Marbut v. Comm'r of Internal Revenue

• Decision Date: 24 June 1957
• Docket Number: Docket No. 55655.
• Citation: 28 T.C. 687
• Parties: HAROLD C. MARBUT AND DOROTHY H. MARBUT, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

28 T.C. 687

HAROLD C. MARBUT AND DOROTHY H. MARBUT, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 55655.

Tax Court of the United States.

Filed June 24, 1957.

D. Field Yow, Esq., for the petitioners.

Robert B. Kollen, Esq., for the respondent.

Petitioners did not file a declaration of estimated tax for the taxable years 1950 and 1951. They did file joint individual income tax returns for those years on March 15, 1951, and March 17, 1952, respectively. On January 15, 1954, petitioners filed a ‘Consent’ agreeing that the amount of ‘any’ income tax due under ‘any return’ for the year 1950 may be assessed at any time on or before June 30, 1955, and later, if a notice of deficiency in tax is sent before that date. On September 24, 1954, respondent mailed petitioners a notice of deficiencies in additions to income tax for 1950 and 1951, under section 294(d)(1)(A) and (d)(2), I.R.C. 1939. Held, no error was committed by respondent.

ARUNDELL, Judge:

Respondent determined deficiencies in additions to income tax for the taxable years ended December 31, 1950 and 1951, in amounts as follows:

+----------------------------------------+
                ¦      ¦Deficiencies in additions under  ¦
                +------+---------------------------------¦
                ¦      ¦Sec. 294           ¦Sec. 294     ¦
                +------+-------------------+-------------¦
                ¦Year  ¦(d) (1) (A)        ¦(d) (2)      ¦
                +------+-------------------+-------------¦
                ¦1950  ¦$2,243.02          ¦$1,495.35    ¦
                +------+-------------------+-------------¦
                ¦1951  ¦2,391.52           ¦1,594.35     ¦
                +----------------------------------------+
                

Several issues are raised based on petitioners' contention that respondent's conduct over the years was such as to estop him from making the foregoing determination; that petitioners' failure to file declarations of estimated tax does not serve to permit the Commissioner to determine that petitioners underestimated their income; and, in any event, that the statute of limitations has run on the foregoing determinations of deficiencies.

FINDINGS OF FACT.

Petitioners are husband and wife, residing in Augusta, Georgia. They filed joint income tax returns for the taxable years ended December 31, 1950 and 1951, with the then collector of internal revenue for the district of Georgia.

Petitioners' income tax returns for the years 1950 and 1951 disclosed tax liabilities of $24,922.46 and $26,653.56, respectively. Petitioners paid the liabilities shown on these returns on March 15, 1951, and March 17, 1952, respectively.

Petitioner Harold C. Marbut is, and was during the years 1950 and 1951, a general partner in the firm of Marbut Milling Co., Ltd., Augusta, Georgia, which firm engages in the business of manufacturing feed for livestock. Petitioner Dorothy H. Marbut had no separate income and did not participate in the preparation of the income tax returns of the petitioners for the years 1947 to 1951, inclusive, except to affix her signature to joint returns filed for the years 1948 to 1951, inclusive. With the exception of small amounts of dividends, petitioners' sole source of income for the years 1947 to 1951, inclusive, was petitioner Harold C. Marbut's distributive share of the earnings of Marbut Milling Co., Ltd.

Petitioners, either singly or jointly, filed declarations of estimated tax for the years 1943, 1944, 1945, and 1946. They did not file declarations of estimated tax for the years 1947 to 1951, inclusive.

Petitioners reasonably expected their gross income to exceed $600 during each of the years 1950 and 1951. For the years 1947, 1948, and 1949, it was $25,458.90, $18,946.76, and $30,969.51, respectively. Petitioners claimed 4 exemptions on their returns under section 25(b) of the Internal Revenue Code of 1939.

Petitioners were aware of the requirements contained in the law for the filing of declarations of estimated income tax during the years 1950 and 1951.

With the exception of a mathematical error in the amount of $12.12 for the taxable year 1949, and other than the deficiencies set forth in the statutory notice of deficiency for the years here involved, namely, 1950 and 1951, no change has been made in the tax liability of petitioners as shown on their returns for the years 1947 to 1951, inclusive.

On January 7, 1954, the assistant regional commissioner in Atlanta wrote Leonard H. Boller of Boller & Yow in regard to petitioners' Federal income tax return for the year 1950, and enclosed a ‘Consent Fixing Period of Limitations Upon Assessment of Income and Profits Tax’ on Form 872, in triplicate, and suggested that petitioners sign all 3 copies and return them promptly. The last sentence of his letter stated: ‘Should the taxpayers elect not to execute the consent, it will be necessary to issue a final notice of deficiency.’

Petitioners duly executed the consent referred to above and filed it with the respondent's office on or about January 15, 1954. The consent provided that in pursuance of the provisions of existing Internal Revenue laws petitioners and respondent hereby consent and agree as follows:

That the amount of any income, excess-profits, or war-profits taxes due under any return (or returns) made by or on behalf of the above-named taxpayer (or taxpayers) for the taxable year ended December 31, 1950, under existing acts, or under prior revenue acts, may be assessed at any time on or before June 30, 1955, except that, if a notice of a deficiency in tax is sent to said taxpayer (or taxpayers) by registered mail on or before said date, then the time for making any assessment as aforesaid shall be extended beyond the said date by the number of days during which the Commissioner is prohibited from making an assessment and for sixty days thereafter.

On September 24, 1954, respondent mailed petitioners a notice of his determination of the deficiencies in additions to income tax for the years 1950 and 1951 involved herein.

The principal reason petitioners did not file any declarations of estimated tax for the years 1950 and 1951 was because petitioners did not have the cash to make the required payments of estimated tax, due to the fact that the Marbut Milling Co., Ltd., was on the accrual basis and had been extending a considerable amount of credit. Prior to the year 1950 or thereabouts, petitioner Harold C. Marbut talked with a certified public accountant, Edwin H. Johnson, who was employed by the Marbut Milling Co., Ltd., in regard to the necessity of filing declarations of estimated tax returns. Johnson told petitioner that apparently it was the policy of respondent's office not to enforce the provision requiring such returns and that he did not think petitioner would be in any serious difficulty if he did not file such returns. At no time did Johnson ever advise petitioner that he need not file the declarations.

Petitioners had no reasonable cause for their failure to file declarations of estimated tax for the years 1950 and 1951, and such failure was due to willful neglect.

OPINION.

Petitioners do not deny that under section 58 of the Internal Revenue Code of 1939, they were required to file a declaration of estimated tax for each of the taxable years 1950 and 1951 on or before March 15 of each year. They contend, however, that the respondent erred in determining the deficiencies in additions to the tax under section 294(d)(1)(A) of the Internal Revenue Code of 1939 for failure to file the declarations and under section 294(d)(2) for substantially underestimating the estimated tax.¹

Petitioners admit that the principal reason for their failure to file the declarations was the fact that they did not have the ready cash with which to pay the installments and, as further excusing their conduct, they contend that it was the policy of the respondent's office not to enforce the provision requiring the filing of declarations of estimated tax. Petitioner Harold C. Marbut argues that the fact that the respondent made no additions to the tax for failure to file for the years 1947, 1948, and 1949 serves to confirm his impression of respondent's policy, and he was strengthened in his belief by what he was told by the accountant Johnson that he did not think petitioner would be in any serious difficulty if he failed to file the declarations.

We have held in other cases that the lack of funds with which to pay the installments that would be due does not constitute reasonable cause. Rene R. Bouche, 18 T.C. 144, 148; Sidney V. LeVine, 24 T.C. 147. Neither do we think that any impression petitioners may have received either from respondent's action regarding earlier years or petitioner Harold C. Marbut's talk with Johnson in regard to any unproven policy the respondent's office may have had in regard to the enforcement of the provision requiring the filing of declarations of estimated tax by individuals would constitute reasonable cause for failure of petitioners to file the required returns. Walter M. Joyce, 25 T.C. 13, 15; Howard M. Fischer, 25 T.C. 102; A. Raymond Jones, 25 T.C. 1100; Coates v. Commissioner, (C.A. 8, 1956) 234 F. 2d 459. In the Joyce case, we said:

Counsel for the petitioners argues that Walter relied upon the advice of an accountant that he did not have to file declarations of estimated tax because the general practice of the Bureau of Internal Revenue was not to require the filing of such returns during 1950 and 1951. The...