Haring v. United States, Civ. No. 28846.

• Decision Date: 30 April 1956
• Docket Number: Civ. No. 28846.
• Citation: 142 F. Supp. 782
• Parties: Joseph HARING v. UNITED STATES of America.
• Court: U.S. District Court — Northern District of Ohio

142 F. Supp. 782

Joseph HARING v. UNITED STATES of America.

Civ. No. 28846.

United States District Court N. D. Ohio, E. D.

April 30, 1956.

Callahan & Durant, Wentworth T. Durant, Dallas, Tex., W. Dean Hopkins, Cleveland, Ohio, for plaintiff.

Sumner Canary, U. S. Atty., Cleveland, Ohio, for defendant.

JONES, Chief Judge.

After paying deficiency taxes and civil tax fraud penalties on his income for the years 1944 through 1947, plaintiff filed claims for refund which were rejected by the Commissioner of Internal Revenue. This action is to recover said fraud penalties and the deficiency tax paid on 1944 income.¹

There are two issues presented for the court's determination. First: Was the deficiency tax assessed on 1944 income barred by the statute of limitations? Second: Was the plaintiff guilty of civil fraud in understating his income for the years involved?

With regard to the first question, it is apparent that plaintiff did not sign his 1944 tax return as is required by 26 U.S.C. § 51. Accordingly, by authority of Lucas v. Pilliod Lumber Co., 281 U.S. 245, 50 S.Ct. 297, 74 L.Ed. 829, and Uhl Estate Co. v. Commissioner, 9 Cir., 116 F.2d 403, the statute of limitations imposed by 26 U.S.C. § 275 (1939 Ed.) does not apply, and the deficiency assessment was timely within the meaning of 26 U.S.C. 276 (1939 Ed.). However, the fact that plaintiff did not sign or verify the return rules out the possibility of fraud in making the return, and eliminates the fraud penalty under 26 U. S.C. § 293(b) (1939 Ed.).

The second issue is not so easy of disposition. Plaintiff is a butcher and a man of limited intellectual attainment. His brother, John, is of like mental stature, having had only an eighth grade education. Together these men ran a successful butcher shop apparently enjoying a steady commercial clientele. Joseph, the plaintiff, appears to have handled the bulk of the butchering duties, while John conducted the retail business and kept the books. Each year when it came time to prepare income tax returns John would compile the figures in his books and take them to an accountant who, from the figures handed him, would determine the taxable income of the partnership. From this information, John would determine the distributive share of each partner (on a 50-50 basis) in accordance with 26 U.S.C. §§ 181, 182 (1939 Ed.), and inform Joseph, who then had his individual return prepared by the same accountant and based on the amount of his distributive share — even though he realized that his actual income from the partnership considerably exceeded that figure. It is within this factual framework that the parties present their varied pictures.

Plaintiff protests that "* * * like millions of other Americans, on the subject of taxes, he was far over his head". And that while he was admittedly naive — and even stupid — in blindly following John's advice on income tax matters, still he had no intent to defraud the Government. He asserts that John might have erred in computing the partnership income but that John's error should not be imputed to Joseph. The Government argues that Joseph understated his income while fully realizing the financial facts of life and that there was considerable more to his income (and the income of the partnership) than he stated in his tax return.

It is difficult to believe that Joseph Haring — a man shrewd enough to conduct a successful commercial business, and to have a considerable investment in securities — is as guiltless as he protests he is. Rather, I suspect that his blind reliance on John for income tax information was caused more by a conscious ignorance than by a naive ignorance.

On the other hand, I am not satisfied that the Government has clearly and convincingly established fraudulent intent as it is required to do. The size of the deficiencies in plaintiff's...