Levitt v. Commissioner
| Decision Date | 28 September 1995 |
| Docket Number | Docket No. 27857-90. |
| Citation | 70 T.C.M. 851 |
| Parties | Leo N. Levitt and Ruth G. Levitt v. Commissioner. |
| Court | U.S. Tax Court |
FINDINGS OF FACT CCH Page
A. Petitioners ......................................................................... [853]
B. Resyn Corporation ................................................................... [854]
C. Polymer Chemicals ................................................................... [855]
D. Chemical Traders .................................................................... [856]
E. Resyn's Bankruptcy .................................................................. [858]
F. Respondent's Investigation of Petitioner and Resyn .................................. [858]
G. Third Party Information ............................................................. [859]
H. Meetings With FBI Agents and Strike Force Attorney .................................. [859]
I. Referral of Case to the Justice Department .......................................... [859]
J. Petitioner's Criminal Case .......................................................... [860]
K. Resyn's Bankruptcy Trial ............................................................ [860]
L. Sale of Resyn Corporation ........................................................... [863]
M. Notice of Deficiency ................................................................ [863]
N. Petitioners' 1963 Return ............................................................ [863]
OPINION
A. Whether Respondent Violated Grand Jury Secrecy Rules ................................ [863]
B. Whether Petitioner Is Collaterally Estopped From Denying Factual Findings of the
Bankruptcy Court .................................................................... [864]
C. Whether Respondent's Determination Is Arbitrary ..................................... [866]
D. Whether Petitioners Received Constructive Dividends ................................. [867]
E. Whether Petitioner Is Liable for Fraud for 1963 ..................................... [869]
F. Whether Petitioner Is Liable for Fraud for 1964 to 1970 ............................ [869]
G. Statute of Limitations .............................................................. [872]
H. Whether Ruth Levitt Is an Innocent Spouse ........................................... [872]
Respondent determined that both petitioners are liable for deficiencies in income tax and that petitioner Leo Levitt is liable for additions to tax for fraud as follows:
Addition to Tax
Year Deficiency Sec. 6653(b)
1963 .......... $180,853.16 $ 90,732.96
1964 .......... 225,591.07 113,118.26
1965 .......... 67,160.06 34,407.72
1966 .......... 241,895.20 120,947.60
1967 .......... 98,213.03 49,106.52
1968 .......... 221,132.70 122,893.86
1969 .......... 258,763.57 134,598.39
1970 .......... 17,945.61 21,129.21
Following concessions, we must decide the following issues:
1. Whether respondent's use of Resyn Corporation's business records violated grand jury secrecy rules. We hold that it did not.
2. Whether petitioner Leo Levitt is collaterally estopped from contesting factual findings made by the U.S. bankruptcy court in a trial relating to respondent's tax claims against Resyn Corp., which he controlled. We hold that he is.
3. Whether respondent's determination was arbitrary. We hold that it was not.
4. Whether petitioners had unreported dividend income during the years in issue. We hold that they did.
5. Whether petitioner Leo Levitt is liable for fraud for 1963. We hold that he is not because there is no evidence of the contents of that return.
6. Whether petitioner Leo Levitt is liable for fraud for 1964 to 1970. We hold that he is.
7. Whether the statute of limitations bars assessment of tax for petitioners for 1964 to 1970. We hold that it does not.
8. Whether petitioner Ruth Levitt is an innocent spouse under section 6013(e) for any of the years in issue. We hold that she is not.
References to petitioner are to Leo Levitt. Section references are to the Internal Revenue Code in effect during the years in issue. Rule references are to the Tax Court Rules of Practice and Procedure. References to rule 6(e) are to rule 6(e) of the Federal Rules of Criminal Procedure.
Some of the facts have been stipulated and are so found.
Petitioners were married and resided in Verona, New Jersey, when they filed their petition.
Petitioner was born in 1914. He graduated from Dartmouth University in 1936 with a degree in chemical engineering and worked for chemical companies until 1951. As discussed in more detail below in section B, petitioner owned and controlled the Resyn Corporation (Resyn) during the years in issue.
Ruth Levitt was born in 1918. She graduated from high school and secretarial school. Petitioners met in 1938 and married in 1941. Ruth Levitt never worked outside the home. Petitioners had four daughters, born in 1943, 1946, 1952, and 1956. Ruth Levitt took care of her ailing mother for a period of time not specified in the record. She did not visit or know much about her husband's business.
Petitioners bought land in South Orange, New Jersey, in 1948. Petitioners rented a dwelling until 1952 when they moved into a home they built on their South Orange land. Ruth Levitt had sole ownership of that home.
Petitioner did not have a personal checking account. Ruth Levitt had checking and savings accounts from 1960 to 1970. She used those accounts for the family finances. During the years in issue, Ruth Levitt drove new cars and had a comfortable standard of living. Petitioners took regular vacations to Las Vegas and Florida from 1963 to 1970.
In 1959, a Brooklyn lawyer named Erwin Weiss (Weiss), who had helped organize Resyn, recommended that petitioners buy 41 acres of land in St. Petersburg, Florida. Petitioner, Ruth Levitt, Fred Berger (Berger), a St. Petersburg realtor who knew Weiss, and Weiss organized a group called Welev of Pinellas County (Welev) to hold the 41 acres. Each owned a one-fourth interest in Welev. In 1959, petitioner was president of Welev. He signed the mortgage deed. Ruth Levitt knew very little about Welev.
Weiss incorporated Welev around 1960. Welev issued 30 shares of stock when it was incorporated. The original subscribers to the stock were petitioner, Berger, Meyer Tepperman, and Weiss. Each had 7.5 shares.
In 1970, Resyn owed Hooker Chemical Co. (Hooker) about $2 million. Hooker supplied folacin hydride to Resyn. Petitioner agreed to guarantee Resyn's debt. Petitioner pledged the Welev property as collateral to Hooker.
In 1986, Welev sold its Florida property. Petitioners filed separate returns for 1986. Ruth Levitt reported on her return a capital gain of $999,338 from the liquidation of Welev stock, which she reported that she acquired in 1964.
Petitioners filed joint income tax returns for 1963 to 1970. Harry Levenson (Levenson) prepared petitioners' income tax returns for 1964, 1965, and 1966. He was an accountant. His office was at 152 Clinton Avenue in Newark, New Jersey. He later moved to 441 Springfield Avenue in Newark. Levenson previously served as a revenue agent for the Internal Revenue Service (IRS). Levenson's wife was Ruth Levitt's cousin.
Howard Goldstein (Goldstein) prepared petitioners' returns for 1967, 1968, 1969, and 1970. Goldstein was an accountant. He practiced at the certified public accounting firm of I. George Goldstein & Co. (Goldstein & Co.). I. George Goldstein was Goldstein's father. Petitioner gave Levenson and Goldstein information to prepare his returns, including Forms 1099, Forms W-2, and brokerage account statements.
Petitioners reported wages from Resyn of $35,000 per year for 1964 and 1965, $50,000 for 1966, 1967, 1968, and 1969, and $47,960 for 1970. They reported withholding on those wages of $10,000 per year in 1964 and 1965, $13,282.97 in 1966, $12,876 in 1967, $14,000 in 1968, $16,000 in 1969, and $11,887.85 in 1970. Petitioners did not report as income any of the amounts Resyn paid for their benefit. See section B-3, below. Petitioners reported $27,300 in miscellaneous income for 1970.
Petitioner and about 11 other people formed a chemical company called Resyn in 1951. Resyn was incorporated in 1953. Its principal offices were in Linden, New Jersey. Petitioner bought the stock of the other Resyn shareholders around 1956 for the amount of their original investment in the company. Petitioner controlled Resyn's operations during the years in issue.
Resyn bought, manufactured, and sold resins and other chemicals and oils used to manufacture paint. In the late 1950's, Resyn began to produce a chemical resin used by the Ford Motor Co. in automobile paint. Resyn made Mobil 1 for the Mobil Oil Co. Resyn was the fourth company in the United States to manufacture epoxy.
Atlas Paint and Varnish Co. (Atlas) was one of Resyn's larger customers from 1963 to 1970. Meyer and Harry Tepperman (the Tepperman brothers) owned Atlas. Atlas manufactured paint. Atlas bought large amounts of alkyds from Resyn to make paint.
Resyn paid for many of petitioners' personal expenses and personal stock investments.1 He had Resyn pay Ruth Levitt a weekly allowance of about $350. Ruth Levitt received Resyn checks paid to cash totaling...
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