Howard v. US, TH 90-60-C.
| Citation | 779 F. Supp. 432 |
| Decision Date | 11 September 1991 |
| Docket Number | No. TH 90-60-C.,TH 90-60-C. |
| Parties | George G. HOWARD, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Southern District of Indiana |
James E. Sullivan, Terre Haute, Ind., for plaintiff.
Charles J. Cannon, Jonathan Welch, Washington, D.C., for defendant.
JUDGMENT ENTRY
This matter is before The Honorable William G. Hussmann, Jr., United States Magistrate Judge, pursuant to consents to Magistrate Judge jurisdiction filed by the parties and the Order of Reference entered by the District Court Judge on July 23, 1991.
The trial of this matter was held on July 25 and 26, 1991, before the Magistrate Judge in Terre Haute, Indiana. The plaintiff was represented by counsel, James E. Sullivan. The defendant was represented by counsel, Charles J. Cannon and Jonathan Welch.
The parties presented opening arguments and evidence. The parties also submitted proposed findings of fact, conclusions of law and post-trial briefs. The Magistrate Judge, having considered the evidence and the briefs of counsel, now enters the following orders:
IT IS ORDERED, ADJUDGED AND DECREED by the Court that judgment is hereby entered for the plaintiff and against the defendant. The defendant is ORDERED to recalculate the plaintiff's Certificate of Assessment for the year 1985 by deleting the sum of Sixty-Thousand Dollars ($60,000.00) from line 1(a) of Joint Exhibit 11; to recalculate adjustment to income, line 1(c), of Joint Exhibit 11 as necessary; and to make all necessary calculations to adjust taxable income, tax payable, alternative tax, self-employment tax, and the negligence and substantial understatement penalties under 26 U.S.C. §§ 6653(a)(1) and (2) and 26 U.S.C. § 6661 consistent with the deletion from income of $60,000.00. This amended assessment shall be filed within thirty (30) days of the date of this Entry. The plaintiff shall take Judgment in the amount calculated by subtracting the new assessment from the amounts previously paid as described in Finding of Fact No. 12 herein. The plaintiff shall be entitled to interest on his overpayment in the amount as required under 28 U.S.C. § 2411 and 26 U.S.C. §§ 6612 and 6621. The parties are ORDERED to brief the issue of whether plaintiff is entitled to reasonable administrative and litigation costs under 26 U.S.C. § 7430. A separate order will issue in that regard.
SO ORDERED.
The Magistrate Judge now makes the following findings of fact and conclusions of law:
Findings of Fact
1. The plaintiff, George G. Howard (hereafter "Howard") is a resident of Vermillion County, Indiana, and has made his living as a farmer.
2. Howard graduated from high school in 1932 and was married in 1933.
3. Howard has resided at his current address since 1942.
4. On March 15, 1985, Howard made a cash purchase of a Certificate of Deposit in the amount of $20,000 issued by the Citizens State Bank in Cayuga, Indiana.
5. On April 17, 1985, Howard made a cash purchase of a Certificate of Deposit in the amount of $20,000 issued by the Bank of Western Indiana in Covington, Indiana.
6. On May 16, 1985, Howard made a cash purchase of a Certificate of Deposit in the amount of $20,000 issued by the Fountain Trust Company in Covington, Indiana.
7. On February 17, 1986, Howard filed a federal income tax return for the year 1985 and reported gross income of $4,996.
8. Howard reported a federal income tax liability for the year 1985 in the amount of $57 which amount was paid to the Internal Revenue Service on February 26, 1986.
9. On March 23, 1989, the Internal Revenue Service determined that a deficiency in income tax in the amount of $30,419 for the year 1985 existed with respect to Howard.
10. On March 23, 1989, the Internal Revenue Service issued a Notice of Deficiency to Howard which set forth the following deficiency in tax and additions for the year 1985:
Increase in tax: $30,419.00
Negligence (IRC
§ 6653(a)(1)): $ 1,520.95
Substantial understatement
(IRC
§ 6661): $ 7,605.00
Negligence (IRC 50% of the interest
§ 6653(a)(2)): due on $30,419.00
11. On May 18, 1989, the Internal Revenue Service made the following assessments with respect to the year 1985 against Howard:
Increase tax: $30,419.00
Substantial understatement: $ 7,604.75
Negligence: $ 6,977.54
Interest: $13,710.86
12. That on or about May 18, 1989, the plaintiff paid to the Internal Revenue Service, under protest, the sum of $55,934.84 and on August 17, 1989, the plaintiff filed Form 1040X-Amended U.S. Individual Income Tax Return for the calendar year 1985 requesting a refund of $55,934.84. The Claim For Refund was denied on November 3, 1989.
13. The source of the $60,000 used to purchase the Certificates of Deposit described in paragraphs 5, 6 and 7 above was a $60,000 cash gift given to Howard in 1927.
14. The money received in 1927, in cash, was exchanged during the course of years, and most probably commingled with other cash assets, but was at all times kept in the Howard's home or in the homes of one of his daughters until the purchase of the Certificates of Deposit.
1. Bank deposits are prima facie evidence of income. Boyett v. Commissioner, 204 F.2d 205 (5th Cir.1953); Hague Estate v. Commissioner, 132 F.2d 775 (2nd Cir.1943).
2. The general rule is that a presumption of correctness attaches to the Commissioner's deficiency determination, and the taxpayer has the burden of disproving it. Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933); Ruth v. United States, 823 F.2d 1091, 1094 (7th Cir.1987); Pfluger v. Commissioner, 840 F.2d 1379, 1382 (7th Cir.1988).
3. When the taxpayer has the burden of proof, the Commissioner need not prove a likely source of the unreported income. Armes v. Commissioner, 448 F.2d 972 (5th Cir.1971).
4. The Commissioner's determination of a negligence penalty pursuant to Section 6653(a) of the Internal Revenue Code is presumed correct, and the taxpayer bears the burden of disproving it. Pfluger, 480 F.2d at 1386; Salapatas v. Commissioner, 446 F.2d 79, 82 (7th Cir.1971).
5. The assessment of a negligence penalty is presumed to be correct. The taxpayer has the burden of showing that the assessment is incorrect. Hall v. Commissioner, 729 F.2d 632, 635 (9th Cir.1984).
6. The government meets its initial burden of proof in an action to collect tax merely by introducing its deficiency determination. Anastasato v. Commissioner, 794 F.2d 884, 887 (3rd Cir.1986); Zuhone v. Commissioner, 883 F.2d 1317 (7th Cir. 1989).
7. The taxpayer bears both the burden of production and burden of persuasion where the deficiency notice is not found to be arbitrary or without rational basis. Ruth, 823 F.2d at 1093.
8. Where the taxpayer suggests a single non-taxable source of income, the Commissioner is not required to negate other conceivable sources. The Commissioner need only negate the non-taxable source suggested by the taxpayer to sustain his burden of proof. Commissioner v. Thomas, 261 F.2d 643, 646 (1st Cir.1958); Gatling v. Commissioner, 286 F.2d 139, 144 (4th Cir.1961).
9. A taxpayer is entitled to interest on the overpayment of taxes in compliance with 28 U.S.C. § 2241, 26 U.S.C. §§ 6612 and 6621.
10. A prevailing party may be entitled to reasonable administrative and litigation costs under 26 U.S.C. § 7430.
Memorandum DecisionThe Court believes that the plaintiff, George G. Howard, has proven by a preponderance of the credible evidence that the $60,000 in cash used in 1985 to purchase Certificates of Deposit in various banks in the area of Clinton and Cayuga, Indiana, came from a cash gift given to him initially by his grandmother in 1927. The preponderance of the credible evidence shows that plaintiff maintained the cash in his home until shortly after the death of his father. The Court finds the plaintiff's statements to be credible because his story stands up to an extremely thorough, professional and competent cross-examination to which he was subjected by defendant's counsel. That counsel raised several inconsistencies which the Court will address briefly.
The first inconsistency which must be discussed is whether the evidence of plaintiff's failure to obtain many thousands (if not millions) of dollars in interest over this period of time is inconsistent with good common sense and therefore renders plaintiff's story incredible. Certainly in the long run and with hindsight, such actions are difficult to explain. However, at the time the money was originally given to the plaintiff by his grandmother, this country was in a time known as "the Depression". Of the many bank failures that occurred in the late 1920's and early 1930's in this country, very many of them would have been in small rural communities. Certainly banks in the area of Cayuga, Indiana, fit that category, and the Court finds no inconsistency in a determination not to deposit the money in a bank from the time of receipt until at least a significant time after the passage of the 1930's. While the plaintiff's failure to place the money in the bank sometime after the 1930's is more difficult for the Court to accept, the plaintiff's testimony that he distrusted banks remains believable to this Court...
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Howard v. US
...and post-trial briefs. The Magistrate Judge, having considered the evidence and the briefs of counsel, entered an Order1 dated September 11, 1991, 779 F.Supp. 432. Upon request of the United States, and with the consent of the plaintiff, the September 11, 1991 Order is AMENDED solely to ref......