Houser v. Commissioner

• Court: U.S. Tax Court
• Writing for the Court: Chabot
• Citation: Houser v. Commissioner, 70 T.C.M. 131 (T.C. 1995)
• Decision Date: 24 July 1995
• Docket Number: Docket No. 18937-88.
• Parties: William H. Houser v. Commissioner.

70 T.C.M. 131

T.C. Memo. 1995-330

William H. Houser v. Commissioner.

Docket No. 18937-88.

United States Tax Court.

Filed July 24, 1995.

James P. Wersching, Kenneth R. Hughes,¹ David M. Kothman, Robert C. Martin, and William N. Kirkham, for the petitioner. Ronald T. Jordan, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHABOT, Judge:

Respondent determined deficiencies in Federal individual income tax and additions to tax under sections 6653(b)² (fraud) and 6661 (substantial understatement of income tax) against petitioner, as follows:

Additions to Tax
                                                       -------------------------------------------------------------
                Year                     Deficiency1 Sec. 6653(b)   Sec. 6653(b)(1)   Sec. 6653(b)(2)    Sec. 6661
                1977 .................   $21,942.10     $10,971.05           --                --             --
                1978 .................    17,318.82       8,659.41           --                --             --
                1979 .................    22,322.85      11,161.43           --                --             --
                1980 .................    32,110.60      16.055.30           --                --             --
                1981 .................    45,888.34      22,944.17           --                --             --
                19822 ................    59,526.16         --           $41,993.83            3          $14,272.65
                1983 .................    51,598.86         --            25,799.43            4           12,899.72
                19842 ................    32,834.25         --            51,579.63            4            8,208.56
                1 Of the 1981 deficiency, $386 is self-employment taxes under ch. 2; the remainder of the 1981 deficiency, and the
                total deficiencies for the other years, are income taxes under ch. 1
                2 Apparently, respondent already had assessed an addition to tax of $282.33 under sec. 6651(a)(2) for 1982, and
                additions to tax of $2,205.41 and $1,718.24 under sec. 6651(a), pars. (1) and (2), respectively, for 1984
                Respondent concedes that these additions to tax must be abated if the Court determines that petitioner is liable for
                any additions to tax under sec. 6653(b) with respect to the same underpayment. Sec. 6653(d)
                3 50 percent of the interest due of $57,090.58
                4 50 percent of the interest due on the entire deficiency for each year
                

By second amendment to answer and by answer to amended petition, respondent asserted increased deficiencies, and corresponding increases in additions to tax, for each year except 1984. The following shows the total deficiencies and additions to tax—the sums of the amounts determined by respondent in the notice of deficiency, and the amounts asserted by respondent in the second amendment to answer and the answer to amended petition.

Additions to Tax
                                                       -------------------------------------------------------------
                Year                     Deficiency1 Sec. 6653(b)   Sec. 6653(b)(1)   Sec. 6653(b)(2)    Sec. 6661
                1977 .................   $36,420.94     $18,210.47           --                --             --
                1978 .................    34,187.82      17,093.91           --                --             --
                1979 .................    34,521.85      17,260.93           --                --             --
                1980 .................    46,652.60      23.326.30           --                --             --
                1981 .................    61,598.41      30,799.21           --                --             --
                19822 ................    75,399.11         --           $49,930.31            3          $18,816.00
                19834 ................    55,954.95         --            27,977.48            3           13,988.73
                19842 ................    32,834.25         --            51,579.63            3            8,208.56
                1 See note 1 to the previous table of deficiencies.
                2 See note 2 to the previous table of deficiencies.
                3 50 percent of the interest due on the entire deficiency for each year.
                4 In the second amendment to answer, respondent asserted increased amounts such that the deficiency for 1983
                totaled $59,601.86, and the additions to tax were correspondingly increased. In the answer to amended petition,
                respondent stated that those amounts were incorrectly calculated and that the correct amounts are as stated in
                this table.
                

After concessions by both sides, the issues for decision are as follows:

(1) Whether the assessment and collection of deficiencies and additions to tax for 1977 through 1983 are barred by the statute of limitations, section 6501(a), or are allowed under the fraud exception, section 6501(c)(1), or the extension agreement exception, section 6501(c)(4), to the general period of limitations.

(2) If assessment and collection are not barred for any of the years 1977 through 1983, then, for each such year, and for 1984—

(a) whether petitioner is liable for civil fraud additions to tax under section 6653(b) (for 1977 through 1981) and under sections 6653(b)(1) and 6653(b)(2) (for 1982 through 1984) and, as to section 6653(b)(2), in what amount;

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

(c) whether petitioner is liable for additions to tax for 1982 through 1984 under section 6661 for a substantial understatement of income tax.

FINDINGS OF FACTS³

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

When the petition was filed in the instant case, petitioner resided in Cincinnati, Ohio.

Background

Petitioner was born in 1927 and grew up during the Depression, primarily in Anderson, Indiana. Petitioner attended college at Indiana University and at Ball State University, where he received a bachelor of science degree. Petitioner then attended the Chicago College of Osteopathy, where he received a degree in 1956. After graduation, petitioner interned at Doctor's Hospital in Columbus, Ohio, where he developed a specialty in anesthesiology. Starting in 1957 petitioner did a 2-year residency at Doctor's Hospital. In 1959, petitioner began practicing at Epp Memorial Hospital in Cincinnati, Ohio.

Petitioner began working with Williard Weiss (hereinafter sometimes referred to as Weiss), a certified public accountant, in or about 1960. Weiss was petitioner's investment counselor and accountant. Initially, petitioner was a once-a-year client of Weiss. That is, Weiss prepared petitioner's tax returns from figures that petitioner supplied to Weiss. After about 1969, Weiss began to provide more comprehensive accounting services to petitioner. In particular, Weiss prepared petitioner's tax returns for 1977 through 1984 and interim income and expense statements for a period that includes 1977 through 1980. Petitioner and Weiss also were friends. Petitioner and Weiss discussed one another's investments and shared information on investments.

In or about 1961 or 1962, petitioner opened a general medical practice at his residence in Deer Park (hereinafter sometimes referred to as the Deer Park office).⁴ Petitioner's primary medical practice income at that time was from his anesthesiology work at Epp Memorial Hospital; he had few patients in his general medical practice at the Deer Park office.

In or about 1968, Weiss introduced petitioner to Sherwood Chamberlain (hereinafter sometimes referred to as Chamberlain), a medical doctor for whom Weiss also performed accounting services. Chamberlain had been in practice in an office in North College Hill (hereinafter sometimes referred to as the North College Hill office)⁵ since about 1935. Chamberlain told Weiss that he (Chamberlain) wanted to leave the practice of medicine because of concerns about his health.

Petitioner started practicing with Chamberlain at the North College Hill office in or about 1968. Under an agreement with Chamberlain, petitioner bought Chamberlain's North College Hill office practice in early 1969, making monthly payments to Chamberlain, working with Chamberlain, and splitting the profits with Chamberlain until 1974, when petitioner took over the entire North College Hill office practice and profits.

During the years in issue, petitioner's principal occupation was that of medical doctor, and the North College Hill office was petitioner's principal business office. Petitioner saw patients at the Deer Park office only on Tuesdays.

The Deer Park Office

Donna Zink (hereinafter sometimes referred to as Zink) worked for petitioner, mostly at the Deer Park office, from 1966 to 1985. In this employment, Zink prepared calendars for the periods November 15, 1982, through August 9, 1983; and January 10, 1984, through December 20, 1984. The calendars show the names of the patients seen by petitioner on Tuesdays and the amount each patient paid for petitioner's services. The calendars also show for each day the names of the diet patients whom Zink saw on Mondays, Wednesdays, and Thursdays, and those patients' payments. (It is not clear whether Zink also saw diet patients on Tuesdays.)

Zink began to see the diet patients on Mondays, Wednesdays, and Thursdays in the late 1970's.

Petitioner and Zink saw about 255 different patients in the Deer Park office during the 21 months covered by the calendars. Of these patients, 174 were seen during 1984. Fifty-one of the 174 patients seen during 1984 also had been seen during the 1½-month period covered by the 1982 calendar.

Before November 15, 1982, Zink accounted for patient receipts by noting payments directly on individual patients' medical records; no calendar summary of patients' payments was kept. The only way to account directly for receipts from Deer Park office patients before November 15, 1982, was by reference to the individual patient medical records.

On a daily basis, Zink stamped the backs of the checks received in the Deer Park office "for deposit only" to the Anderson Bank, in Anderson, Indiana, and placed the checks and any currency received in a drawer. Zink did not prepare bank deposit slips.

During the periods covered by...