Laughlin v. Commissioner
| Decision Date | 04 March 1965 |
| Docket Number | Docket No. 66021. |
| Citation | 24 TCM (CCH) 252,1965 TC Memo 47 |
| Court | U.S. Tax Court |
| Parties | James J. Laughlin v. Commissioner. |
James J. Laughlin, pro se, National Press Bldg., Washington, D. C., Joseph N. Ingolia and Charles S. Casazza, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in and additions to petitioner's income taxes for the years 1949 through 1952, inclusive, as follows:
Additions to Tax
under 1939 Code
Year Deficiency Section 293(b) Section 294(d)
1949............ $3,975.32 $1,987.66 $627.90
1950 ........... 9,144.43 4,572.22 630.46
1951 ........... 776.41 388.21 85.06
1952 ........... 4,001.70 2,000.85 292.37
Respondent has conceded that the addition to tax under section 294(d)(2) for the year 1949 was improperly asserted and should not be sustained. This concession will be given effect in a Rule 50 computation. The issues remaining for decision are:
(1) Whether petitioner understated his income in the income tax returns he filed for the years 1949 through 1952.
(2) Whether petitioner filed false and fraudulent returns for any of the years in question and whether all or any part of the deficiencies in income tax determined for each of said years are due to fraud with intent to evade tax.
(3) Whether petitioner is liable for the addition to tax provided for by section 294(d)(1)(A) of the Internal Revenue Code of 1939 for failure to file a declaration of estimated income tax for the year 1949.
(4) Whether petitioner is liable for the additions to tax provided for by section 294(d)(2) of the Internal Revenue Code of 1939 for substantial underestimation of estimated income taxes for the years 1950 through 1952.
(5) Whether any statute of limitations bars assessment of any of the deficiencies in issue before us.
Some of the facts have been stipulated. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference, and adopted as our findings. Some of such facts will be related in detail in our findings hereinafter made.
Petitioner is a lawyer engaged in the practice of his profession in the District of Columbia. During the years 1949 through 1952, inclusive, petitioner maintained an office in the National Press Club Building, Washington, D. C. He filed his income tax returns for each of those years with the collector or director of internal revenue for the district of Indiana. Although he spends virtually all of his time in Washington, where he has a home and maintains his law office, petitioner has an address in Indianapolis, Indiana, and he votes there. His tax returns here in question show no Indiana address but instead showed petitioner's home address each year to be 3830 Livingston Street, N. W., Washington, D. C.
Petitioner's law practice during the period in question was a general trial practice with some concentration in the fields of domestic relations and criminal law. He appeared quite often on behalf of clients in the various courts of the District of Columbia and surrounding area, including frequent appearances in appellate courts. A considerable portion of petitioner's activity during the period in question was devoted to "in forma pauperis" criminal cases in which he served as defense counsel for indigent persons accused of crime. He received no fees in such cases and sometimes incurred expenses on behalf of his indigent clients. Petitioner was often reimbursed for expenses incurred on behalf of indigent clients, but in other cases bore such expenses out of his own funds without reimbursement.
In addition to indigent criminal defendants, petitioner represented others with varying capacities to finance their litigation. Some clients paid both expenses and an attorney's fee. Others paid only the expenses (or a portion thereof) and still others hired petitioner on a contingent fee basis in civil litigation. Clients who were able to pay their own litigation expenses either paid them directly or, as was quite often the case, they paid the amounts due to petitioner and petitioner paid the items of expense out of these funds. In other cases clients reimbursed petitioner for costs after he had paid them from his own funds. Sometimes petitioner would collect from the client only a lump-sum fee, and he would pay all litigation expenses himself without collecting anything further from the client.
During most of 1949 and the early part of 1950 petitioner employed a young associate attorney named William E. Owen. Owen worked under an informal arrangement with petitioner. Although at first he was primarily an assistant to petitioner, he gradually began to handle cases on his own. He sometimes received money from clients for services performed by petitioner or himself or both, and he always turned any money so received over to petitioner or to petitioner's secretary for deposit in petitioner's account. Petitioner paid Owen in an ad hoc manner at irregular times and in irregular amounts as petitioner saw fit. During 1951 and 1952 petitioner employed an associate named Albert J. Ahern. The parties have stipulated that in 1951 Ahern's gross income did not exceed $2,600 and in 1952 it did not exceed $5,500.1
Throughout the period in question petitioner conducted his law practice in a rented office consisting of two rooms located in the National Press Club Building, Washington, D. C. Each year he deducted on his tax return the full amount of rent paid for this office. Petitioner and his secretary had desks in one room. The other room was used as a reception room. Petitioner sublet a portion of the reception room to a Pennsylvania company for use by its Washington, D. C. representative, Robert M. Penman. In addition, petitioner supplied to Penman the services of petitioner's secretary at a fixed monthly charge. Petitioner received the following annual amounts from Penman's employer for rent and secretarial service:
Rent Secretarial
1949............... $579.00 $1,080
1950............... 579.00 1,080
1951............... 607.50 1,080
1952............... 636.00 1,080
None of these amounts was reported in petitioner's income tax returns, nor were petitioner's business expense deductions for rent or secretarial wages reduced proportionately.
Throughout the period in question petitioner employed Evelyn Brownell as his secretary. She was given a power of attorney by petitioner and frequently signed receipts and endorsed checks in petitioner's name. She handled petitioner's bank deposits, even when he was absent from the city for an extended period. Part of her time was spent providing services for Penman, though she received compensation only from petitioner. Petitioner deducted on his tax returns the full amount of compensation paid to Brownell.
Petitioner was assisted in the preparation of his income tax returns for some of the years in question by agents of the respondent stationed in the National Press Club Building during tax-filing season to assist taxpayers in the preparation of their returns. Each time petitioner sought help in this manner he took with him various data which he referred to in supplying the assisting agent with figures which the agent used in making out the return. While the returns were filled out (at least in rough draft form) by the agents, they were based solely on the information and figures supplied by petitioner. He did not disclose all of his receipts to these agents. The information he did furnish was incomplete.
In the latter part of 1951 an agent of respondent contacted petitioner regarding certain deductions claimed by petitioner on his 1949 tax return. The agent who originally contacted petitioner in this matter was withdrawn from petitioner's case shortly after the original contact and replaced by an agent named Norman Woodrow Wilson. Wilson came to petitioner's office several times to confer with petitioner and to secure information and canceled checks.
In the early part of 1953, after investigation of petitioner for possible tax fraud had begun, he was contacted by one of respondent's special agents. At this agent's request, petitioner went to the Internal Revenue Building late in April of 1953 and was there asked a series of questions in the presence of Wilson. Petitioner left this meeting before the special agent had finished his questioning. He agreed to resume the question and answer session, but he did not do so. Subsequently petitioner refused to cooperate any further in the investigation.
The special agent asked petitioner several times to submit his books and records for examination. On April 27, 1953, when his first inquiry about books was made, petitioner informed this agent that he had both cash receipts and expenditures books which were kept in his garage and that as soon as he got them from this place of storage he would make them available. On two subsequent occasions, toward the end of the next two succeeding months in 1953 petitioner was requested to make his books and records available to the agent for examination, but he never did so.
Neither the special agent nor any of the other agents who testified at trial ever was shown or saw any of petitioner's books of account or records; respondent's employees who assisted petitioner in the preparation of his returns never saw any books or records either; they recalled that petitioner had his figures written on slips or sheets of paper which he brought along with him.
Petitioner's secretary during the period from 1945 to 1953 never made entries in any books of account during the period of her employment in petitioner's law office and she never saw any such books or records there. She shared the same office...
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