records, respondent properly computed their farm income on the cash method. Held, further, respondent's computations of petitioners' taxable income are sustained with certain adjustments for living expenses. Held, further, fraud penalties under sec. 6653(b) are sustained. Loren R. Gajewski and Mervin A. Gajewski, pro se.

James L. Norris, for the respondent.

HALL, Judge:

Respondent determined deficiencies in petitioners' Federal income taxes, and additions to taxes for fraud, as follows:

+-------------------------------------------+
                ¦¦Loren R. Gajewski   ¦Mervin A. Gajewski   ¦
                ++--------------------+---------------------¦
                ¦¦         ¦          ¦          ¦          ¦
                +-------------------------------------------+
                

 Deficiency Sec. 6653(b)1 Deficiency Sec. 6653(b)  
                1967 $592.01      $296.00         $592.01      $296.00
                1968 2,127.05     1,063.52        2,127.05     1,063.52
                1969 2,603.30     1,301.65        2,603.30     1,301.65
                1970 2,137.06     1,068.53        2,137.06     1,068.53
                

In the event we do not sustain his determination with respect to fraud, respondent has, in the alternative, determined the following additions to taxes for failure to file (sec. 6651(a)) and negligence (sec. 6653(a)):

+-------------------------------------------+
                ¦¦Loren R. Gajewski   ¦Mervin A. Gajewski   ¦
                ++--------------------+---------------------¦
                ¦¦         ¦          ¦          ¦          ¦
                +-------------------------------------------+
                

 Sec. 6651(a) Sec. 6653(a) Sec. 6651(a) Sec. 6653(a)  
                1967 $148.00        $29.60         $148.00        $29.60
                1968 531.76         106.35         531.76         106.35
                1969 650.83         130.17         650.83         130.17
                1970 534.27         106.85         534.27         106.85
                

The issues for decision are:

(1) Whether the statute of limitations bars assessment of a deficiency for the years 1967, 1968, and 1969;

(2) Whether the statutory gold content of the dollar is relevant for purposes of computing taxable income;

(3) Whether petitioners are entitled to use the accrual method of accounting in computing their net farm income;

(4) Whether respondent's determination of taxable income in the statutory notices is correct;

(5) Whether petitioners are liable for additions to taxes for fraud, or, in the alternative, for additions to tax for negligence and for failure to file returns.

FINDINGS OF FACT

Some of the facts have been stipulated by the parties and are found accordingly.

Petitioners are brothers, and at the time they filed their petition in this case, they resided in Alexander, N. Dak. For the taxable years 1967 through 1970, each petitioner submitted a Form 1040 ‘U.S. Individual Income Tax Return’ to the District Director of Internal Revenue, Fargo, N. Dak.

Petitioners have been engaged in joint farming operations for a number of years. From 1951 through 1960, these operations were conducted with other members of their family. Since 1961 they have operated a two-man partnership under various names, including Gajewski Farms, Gajewski Enterprises, and Gajewski Bros. For the years 1951 through 1961 neither petitioner filed individual Federal income tax returns, except for the 1959 tax year, when Loren Gajewski (Loren) filed an individual return. On that return Loren reported his distributive share of partnership income and expenses.² These items were computed on the inventory method of accounting.

On May 24, 1962, Loren was convicted of making a false statement on his 1959 return. On the same date, he and Mervin Gajewski (Mervin) were both convicted of conspiring with their parents to file false income tax returns for 1951 through 1959.

Subsequent to his indictment on these charges but prior to his conviction, Loren wrote a letter, dated December 19, 1961, to the North Dakota District Director and raised for the first time the issue of whether ‘dollar’ as used in the Internal Revenue Code referred to the standard gold dollar as defined in 31 U.S.C. sec. 314.³ The District Director replied in a letter dated December 26, 1961, that he had no knowledge with which to answer Loren's request.

While serving prison sentences imposed on their 1962 convictions, Loren and Mervin were interviewed in June 1964 by Special Agent Bauer. The interview was conducted as part of an investigation of their tax liability for the years 1960 through 1963. Neither petitioner had filed returns for any of the taxable years 1960 through 1963. During that interview, both petitioners acknowledged that they had not filed returns for any of the years under investigation. They stated that they were familiar with the Federal income tax filing requirements but had not received $600 in dollars maintained at a parity with the standard gold dollar and consequently were under no obligation to file returns.

In a letter to Special Agent Bauer dated February 6, 1965, Loren reasserted his position that he was under no obligation to file a return. He accused Bauer of attempting to persuade him to perjure himself by filing a return, when Loren in fact knew that he had not received 600 ‘Dollars' of gross income.

Despite their assertion that they were under no obligation to file returns and despite their distrust of the Government arising from disputes with the Agricultural Stabilization and Conservation Service and from their convictions in 1962, each petitioner submitted purported amended returns for 1962 through 1964 on December 24, 1965. They also submitted purported returns for 1965 on December 31, 1965. All of these documents were similar in that they disclosed only the petitioners' names and addresses and contained the following statement:

Net income $ none, the weight of which are established according to the provisions of 31 U.S.C. 812 (sic) and none in a form of money convertible to such dollars or maintained at a parity of value with such dollars according to the provisions of 31 U.S.C. 314.

The North Dakota District Director rejected each of the documents submitted by petitioners and attempted to return the documents to petitioners on April 27, 1966. However, Loren refused delivery of the documents and accompanying letter sent to him, and Mervin, who had accepted the delivery of his rejected returns, resubmitted the documents to the District Director on May 29, 1966.⁴

For the taxable year 1966, both petitioners submitted Forms 1040, containing the same information and statement that appeared in the documents submitted for 1962 through 1965. In addition, Loren claimed a Federal gasoline tax refund for nonhighway gasoline used for farming. The District Director rejected both documents as returns, and on February 19, 1970, he returned them to petitioners.

As a result of petitioners' refusal to file complete returns for 1964, the investigation of their tax liabilities for 1960 through 1963 was enlarged sometime in 1965 to include 1964, and thereafter was again enlarged to include 1965 and 1966. Petitioners refused to voluntarily produce any books or records during the audit of their tax liability for these years. In response the auditing agents secured a summons on December 8, 1967. That summons commanded petitioners to appear at a conference scheduled for January 5, 1968, and produce their books and records for the years 1960 through 1966. Petitioners failed to appear at the scheduled conference and failed to produce any of the records requested in the summons. On February 8, 1968, petitions to enforce the summons were filed in the U.S. District Court. On September 30, 1968, the District court ordered petitioners to comply with the summons.⁵ This decision was affirmed by the Court of Appeals⁶ and the Supreme Court denied certiorari in the case.⁷ Nonetheless, petitioners persisted in their refusal to comply with the summons⁸ and did not produce the requested books and records until February 20, 1974.

As a result of petitioners' noncooperation and refusal to comply with the summons, the initial determination of petitioners' tax liability for the years 1960 through 1966 was not completed until April 1975. Thereafter, examination reports (30-day letters) for those years were mailed to petitioners on April 7, 1975. In these reports the auditing agent included in petitioners' gross income their distributive shares of partnership farm income. The partnership farm income was computed by using the accrual method of accounting and using cost to value inventory. Subsequently, on September 26, 1975, amended 30-day letters were sent to each petitioner. In them, the partnership farm income was computed on the cash receipts and disbursements method of accounting.

For the years 1967 through 1970, each petitioner submitted a Form 1040 to the ...