Kattar v. Commissioner
| Decision Date | 26 July 1984 |
| Docket Number | Docket No. 2800-74,4567-75.,2040-75 |
| Citation | 48 TCM (CCH) 629,1984 TC Memo 387 |
| Parties | George T. Kattar and Phyllis A. Kattar v. Commissioner. The Pittsburgh Corp. v. Commissioner. |
| Court | U.S. Tax Court |
Jerome E. Rosen, One Boston Pl., Boston, Mass., for the petitioners. Barry J. Laterman, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in Federal income tax and additions to the tax in these consolidated cases as follows:
Docket No. 4567-75—Petitioners George T. and
Phyllis A. Kattar
Addition to Tax
Sec. 6653(b)
Year Deficiency I.R.C. 1954
1963 ........ $12,393.77 $ 6,196.88
1964 ........ 19,382.86 9,691.43
1965 ........ 38,309.03 19,154.53
1966 ........ 38,453.95 19,226.97
1967 ........ 35,290.76 17,645.38
1968 ........ 97,766.66 48,883.33
Docket No. 2800-74—Petitioners George T. and
Phyllis A. Kattar
Addition to Tax
Sec. 6653(a)
Year Deficiency I.R.C. 1954
1970 ........ $26,165.57 $1,308.28
Docket No. 2040-75—the Pittsburgh Corporation
Year Deficiency
Taxable year ended 3/31/63 ....... $28,514
The issues for decision are:
(1) Whether petitioners George T. Kattar and Phyllis A. Kattar had unreported income in the amounts of $32,505.20, $62,372.92, $96,931.70, $69,493.53, $99,229.56, and $152,939.38 in the years 1963 through 1968, respectively, as determined by respondent using the net worth plus personal expenditures method of income reconstruction;
(2) Whether, if we find that petitioners had unreported income, petitioners' returns for those years were "fraudulent" under section 6501(c)(1);1 and
(3) Whether any part of the underpayment of taxes for any of the years at issue, 1963 through 1968, was due to fraud under section 6653(b).
George T. Kattar (Kattar) and Phyllis A. Kattar (Mrs. Kattar), petitioners in Docket Nos. 2800-74 and 4567-75, are husband and wife. At the time their petitions were filed, they resided in Meredith Neck, New Hampshire. They filed joint Federal income tax returns for 1963 through 1968, the years in issue, with the Internal Revenue Service Center, Andover, Massachusetts. During those years, the Kattars had 7 dependent children.
The Pittsburgh Corporation (Pittsburgh), petitioner in Docket No. 2040-745, is a corporation formed under the laws of Massachusetts on or about July 9, 1963. At the time its petition was filed, Pittsburgh's principal office was located in Lawrence, Massachusetts.
During the years at issue, Kattar was a paid financial consultant; in that capacity, he realized substantial income from finders fees and commissions. At all times relevant to this case, Kattar was employed as president, treasurer and/or chief operating officer of all of the following corporations and other business entities:
1. Pittsburgh Corporation. Kattar owned all of Pittsburgh's issued and outstanding stock.
2. Tri-State Development Corporation (Tri-State), a Delaware corporation formed in 1964. During the years at issue, Kattar owned 70 percent or more of Tri-State's issued and outstanding stock. Tri-State was the 100 percent shareholder of the following corporations:
k. First Lowell Realty Corporation The principal business activities of Tri-State and its 11 subsidiaries were: (1) the acquisition of land for development; and/or (2) realty development.
3. Community Investment Corporation (Community), a Massachusetts corporation formed in 1959. Community was the 100 percent shareholder of the following corporations:
The principal business activity of Community and its 6 subsidiaries was making loans and investments. Community's income was derived from management fees and dividends from its subsidaries.
Kattar was the sole stockholder or beneficial owner of the entities numbered 5 through 11 above.
The records of at least 15 of the entities identified above were kept at one location in Salem, New Hampshire, where Kattar maintained an office. Kattar was the designated signatory on checking accounts maintained by at least 16 of the entities.
Kattar did not maintain a checking account in his own name until 1966. During the years at issue, Kattar used the checks of his owned or controlled corporations to pay his personal expenses as a matter of convenience as one uses an American Express card. For example, mortgage payments on the Kattar's home on Jackson Street, Methuen, Massachusetts, were made by Tri-State, Community, Northeast Investment Co., Inc., and North American Credit Corp. In addition, the purchase price and nearly all the expenses of maintaining the property known as "Clovelly", the Kattar's seven bedroom, three story summer residence located on Lake Winnepesaukee in New Hampshire, were paid by Kattar Realty Trust and then charged to Kattar's personal account.
During the years 1963 through 1968, Kattar's owned or controlled corporations disbursed funds to or for his benefit in the respective amounts of $53,460.09, $50,512.44, $78,406.71, $101,021.72, $63,959.04, and $89,188.68. Kattar would reimburse his owned or controlled corporations for some of the amounts paid out to him on his behalf from his own funds.
All amounts paid out to Kattar or on his behalf by his owned or controlled corporations and amounts paid by Kattar into or on behalf of his owned or controlled entities were reflected on a "Due to/Due from" account, maintained for each entity by Kattar's accountant, Seymour Yellin, C.P.A. (Yellin). The following is a summary of the yearend balances of Kattar's "Due to/Due from" accounts as reflected on the books of his owned or controlled corporations. The positive totals represent amounts owed by the corporations to Kattar; the totals in parentheses represent amounts owed by Kattar to the corporations.
Summary Schedule
Kattar's "Due to/Due from" Accounts
Balances at December 31
Related
Corporation 1962 1963 1964 1965 1966 1967 1968
Castle Shores
Inc. $ -0- $ -0- $ -0- $ -0- ($20,000.00) ($10,000.00) $ -0-
Community Finance
Inc. of
Lawrence (500.00) (500.00) (500.00) (740.00) (740.00) (740.00) (537.00)
Community Investment
Corp. (2,000.00) (30,950.00) (14,500.00) (13,024.00) (10,723.00) 241.38 (4,087.57)
First Lowell
Realty Corp. -0- -0- -0- -0- -0- -0- (7,000.00)
Gunstock
Acres, Inc. -0- -0- 13,241.91 16,247.91 20,747.91 15,646.13 (89.85)
Kattar
Realty Trust (2,000.00) 9,138.60 (6,231.68) (17,342.04) (25,809.04) (39,411.10) (39,739.75)
Merrimack
Valley Capital
Corp. -0- -0- (500.00) (500.00) 500.00 500.00 500.00
New Hampshire
Island Development
Assn. -0- -0- -0- -0- 10,500.00 10,500.00 -0-
North American
Credit Corp. -0- -0- -0- -0- (2,522.88) (4,782.30) (5,902.98)
North American
Enterprises 18,641.00 (22,918.75) (26,422.43) (5,384.09) (7,944.60) (19,105.93) (18,193.65)
Northeast Investment
Co. (8,573.51) 8,894.48 2,005.85 10,898.67 34,066.59 29,177.82 39,685.23
Pitsburge
Corp. -0- -0- 300.00 21,200.00 21,200.00 21,200.00 21,200.00
Salem Investment
Corp. 4,500.00 4,000.00 3,850.00 3,850.00 3,850.00 3,850.00 3,850.00
The Second
Presidential
Corp. -0- -0- -0- -0- -0- 8,500.00 8,500.00
Tri-State
Development
Corp. -0- -0- 21,473.30 23,320.56 8,192.56 117,453.77 109,903.77
__________ __________ _________ __________ __________ ___________ ___________
TOTALS $10,067.49 ($32,335.67) ($7,283.05) $38,527.01 $31,317.54 $133,029.77 $108,088.20
Yellin was the accountant for Kattar individually and for all of his owned and controlled corporations during the years at issue. He prepared Federal income tax returns for those years for the Kattars and for the related corporations. In preparing the returns, Yellin relied on the information...
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