Maxey v. Comm'r of Internal Revenue

• Decision Date: 31 August 1956
• Docket Number: Docket No. 55416.
• Citation: 26 T.C. 992
• Parties: MARVIN MAXEY AND BERNICE MAXEY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

26 T.C. 992

MARVIN MAXEY AND BERNICE MAXEY, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 55416.

Tax Court of the United States.

Filed August 31, 1956.

E. Harold Sheats, Esq., for the petitioners.

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

Petitioners operated, through a corporation, a taxicab business during 1950 and 1951. They were unable to obtain adequate public liability insurance coverage during those years and large damage claims were pending against the corporation at the end of each year. They, nevertheless, realized both substantial gross and net income from that business as well as from other sources during both years. They filed no declarations of estimated tax and made no payments of estimated tax during either year. Held, petitioners failed to show reasonable cause excusing their failure to file declarations of estimated tax and the respondent properly determined additions to tax as provided in section 294(d)(1)(A), 1939 Code, for failure to do so and for substantial underestimate of estimated tax as provided in section 294(d)(2).

This proceeding involves the following deficiency and additions to tax:

+-------------------------------------------------------------+
                ¦      ¦Income tax  ¦Additions to tax under                   ¦
                +------+------------+-----------------------------------------¦
                ¦Year  ¦deficiency  ¦Sec. 294 (d) (1) (A)  ¦Sec. 294 (d) (2)  ¦
                +------+------------+----------------------+------------------¦
                ¦      ¦            ¦                      ¦                  ¦
                +------+------------+----------------------+------------------¦
                ¦1950  ¦            ¦$847.60               ¦$565.07           ¦
                +------+------------+----------------------+------------------¦
                ¦1951  ¦$38.50      ¦1,536.42              ¦1,023.26          ¦
                +-------------------------------------------------------------+
                

No error was assigned with respect to the deficiency in income tax and the only issue is whether the respondent erred in imposing the aforementioned additions to the tax.

Some of the facts were stipulated.

FINDINGS OF FACT.

The petitioners, husband and wife, were residents of Atlanta, Georgia, during the years in issue and filed their joint returns for such years with the former collector of internal revenue for the district of Georgia.

From 1946, to and throughout the years in issue, Marvin Maxey (hereinafter referred to as the petitioner) was engaged in the taxicab business. Because of petitioner's ill health, his son, Marvin Maxey, Jr., was largely responsible for the management of the taxicab business and prepared the petitioners' returns for the 2 years here in issue.

Petitioner operated his taxicab business through a corporation known as Associated Cab Company, Inc. (hereinafter referred to as Associated), of which he was the president and Marvin, Jr., the vice president. Associated was essentially a nonprofit cooperative venture in which several cab owners participated in the following way: The owners of individual taxicabs leased the cabs to licensed drivers who operated them under a written contract with Associated. The driver paid for one-half of the gasoline and retained 50 per cent of the gross fares. The owners, in addition to furnishing the cabs, paid for repairs, batteries, tires, washing, greasing, oiling, and licenses, and also provided public liability insurance when available. Associated provided the owners various services in exchange for a mutually agreed sum.

An ordinance of the City of Atlanta, Georgia, required all taxicab owners to give bond for public liability in the amount of $10,000 for bodily injury to each person, $20,000 for each accident, and $5,000 for property damage. In lieu of the bond, the City permitted the substitution of adequate insurance coverage provided by an approved insurance company.

From July 1, 1948, to June 30, 1949, Associated was able to obtain so-called excess coverage insurance for the taxicab owners, which coverage provided for payment of damages in excess of $5,000 with a maximum payment of $15,000. From July 1, 1949, to December 31, 1949, Associated was not able to obtain any kind of insurance coverage for the owners, and from January 1, 1950, until August 1, 1952, it was able to obtain an excess coverage policy similar to the one which it had during 1948. As a result of the inability to obtain adequate insurance coverage, the taxicab owners, through Associated, deposited a bond with the City of Atlanta as required by its ordinance. Petitioner, in fact, deposited the bond because he was the only owner financially able to do so.

Associated also required each owner to deposit with it $37.50 per month, per cab, to establish a public liability fund. The contribution from the various owners averaged approximately $1,800 to $1,900 per month, and it was from this fund that the premiums for insurance protection were paid when such protection was available. During the calendar year 1950, $26,162.81 was paid out of such fund in settlement of public liability claims for insurance premiums and other costs. During the calendar year 1951, the sum of $16,667.12 was paid for similar purposes.

From March 15, 1950, to December 15, 1951, inclusive, the total damages claimed against Associated at various times during such period ranged form $117,898 to $340,898. Many claims against Associated in the amounts of $10,000 to $50,000 were settled for as little as $112.50 to $1,250.

Petitioner realized the following amounts of net profit from his taxicab business during the years indicated:

+----------------+
                ¦1947¦$10,595.62 ¦
                +----+-----------¦
                ¦1948¦12,103.86  ¦
                +----+-----------¦
                ¦1949¦7,505.87   ¦
                +----+-----------¦
                ¦1950¦13,467.95  ¦
                +----+-----------¦
                ¦1951¦28,408.30  ¦
                +----------------+
                

In addition to the net profits realized on such business, petitioner, in 1950 and 1951, had net income from the following sources and in the following amounts:

+------------------------------------------------------------+
                ¦                                        ¦1950     ¦1951     ¦
                +----------------------------------------+---------+---------¦
                ¦                                        ¦         ¦         ¦
                +----------------------------------------+---------+---------¦
                ¦Salary from Associated Cab Company, Inc.¦$5,200.00¦$5,200.00¦
                +----------------------------------------+---------+---------¦
                ¦Rents                                   ¦9,416.44 ¦5,368.40 ¦
                +----------------------------------------+---------+---------¦
                ¦Service station                         ¦5,867.44 ¦8,096.01 ¦
                +----------------------------------------+---------+---------¦
                ¦Net capital gain                        ¦1,894.05 ¦675.00   ¦
                +----------------------------------------+---------+---------¦
                ¦Soft drink sales                        ¦         ¦913.40   ¦
                +----------------------------------------+---------+---------¦
                ¦Miscellaneous income                    ¦         ¦390.67   ¦
                +------------------------------------------------------------+
                

Petitioner reported adjusted gross income of $35,845.88 and paid a tax of $10,180.88 for 1950; he reported adjusted gross income of $49,051.78 and paid a tax of $17,995.76 for 1951. He filed no declarations of estimated tax nor did he make payments of estimated tax in either year. He was fully aware of the requirements for doing so. The respondent determined...