Kenney v. Commissioner of Internal Revenue

• Decision Date: 11 June 1940
• Docket Number: No. 9154,9155.,9154
• Citation: 111 F.2d 374
• Parties: KENNEY v. COMMISSIONER OF INTERNAL REVENUE (two cases).
• Court: U.S. Court of Appeals — Fifth Circuit

111 F.2d 374 (1940)

KENNEY v. COMMISSIONER OF INTERNAL REVENUE (two cases).

Nos. 9154, 9155.

Circuit Court of Appeals, Fifth Circuit.

April 9, 1940.

Rehearing Denied June 11, 1940.

Wm. H. Talbot and John J. Finnorn, both of New Orleans, La., for petitioner in each case.

Helen R. Carloss and Sewall Key, Sp. Assts. to Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and J. P. Wenchel, Chief

Counsel, Bureau of Internal Revenue, and Ralph F. Staubly, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent in each case.

Before SIBLEY, HUTCHESON, and HOLMES, Circuit Judges.

HOLMES, Circuit Judge.

These two cases are brought to this court by petitions for review of decisions of the United States Board of Tax Appeals. The petition of Courtney A. Kenney involves deficiencies in income taxes for the years 1928, 1929, 1930, and 1931, together with a fifty per cent fraud penalty for each of said years.

The petition of Mrs. Kenney involves a deficiency for the year 1931. Except for the fact that no fraud penalty was imposed, her case presents the same issues for the year 1931 as her husband's. In pursuance of a stipulation, this court has entered an order consolidating the two cases and directing that the record in Mrs. Kenney's case be not printed. Separate judgments will be entered, but one opinion will dispose of both cases. Mr. Kenney, who will be referred to as the petitioner, and his wife are residents of Louisiana; they filed joint returns for 1928, 1929, and 1930, but each filed a separate return on the community property basis for the year 1931.

During the period under review, the petitioner carried on a gambling business at Arabi, Louisiana. He had been a professional gambler for many years, and all of the income involved here was acquired by him in his gambling operations. He kept no books or records from which his taxable income could be ascertained. The controversy is solely over his gross income; no claimed deductions are in dispute. The commissioner and the board determined his gross income by ascertaining the annual increase in his net worth for each year and adding thereto personal expenditures not reflected in that increase. The courts have approved that method of ascertaining income. Gleckman v. United States, 8 Cir., 80 F.2d 394, certiorari denied, 297 U.S. 709, 56 S.Ct. 501, 80 L.Ed. 996; United States v. Wexler, 2 Cir., 79 F.2d 526, certiorari denied, 297 U.S. 703, 56 S.Ct. 384, 80 L.Ed. 991.

Since the petitioner kept no books or records from which his correct income for any of the years involved could be ascertained, the commissioner had the right to look elsewhere for evidence. His determination is prima facie correct, and the burden of proving that the correct income was in an amount less than that on which the deficiency had been computed was upon the taxpayer. Bishoff v. Commissioner, 3 Cir., 27 F.2d 91. It was sought to meet this burden by the testimony of the petitioner himself, but the Board of Tax Appeals rejected his testimony as untrue, as they were warranted in doing upon the facts in the record.

The board's determination that petitioner filed false and fraudulent returns is supported by substantial evidence, and binding upon us notwithstanding the rule that the burden of proof in fraud cases is upon the commissioner. Helvering v. Kehoe, 60 S.Ct. 549, 84 L.Ed. 498; ...