Hulbert v. C. I. R., 100973 FEDTAX, 2536-70

Docket Nº:2536-70.
Opinion Judge:STERRETT, Judge:
Party Name:CORWIN L. HULBERT, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Corwin L. Hulbert, pro se. Robert J. Murray, for the respondent.
Case Date:October 09, 1973
Court:United States Tax Court
 
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32 T.C.M. (CCH) 1024

CORWIN L. HULBERT, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 2536-70.

United States Tax Court

October 9, 1973

Corwin L. Hulbert, pro se.

Robert J. Murray, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

STERRETT, Judge:

Respondent determined deficiencies in Federal income taxes and additions to tax against the petitioner as follows:

Additions To Tax
Year Deficiency Sec. 6651(a)[1] Sec. 6653(a)
1962 $5,320.37 $1,330.09 $266.02
1965 1,355.32 432.82 117.31
Several issues raised in the pleadings have been abandoned by the petitioner and can be given effect in the Rule 50 computation. There are several issues remaining to be decided. (1) Whether respondent correctly reconstructed the petitioner's adjusted gross income by use of the net worth plus nondeductible expenditures method; (2) Whether the petitioner is liable for additional self-employment tax in the amount of $77.09 for the taxable year 1965; (3) Whether the petitioner is liable for additions to the tax under section 6651(a), and (4) Whether the petitioner is liable for additions to the tax under section 6653(a). FINDINGS OF FACT Some of the facts have been stipulated and are so found.[2] Corwin L. Hulbert, hereinafter called Hulbert of petitioner, is an individual who at the time the petition in this case was filed resided in Lincoln, Nebraska. The petitioner filed Federal income tax returns for the taxable years 1962 and 1965 with the district director of internal revenue, Omaha, Nebraska. The petitioner's Federal income tax return for the taxable year 1962 was received by the Lincoln, Nebraska office of the internal revenue on January 29, 1965. The Federal income tax return which the petitioner filed for the taxable year 1965 was received on August 12, 1966. During the taxable years 1962 and 1965 the petitioner owned and operated a farm of approximately 400 acres near Yates Center, Kansas, and another farm containing approximately 80 acres located in Saunders County, Nebraska. During December 1964 petitioner signed a contract for the purchase of an additional 60 acres of Saunders County real property. During the taxable years 1965 the petitioner sold his entire farm located in Saunders County, Nebraska, for a total consideration of $24,500. During the years in issue petitioner had an interest in and managed several residential apartment units in Lincoln, Nebraska. Petitioner failed to maintain adequate books and records of his income and expenditures during the years in issue. Respondent determined petitioner's adjusted gross income by using the net worth plus nondeductible expenditures method as follows:
Respondent's Net Worth Schedule
ASSETS 1/1/62 12/31/62 1/1/65 12/31/65
1. National Bank of Commerce, $ (195.23) $ 820.88 $ 14.43 $ 79.69
Lincoln, Nebraska
2. The State Exchange Bank, 19.44 19.44 - -
Yates Center, Kansas
3. Sate Federal Savings & - 7,100.00 5.24 5.24
Loan, Lincoln, Nebraska
4. First Federal Savings - 10,100.00 5.72 5.72
& Loan, Lincoln,
Nebraska
5. Machinery and Equipment 3,987.50 3,987.50 4,213.51 4,988.51
6. Real Estate:[*]
a. 3145 Kleckner Ct. $ 6,000.00 $ 6,000.00 $ 6,000.00 $ 6,000.00
b. 2325 South 10th St. 5,647.15 5,962.15 5,962.15 5,962.15
c. 2115 H Street 4,183.26 4,183.26 4,183.26 4,183.26
d. 2901 No. 11th St. 5,879.70 5,879.70 5,879.70 5,879.70
e. 3021 T Street 6,231.50 6,231.50 6,231.50 -
f. 1727 So. 27th St. 6,655.34 6,655.34 7,107.04 7,107.04
g. 114 L Street - 1,160.26 1,870.26 1,870.26
h. 132 L Street - 2,968.34 2,968.34 2,968.34
i. 3108 No. 56th St. - 6,300.33 6,350.90 6,350.90
j. Capitalized Real - - - 1,305.39
Property Taxes
k. Kansas Farm, Coffey 5,800.00 5,800.00 5,800.00 5,800.00
County
l. Nebraska Farms -
80 Acres 6,000.00 6,000.00 6,000.00 -
60 Acres 1,000.00 -
Total Real Estate $46,396.95 $57,140.88 $59,353.15 $47,427.04
7. Pike Contract Receivable - 3,980.47 3,114.94 2,627.93
TOTAL ASSETS $50,208.66 $83,149.17 $66,706.99 $55,134.13
LIABILITIES AND RESERVES
8. Reserve for Depreciation:
a. Farm Machinery & Equipment $ 3,155.83 $ 3,537.50 $ 3,885.70 $ 4,081.23
b. Real Estate 11,768.85 13,146.91 16,264.02 15,853.69
Total Reserve for
Depreciation $14,924.68 $16,684.41 $20,149.72 $19,935.12
9. Notes and Mortgages Payable:
a. First Federal Savings &
Loan $ 3,471.40 - - -
b. Havelock National Bank 8,000.00 13,500.00 10,300.00 8,300.00
c. Lutheran Mutual Aid Ins. 3,198.53 2,849.21 2,101.66 1,701.94
d. Wilscam Contract 3,300.00 3,300.00 3,300.00 -
e. Commonwealth Co. 4,465.00 9,865.00 9,865.00 11,883.40
f. Christian Note 1,950.00 1,950.00 - -
g. The State Exchange Bank - - 2,000.00 -
h. Iola State Bank - - - 416.00
i. Bert Poska Contract 1,162.91 608.47 608.47 608.47
Total Notes and Mortgages $25,547.84 $32,072.68 $28,175.13 $22,909.81
10. Life Insurance Co.
Loans Payable:
a. John Hancock-Mortgage on
Kansas Farm 4,600.00 4,300.00 4,000.00 4,000.00
b. John Hancock-Mortgage on
Nebraska Farm 2,700.00 2,550.00 2,550.00 -
c. John Hancock-Policy Loans 6,928.24 7,634.84 9,634.23 9,662.48
d. New England Mutual-Policy
Loans 1,347.45 1,415.41 1,672.00 1,727.80
Total Insurance Loans Payable $15,575.69 $15,900.25 $17,856.23 $15,390.28
11. Taxes-Payable - 432.27 262.53 380.11
TOTAL LIABILTIES $56,048.21 $65,089.61 $66,443.61 $58,615.32
12. NET WORTH ($5,839.55) 18,059.56 263.38 (3,481.19)
13. Net Worth Beginning of
Year 5,839.55 563.38
14. Increase (decrease) in
Net Worth 23,899.11 (4,044.57)
15. Plus:
a. Personal Living Expense $ 3,506.08 $ 3,122.24
b. Life Insurance 1,326.08 185.17
c. Child Support Payments 1,433.00 1,257.50
d. Nonductible Legal and
Court Payments 1,322.38 1,091.00
e. Lump Sum Property
Settlement 15,403.08
16. TOTAL $31,486.65 $17,014.42
17. Less:
a. Government Insurance
dividends $ 57.60 $ 51.60
b. Social Security 1,315.00
c. Hartford Insurance
Claim (Auto) 358.66 -
d. Basis of One-Fourth
Interest in Oklahoma Farm 8,000.00 -
e. Nontaxable Portion of Long-
Term Capital Gain 3,214.65 $ 5,601.51
18. CORRECTED ADJUSTED GROSS
INCOME $18,540.74 $11,361.31
19. Adjusted Gross Income Per
Return (loss) (2,707.28) 1,491.43
20. UNDERSTATEMENT OF ADJUSTED GROSS INCOME $21,248.02 $ 9,869.88
Disputed Items on the Net Worth Schedule (Item 1) National Bank of Commerce, Lincoln, Nebraska Petitioner maintained checking account number 060-407-704 at the National Bank of Commerce, Lincoln, Nebraska, during the years in issue. The bank's records reflect a balance of $400.71 in said account as of December 31, 1962. On December 31, 1962, petitioner withdrew $3,000 from his account at the State Federal Savings and Loan Assn. The $3,000 was deposited in checking account number 060-407-704 along with $75 from an undisclosed source. As of December 31, 1962, there were six checks outstanding against checking account number 060-407-704 in the amounts of:
Outstanding Checks
$ 10.52
3.20
197.45
5.00
4.03
2,434.63
$2,654.83
The reconciled balance of Hulbert's account number 060-407-704 was $820.88 as of December 31, 1962, computed as follows:
Balance per
bank statement $ 400.71
Plus deposits
in transit 3,075.00
$3,475.71
Less outstanding
checks 2,654.83
Reconciled balance $ 820.88
(Item 3 and 4) State Federal Savings and Loan, Lincoln, Nebraska and First Federal Savings and Loan, Lincoln, Nebraska (cashier's check-$24,429.31) Petitioner maintained savings account number 30578 at the Lincoln, Nebraska branch of the State Federal Savings and Loan Assn. of Beatrice, Nebraska, from October of 1962 through December 31, 1965, in the name of Corwin L. Hulbert Motors, Inc. Savings account number 30578 was opened on or about October 9, 1962, with a deposit of $10,000. Petitioner opened account number 30578 by presenting a cashier's check dated December 15, 1961, drawn upon the First National Back of Sayre, Oklahoma, in the amount of $24,429.31 payable to the order of Sadie Simon or T. R. Wise, attorney for Sadie Simon. The reverse side of the cashier's check bears the name of Sadie Simon (hereinafter sometimes called Sadie), followed by the endorsement of petitioner and the general endorsement of the banks which handled the instrument. After the deposit of $10,000 in savings account number...

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