Kann v. Comm'r of Internal Revenue
| Decision Date | 18 September 1952 |
| Docket Number | Docket Nos. 25587,25588. |
| Parties | W. L. KANN AND STELLA H. KANN, HUSBAND AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.GUSTAVE H. KANN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
1. Funds improperly obtained from a corporation of which petitioners were in complete control and in connection with which there was no embezzlement prosecution and no adequate proof that petitioners' acts had not been condoned, held to be taxable income. Commissioner v. Wilcox, 327 U.S. 404, distinguished; Rutkin v. United States, 343 U.S. 130, followed.
2. Income tax returns designated joint returns but signed only by the husband, held in the absence of further evidence to impose a liability upon petitioner-wife for both deficiencies and fraud penalties. Myrna S. Howell, 10 T.C. 859,affd. (C.A. 6) 175 F.2d 240. R. J. Cleary, Esq., and F. T. Weil, Esq., for the petitioners.
A. W. Dickinson, Esq., for the respondent.
Respondent determined deficiencies in petitioners' income tax and penalties thereon as follows:
That part of the deficiency asserted against petitioners W. L. Kann and Gustave H. Kann for each of these years is due to fraud with intent to evade tax is conceded.
Respondent concedes ‘that for the years 1936, 1939 and 1940 petitioner Stella H. Kann did not file joint individual income tax returns with her husband, petitioner W. L. Kann.‘ No error was assigned to respondent's determination that these two petitioners (Docket No. 25587) filed a joint individual income tax return for 1941.
The questions remaining in issue are: (1) Did respondent err by adding to petitioners' reported net income for each of the tax years 1936 to 1941, inclusive, that portion of the item described as ‘Dividends income understated,‘ which related to amounts received by petitioners from the Pittsburgh Crushed Steel Company and Globe Steel Abrasive Company; and (2) did respondent err in determining that petitioner Stella H. Kann filed a joint individual income tax return with her husband, petitioner W. L. Kann, for each of the years 1937 and 1938.
Some of the facts are stipulated.
The stipulated facts are hereby found.
Petitioners W. L. Kann and Stella H. Kann, husband and wife, and petitioner Gustave H. Kann (also referred to as G. H. Kann) reside in Pittsburgh, Pennsylvania. All the income tax returns here involved for the years 1936 to 1941, inclusive, were filed with the collector for the twenty-third district of Pennsylvania.
During the years 1936 to 1941, inclusive, Pittsburgh Crushed Steel Company (hereafter called PCS) was a corporation organized under and existing by virtue of the laws of the Commonwealth of Pennsylvania, with its principal place of business at Pittsburgh, Pennsylvania. At all times during 1936 until December 18 that year the outstanding capital stock of PCS was 1,000 shares with a par value of $100 a share. Kann-Pangborn Co. held 997 shares; Bertha F. Kann and petitioners G. H. and W. L. Kann held one share each. On December 18, 1936, the outstanding capital stock of PCS was increased to 5,000 shares with a par value of $100 a share held as follows: Kann-Pangborn Co., 4,997 shares; Bertha F. Kann, petitioners G. H. and W. L. Kann, one share each. Shortly thereafter the stockholdings changed and the following schedule shows the stockholders of PCS and their respective holdings as of December 31 in each of the years 1936 to 1941, inclusive:
Petitioners W. L. Kann and Gustave H. Kann are brothers. The following schedule shows their family relationship to certain stockholders of PCS in the years 1936 to 1941, inclusive:
On February 7, 1939, Bertha F. Kann, referred to as the Seller, entered into an agreement with petitioner Gustave H. Kann and Evelyn S. Kann, referred to as the Buyers, involving purchase by the Buyers of 140 shares of stock of PCS in exchange for their promise to pay to Bertha F. Kann during her life a certain sum annually. On the same date Bertha F. Kann entered into seven other agreements, in substance the same as that just described except that the Buyers in the respective agreements were as follows:
+-----------------------------------------------------+
¦(1) Petitioners W. L. Kann and Stella H. Kann ¦
+-----------------------------------------------------¦
¦(2) Stanley J. Kann ¦
+-----------------------------------------------------¦
¦(3) Irene K. DeRoy ¦
+-----------------------------------------------------¦
¦(4) A. Leo Weil, Jr., and Myra K. Weil ¦
+-----------------------------------------------------¦
¦(5) Leslie J. Solomon and Clara K. Solomon ¦
+-----------------------------------------------------¦
¦(6) I. A. Diamondstone and Marguerite K. Diamondstone¦
+-----------------------------------------------------¦
¦(7) Norman K. Kann and Helen M. Kann ¦
+-----------------------------------------------------+
Each of these agreements entered into by Bertha F. Kann on February 7, 1939, contained a preamble reading in pertinent part as follows:
WHEREAS, the Seller together with members of her immediate family own the controlling interest in the stock of the Pittsburgh Crushed Steel Company, a Pennsylvania corporation; and
WHEREAS, the Seller desires to sell some of her stock in said Company in order to purchase life annuities for herself; and
WHEREAS, certain of the Seller's children, together with their respective spouses, desire to retain the family stock control of said Company and have offered to purchase some of the Seller's stock in the Company in exchange for life annuities to the Seller, which offers are acceptable to the Seller; * * *
On September 29, 1939, a trust agreement was entered into between certain grantors, named hereinafter, and petitioner W. L. Kann, petitioner Gustave H. Kann, and A. Leo Weil, Jr., as trustees, whereby the...
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