Giddio v. Comm'r of Internal Revenue
| Decision Date | 27 July 1970 |
| Docket Number | Docket No. 1368-68. |
| Citation | 54 T.C. 1530 |
| Parties | JOSEPH F. GIDDIO, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
David M. Markowitz, for the petitioner.
David W. Winters, for the respondent.
Agents of the Internal Revenue Service, having received information that petitioner had taxable income during 1962, 1963 and 1964, attempted to obtain data as to the amount of that income. Finding themselves unable to obtain sufficient data from the petitioner or from any other source, they made estimates of his taxable income for each year based on the normal cost of supporting a family the size of his in the locality where he lived. A notice of deficiency was later issued based upon those estimates. Held, the notice of deficiency was not proved to be either arbitrary or excessive.
Respondent determined deficiencies in petitioner's Federal income tax and additions thereto as follows:
+--------------------------------------------------------+
¦ ¦ ¦Additions to¦Additions to¦Additions to¦
+----+------------+------------+------------+------------¦
¦ ¦ ¦tax, sec. ¦tax, sec. ¦tax, sec. ¦
+----+------------+------------+------------+------------¦
¦Year¦Deficiencies¦6651(a) 1 ¦6653(a) ¦6654 ¦
+----+------------+------------+------------+------------¦
¦ ¦ ¦ ¦ ¦ ¦
+----+------------+------------+------------+------------¦
¦1962¦$710.87 ¦$177.72 ¦$35.54 ¦$13.72 ¦
+----+------------+------------+------------+------------¦
¦1963¦756.14 ¦189.03 ¦37.81 ¦14.00 ¦
+----+------------+------------+------------+------------¦
¦1964¦697.33 ¦174.33 ¦34.87 ¦12.32 ¦
+--------------------------------------------------------+
The only contested issue is whether petitioner had unreported gross income in the amounts stated in the notice of deficiency for 1962, 1963, and 1964, respectively. Petitioner has stipulated that he is liable for additions to the tax under sections 6651(a), 6653(a), and 6654 if the Court should find that there are deficiencies in income tax.
Petitioner was a legal resident of Brooklyn N.Y., at the time of the petition was filed. He did not file a Federal income tax return for 1962, 1963, or 1964.
On April 8, 1960, petitioner was convicted of bookmaking in the Special Sessions, Criminal Court of the City of New York, and was sentenced to pay a fine of $200.
On April 16, 1964, special agents of the Internal Revenue Service arrested petitioner on a charge of accepting wagers without first obtaining a Federal gambling tax stamp, and one of the special agents interrogated him for approximately 1 hour. In the course of the interrogation, petitioner stated that he was employed as a laborer by Rissi Construction Co. (hereinafter Rissi) and that he also worked as a loader for C. G. Wadman & Co. (hereinafter Wadman). When he worked for Rissi, petitioner stated, his hours of duty were 8:30 a.m. to 3:30 p.m. For the days on which he worked for Wadman, his hours of duty were 3 a.m. to 10:30 a.m. During the interrogation petitioner also stated that he had not filed an income tax return for 1963. He declined to answer any further questions.
Following the interrogation, a revenue agent was assigned to investigate petitioner's possible income tax liability for 1962, 1963, and 1964. The agent tried to make contact with petitioner, but these efforts were of no avail. Due to his lack of cooperation, the agent was unable to obtain any leads as to the source or amount of the money petitioner used to support himself and his family. However, it was ascertained that petitioner was married and had at least one child. (Petitioner in fact had two children during this period.) Under these circumstances, information prepared by the Bureau of Labor Statistics was used to estimate the amount of petitioner's income.
The records of Anchor Plastics Co., Inc. (hereinafter Anchor Plastics), include a payroll card, bearing petitioner's social security number, reflecting that a Joseph Giddio was employed as ‘Nights-Helper’ from July 30, 1962, to September 4, 1962, at a wage of $1.25 per hour.
The records of Wadman disclose that, in 1963, petitioner was paid $640 for his services. Wadman filed with the Internal Revenue Service a Form W-2, reflecting wages paid to petitioner in this amount and bearing petitioner's social security number, and what was at one time his home address. The form shows that the amount of the F.I.C.A. employee tax withheld was $23.20 but that no Federal income tax was withheld.
On February 15, 1968, a notice of deficiency was issued to petitioner determining that during 1962, 1963, and 1964 he had income in the amounts of $4,699.44, $4,743.36 and $4,765.32 and computing deficiencies in tax by use of a tax table, allowing three exemptions. Attached to the notice was the following ‘Explanation of Adjustments':
(a) It has been determined based on a cost of living that you had unreported income for the years 1962, 1963 and 1964. The cost of living was determined from a table furnished by the Bureau of Labor Statistics for the year 1959. This table was increased for a cost of living by the following percentages:
+------------+
¦1962¦7% ¦
+----+-------¦
¦1963¦8% ¦
+----+-------¦
¦1964¦8 1/2% ¦
+------------+
OPINION
Case in traditional terms, petitioner's allegations are that the notice of deficiency is arbitrary and excessive2 and that, therefore, the burden of proof that he had taxable income rests with respondent. Cf. Helvering v. Taylor, 293 U.S. 507 (1935). Petitioner then urges that, since the evidence does not show that he received sufficient taxable income to establish any tax liability for the years in issue, we must enter a decision for him.
We hold that respondent's determination has not been shown to be either arbitrary or excessive.
Although the method used by respondent in determining the disputed deficiencies is unusual, we do not think it is arbitrary. The agents of the Internal Revenue Service believed petitioner was engaged in gambling activities. In 1960 he had been convicted of bookmaking, and in 1964 he was arrested on a charge of engaging in wagering without obtaining the required Federal stamp. While under arrest in 1964 he asserted that he was, or had been, employed. Yet he filed no income tax returns for 1962, 1963, and 1964. The revenue agent to whom his case was assigned sought to make contact with him in an effort to obtain information needed to determine his income tax liability, but was unable to locate him or to obtain any leads as to the source and amount of his income. The agent then made estimates, later incorporated in the notice of deficiency, based on the normal cost of supporting a family the size of petitioner's in New York City. The amount of the taxable income so determined, conceded by petitioner to be a reasonable amount for the support of an individual with two dependents, was based on data compiled by the Bureau of Labor Statistics.
Section 4463 confers broad powers on the ‘Secretary or his delegate,‘ the Internal Revenue Service, to compute the taxable income of a taxpayer. As a general rule, the computation is made under the method of accounting regularly employed by the taxpayer. If no method of accounting has been used by the taxpayer, however, ‘the computation of taxable income shall be made under such method as, in the opinion of the Secretary or his delegate, does clearly reflect income.’
Consistent with this broad power to compute taxable income, section 6212(a) provides for the issuance of a notice of deficiency where the Secretary or his delegate ‘determines that there is a deficiency’ in respect of certain taxes. Nowhere in the Code is there a provision which specifies the nature and quality of the evidence which the tax administrator must gather to support the determination, or the form and contents of the notice. Manuel D. Mayerson, 47 T.C. 340 (1966). The absence of statutory guidelines suggests that Congress intended that the Internal Revenue Service should have great latitude in making determinations of liability, particularly where the taxpayer files no returns and refuses to cooperate in the ascertainment of his income. Otherwise, ‘skilful concealment,‘ would be an ‘invincible barrier’ to the determination of tax liability. United States v. Johnson, 319 U.S. 503, 518 (1943); see also Rouss v. Bowers, 30 F.2d 628, 630 (C.A. 2, 1929), certiorari denied 279 U.S. 853 (1929). Where as in this case, there is evidence of taxable income but no information can be acquired to ascertain the amount of such income, we do not think it is arbitrary for the Commissioner to determine that the taxpayer had income at least equal to the normal cost of supporting his family. Cf.,e.g., Toledano v. Commissioner...
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