Grossman v. Commissioner

• Decision Date: 07 October 1996
• Docket Number: Docket No. 20526-90.,Docket No. 14364-91.
• Citation: 72 T.C.M. 845
• Parties: Robert D. Grossman, Jr. v. Commissioner.
• Court: U.S. Tax Court

72 T.C.M. 845

T.C. Memo. 1996-452

Robert D. Grossman, Jr. v. Commissioner.

Docket No. 20526-90.

Docket No. 14364-91.

United States Tax Court.

Filed October 7, 1996.

Robert D. Grossman, Jr., pro se. Stephen L. Braga and Eric F. Horvitz, for the petitioner. John C. McDougal, for the respondent.

                                                    TABLE OF CONTENTS                              [CCH Pages]
                MEMORANDUM FINDINGS OF FACT AND OPINION ........................................       846
                FINDINGS OF FACT ...............................................................       847
                   A. Background ...............................................................       847
                   B. Sley Corporations ........................................................       848
                     1. Background .............................................................       848
                     2. Investments ............................................................       848
                     3. Daily Operations: 1980 through March 1986 ..............................       851
                     4. Daily Operations: After March 1986 .....................................       853
                   C. Salaries and Dividends ...................................................       854
                   D. Travel and Entertainment Expenses ........................................       854
                     1. 1983 ...................................................................       855
                     2. 1984 ...................................................................       858
                     3. 1985 ...................................................................       859
                     4. 1986 ...................................................................       862
                   E. Financial Statements, Tax Returns, Audits, Notice of Deficiency ..........       865
                   F. Interest Expense for 1987 ................................................       869
                OPINION ........................................................................       869
                I. Statute of Limitations ......................................................       869
                   A. Underpayments of Tax .....................................................       871
                

                     (1) 1983 ..................................................................       872
                     (2) 1984 ..................................................................       875
                     (3) 1985 ..................................................................       877
                     (4) 1986 ..................................................................       880
                     (5) Conclusions ...........................................................       881
                   B. Fraudulent Intent ........................................................       881
                     (1) Petitioner's Knowledge of Credit Card Charges .........................       882
                     (2) Petitioner's Knowledge of Payments ....................................       882
                     (3) Petitioner's Knowledge of Berger's Limited Role .......................       882
                     (4) Petitioner's Knowledge of the Tax Laws ................................       882
                     (5) Petitioner's Misleading Explanations ..................................       883
                     (6) Other Considerations ..................................................       885
                   C. Conclusions ..............................................................       887
                II. Additions to Tax ...........................................................       887
                   A. Fifty-Percent Fraud Additions—1985 .......................................       887
                   B. Additional Amount for Portion Attributable to Fraud—1985 .................       887
                   C. Fraud Additions—1986 .....................................................       887
                   D. Negligence Additions—1986 ................................................       888
                III. Amounts of Deficiencies ...................................................       888
                   A. Amount of Constructive Dividends .........................................       888
                   B. Interest Deduction .......................................................       889
                IV. Innocent Spouse Relief .....................................................       890
                

MEMORANDUM FINDINGS OF FACT AND OPINION

CHABOT, Judge:

Respondent determined deficiencies in Federal individual income tax, deficiencies in Federal excise tax under section 4973¹ (excess I.R.A. contributions), and additions to tax under sections 6653(b) (fraud) and 6661 (substantial understatement of income tax) against petitioner as follows:

                Deficiency                                Additions to Tax
                                         -----------------------   ---------------------------------------------------------
                                                                   Sec. 6653   Sec. 6653   Sec. 6653   Sec. 6653
                Year                     Income Tax   Excise Tax     (b)(1)      (b)(2)    (b)(1)(A)   (b)(1)(B)   Sec. 6661
                1983 .................    $12,740        $105        $6,370        1           --          --          --
                1984 .................     15,917         210         7,959        2           --          --          --
                1985 .................     14,924         315         7,462        3           --          --        $3,652
                1986 .................      6,400          --          --          --        $4,800        4           --
                1987 .................      4,778         315          --          --           221        5           --
                1988 .................      2,886          --          --          --          --          --          --
                1 50 percent of the interest due on $12,635
                2 50 percent of the interest due on $3,856
                3 50 percent of the interest due on $14,609
                4 50 percent of the interest due on $6,400
                5 50 percent of the interest due on $294.
                

Respondent determined in the alternative that, if petitioner is not liable for part or all of the additions to tax for fraud for 1986, then petitioner is liable for negligence additions to tax under subparagraphs (A) and (B) of section 6653(a)(1).

Docket No. 20526-90 deals with 1986, a joint tax return year. Docket No. 14364-91 deals with 1983, 1984, 1985, and 1987, all joint tax return years, and 1988, a separate tax return year. The dockets are consolidated for trial, briefing, and opinion. The joint returns were filed by petitioner and his then-wife, Betsy Grossman, hereinafter sometimes referred to as Betsy. After concessions² and deemed concessions³ by both sides, the issues for decision are as follows:

(1) Whether the assessment and collection of deficiencies and additions to tax for 1983, 1984, and 1985 are barred by the statute of limitations, section 6501(a), or are allowed under the fraud exception, section 6501(c)(1), to the general period of limitations.

(2) If assessment and collection are not barred for 1983, 1984, and 1985, then, for each of those years—

(a) whether petitioner is liable for civil fraud additions to tax under paragraphs (1) and (2) of section 6653(b) and, as to paragraph (2) of section 6653(b), in what amounts.

(b) what is the amount of petitioner's unreported gross income.

(3) For 1986—

(a) whether petitioner is liable for civil fraud additions to tax under subparagraphs (A) and (B) of section 6653(b)(1) and, as to subparagraph (B) of section 6653(b)(1), in what amount.

(b) what is the amount of petitioner's unreported gross income.

(c) whether petitioner qualifies for innocent spouse treatment under section 6013(e).

(4) For 1987, whether petitioner overstated an itemized interest deduction by $8,559.

FINDINGS OF FACT

Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.

When the petitions were filed in the instant cases, petitioner resided in Chevy Chase, Maryland.

Background

Petitioner is a sophisticated taxpayer. Petitioner is a practicing attorney; he holds a J.D. degree from the University of Florida and an LL.M. in Taxation degree from New York University. Petitioner was a senior trial attorney in the Trial Branch of the Tax Court Litigation Division, Office of Chief Counsel, Internal Revenue Service, from 1971 through July 1975. Since July 1975, petitioner has been engaged in private practice, specializing in Federal tax law, and is currently a member of the bar of this Court. Petitioner was a name partner in the law firm of Grossman & Flask, located in Washington, D.C., during the years in issue. Petitioner does not prepare tax returns for himself or others.

Petitioner and Betsy married in 1967. They had three children, two daughters and a son, who were born in the 1970's—RobBee (1970), Wendi (1973), and Geoffrey (1976). Petitioner and Betsy were married during the years in issue; they separated in September 1986 and divorced in 1991.

Betsy holds a bachelor of science degree from the University of Colorado and a masters degree in special education and learning disabilities from the University of Florida. In 1966, Betsy worked for the Sley Corporations, described infra. For about 2 years, Betsy was employed as a schoolteacher and earned a yearly salary of about $5,100. At some point, Betsy was employed as a substitute teacher and as a gift store clerk for "minimal" salary.

During the years in issue, petitioner and Betsy had only one joint checking account. Through September 1986, this was petitioner's only checking account. Betsy wrote and signed almost all the checks drawn on this account. While petitioner and Betsy were married, petitioner deposited his earnings into the joint bank account, and Betsy was responsible for spending these funds. Betsy made the decisions regarding petitioner's and Betsy's expenditures.

Betsy is the daughter of Harry Sley, hereinafter sometimes referred to as Harry, and Beatrice Sley, hereinafter sometimes referred to as Beatrice. Harry died on December 11, 1977. During the years in issue, Beatrice generally divided her time between Potomac, Maryland, and Miami, Florida. From about May to November, Beatrice lived at least part of the time in a home in Potomac,...