Harvey v. Commissioner
| Decision Date | 12 July 1999 |
| Docket Number | Docket No. 13113-96.,Docket No. 9376-88.,Docket No. 7127-92. |
| Citation | 78 T.C.M. 60 |
| Parties | Jerry Lee Harvey v. Commissioner. |
| Court | U.S. Tax Court |
James D. McMaster, for the petitioner. W. Robert Abramitis, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent determined deficiencies in, additions to, and a penalty on petitioner's Federal income taxes as follows:
All section references are to the Internal Revenue Code in effect for the taxable years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated.
The issues for decision are:1 (1) Whether a 1980 plea agreement in Mobile, Alabama, between petitioner and the Government precludes respondent from determining deficiencies in taxes owed by petitioner. We hold it does not. (2) Whether respondent's use of petitioner's Cayman Islands records was improper because it violated grand jury secrecy rules. We hold it was not. (3) Whether respondent's use of petitioner's Cayman Islands records was improper because it violated a treaty between the United Kingdom and the United States regarding Cayman Islands information. We hold petitioner lacks standing to challenge any purported violation of the treaty. (4) Whether respondent's use of petitioner's Panamanian bank records was improper because it violated Panamanian law or petitioner's Fourth Amendment rights. We hold it was not. (5) Whether petitioner had unreported income for the years at issue as determined by respondent. We hold he did. (6) Whether petitioner is entitled to deductions for net operating losses for the years in issue. We hold he is not. (7) Whether petitioner is liable for additions to tax for fraud pursuant to section 6653(b) for the years 1978 through 1983 and 1985 through 1988, and the fraud penalty pursuant to section 6663 for 1989.2 We hold he is. (8) Whether petitioner is liable for additions to tax for underpayment of individual estimated tax pursuant to section 6654 for the years 1978 through 1983 and 1987 through 1989. We hold we lack jurisdiction for the years 1978 through 1983; however, he is for the years 1987 through 1989. (9) Whether petitioner is liable for additions to tax for substantial understatement pursuant to section 6661 for the years 1982, 1983, 1985, and 1986. We hold he is. (10) Whether petitioner is liable for an addition to tax for failure to file a timely return pursuant to section 6651(a)(1) for 1992. We hold he is.
Some of the facts have been stipulated and are so found. The stipulated facts and the accompanying exhibits are incorporated herein by this reference. Petitioner resided in Florida at the time he filed the petitions in these consolidated cases.
Petitioner has an extensive background in all aspects of aviation. Petitioner has worked loading airplanes. He also has a degree in aeronautic engineering and has served in the U.S. Air Force. In addition, petitioner has all obtainable pilot's licenses and aircraft mechanic's licenses, including commercial pilot.
Since the late 1960's, petitioner has been engaged in the buying, selling, trading, and leasing of aircraft. Between 1969 and 1976, petitioner engaged in these aircraft activities primarily outside the United States. In addition to conducting these activities, petitioner was also flying as a commercial pilot. During this time, petitioner lived in various countries.
In approximately 1976, petitioner returned to the United States to live and purchased a house at 19824 Bob O Link Drive in Hialeah, Florida. Petitioner had a large floor safe installed in his house, into which he placed the cash that he had accumulated from his previous business dealings, along with the money that he was generating from his current business dealings.
Also in approximately 1976, in addition to his legitimate aircraft business transactions, petitioner began leasing aircraft to "bandits". Bandits are persons engaged in the smuggling of marijuana. Petitioner placed the money the earned from these activities into his floor safe along with his other funds, essentially all of which he converted into cash.
In 1978, petitioner pled guilty to conspiracy to possess 100 pounds of marijuana, relating to a transaction in which he leased an airplane to persons smuggling marijuana.
Petitioner did not file Federal income tax returns for years prior to 1977.
By December 1977, petitioner had accumulated approximately $2.5 million in cash, which was stored in the floor safe in his house. At this time, petitioner decided to relocate his cash from the floor safe in his house to a bank account in the Cayman Islands.
On February 27, 1978, petitioner opened a personal bank account at the Bank of Nova Scotia in the Cayman Islands, making an initial cash deposit of $247,500. The Bank of Nova Scotia charged petitioner 1 percent of the deposit because it was cash. From February 27 until July 4, 1978, petitioner deposited a total of approximately $2 million in cash from his floor safe into his Cayman Islands account. Thus, petitioner retained approximately $500,000 in cash in the floor safe to use for business and personal expenses.
Approximately one-half of this money that was deposited in the Cayman Islands account was from activities related to leasing aircraft to persons engaged in the smuggling of marijuana.
The funds petitioner deposited into the Bank of Nova Scotia were used to purchase interest-bearing certificates of deposit. During 1978, 1979, 1980, 1981, 1982, and 1983, these certificates of deposit earned interest in the amounts of $90,891, $294,835, $403,607, $588,847, $401,337, and $160,502, respectively.
Petitioner intentionally omitted the interest earned on his money on deposit in the Cayman Islands account from his 1978 through 1983 Federal income tax returns.
Cayman Aviation Finance was a Cayman Islands corporation that petitioner used to buy and trade airplanes. Cayman Aviation Finance owned a Mercedes Benz that petitioner drove and a condominium in North Carolina. Petitioner also had $486,000 in an account at the Bank of Nova Scotia titled in the name of Cayman Aviation Finance which he considered his money.
Kompas Corp. was another Cayman Islands corporation used by petitioner. Kompas Corp. owned a house located at 3060 N.E. 40th Street in Fort Lauderdale, Florida. Petitioner acquired this house in 1981 or 1982. Petitioner purchased the stock of Kompas Corp. and left the title to the house in the corporation's name.
Petitioner owned various parcels of real estate and several boats and airplanes.
In July 1978, petitioner purchased a DC-6 airplane, No. 45501, for $250,000. He also expended $50,000 for repairs to this airplane in 1978.
In 1981, petitioner purchased a Douglas DC7C airplane, No. 74303, for $112,000. Also, on January 16, 1981, petitioner purchased a Piper Aztec airplane for $18,720.
In August 1982, petitioner purchased a 1982 Lear airplane, No. 97MJ, for $150,000. On December 30, 1982, petitioner also made a cash downpayment of $5,000 on the purchase of a Lear 24 airplane, No. N100VQ. In addition, petitioner purchased a Cessna 305, L-19 airplane, No. N5229G, for $31,800 in 1982.
In 1980, petitioner purchased a 28-foot cigarette boat for $4,106. Also in 1980, petitioner expended $26,000 for repairs to a 35-foot...
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