Maxwell v. C.I.R., 112364 FEDTAX, 82191

Docket Nº:82191.
Opinion Judge:BRUCE, Judge:
Party Name:JOHN H. MAXWELL and VERA R. MAXWELL, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Robert B. Cannon, for the petitioners. Thomas J. Moroney, Jr., for the respondent.
Case Date:November 23, 1964
Court:United States Tax Court
 
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23 T.C.M. (CCH) 1895 (1964)

T.C. Memo. 1964-307

JOHN H. MAXWELL and VERA R. MAXWELL, Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 82191.

United States Tax Court.

November 23, 1964

Petitioner John H. Maxwell owned the controlling stock of two corporations-one engaged in the warehousing and fabrication of steel and the other in the erecting of steel and in transportation. He diverted to his own use checks received for goods sold or services rendered by the corporations without accounting for the proceeds on his returns or those of either corporation. He had the corporations pay some of his personal expenses. He received other unreported income and claimed excessive depreciation on his returns. He was indicted on four counts for tax evasion and pleaded guilty on two counts, upon which he was convicted.

Held: (1) Petitioner's returns were false and fraudulent with intent to evade tax;

(2) At least a part of each deficiency in tax was due to fraud with intent to evade tax;

(3) Petitioner has not proved error in the deficiencies determined; and

(4) The additions to tax are sustained.

Robert B. Cannon, for the petitioners.

Thomas J. Moroney, Jr., for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION.

BRUCE, Judge:

The respondent determined deficiencies in income tax of the petitioners as follows:

Additions to Tax, I.R.C. 1939

Fiscal year Section Section Section

ended 8/31 Deficiency 293(b) 294(d)(1)(A) 294(d)(2)

1951 $35,570.86 $18,786.93 - $2,692.56

1952 51,923.52 25,961.76 $4,990.15 3,522.51

1953 45,153.36 22,576.68 3,839.55 2,710.28

1954 37,588.00 18,794.00 3,898.73 2,599.14

Respondent concedes error in determining additions to tax under section 294(d) (2) for the fiscal years ended in 1952, 1953, and 1954. The issues for decision are whether the petitioners in the taxable years had unreported income from dividends on bank stock, director's fees, sales of certain assets, and other sources; whether they overstated the amounts claimed for depreciation; whether they realized gains on the sale of capital stock or automobiles; whether any part of the deficiency in income tax for any of the years was due to fraud with intent to evade tax; and whether they are liable for the additions to tax determined, except for those items conceded by the respondent. In determining the deficiencies, the respondent determined-

(a) That the petitioners received dividends on bank stocks in the fiscal years ended in 1951, 1952, 1953, and 1954 in the respective amounts of $699.50, $1,852.90, $2,620, and $701.06, which they did not report for taxation; (b) That petitioners claimed excessive deductions for depreciation in such years in the respective amounts of $4,595.52, $378.88, $14,891.97, and $18,874.75; (c) That petitioners received other unreported taxable income in such years in the respective amounts of $22,351.82, $61,339.50, $47,423.67, and $44,506.80; (d) That petitioners received dividends from Maxwell Steel Company in such years in the respective amounts of $36,093.03, $11,292.49, $5,579.55, and $2,542.46 through payment by that company of personal expenses of the petitioners; (e) That petitioners failed to report gain on the sale of a power crane and of certain automobiles and long-term capital gain upon the sale of certain stock; (f) That petitioners failed to report a part of the fees received by John H. Maxwell as director of corporations; and (g) That petitioners' willful omission of income from the above sources was due to fraud with intent to evade tax.

Some of the facts are stipulated. FINDINGS OF FACT. THE STIPULATION OF FACTS AND THE EXHIBITS THERETO ARE INCORPORATED HEREIN BY THIS REFERENCE. The petitioners are husband and wife. They reside in Fort Worth, Texas. They filed joint individual income tax returns of a cash basis of accounting for fiscal years ended August 31, in 1951, 1953, and 1954 with the collector or the district director of internal revenue at Dallas, Texas. John H. Maxwell, hereinafter sometimes referred to as the petitioner, has been in the steel business in Fort Worth since about 1930. In 1946 or 1947 and during the taxable years he carried bank accounts with the Fort Worth National Bank, Riverside State Bank, Union Bank & Trust Co., First National Bank, West Side State Bank, and Continental National Bank, all of Fort Worth, and the Granite City National Bank and First National Bank of Elberton, Georgia. In 1948 the petitioner organized two corporations: Maxwell Steel Company, a Texas Corporation, to engage principally in warehousing and fabricating steel, and John H. Maxwell & Company, a Delaware corporation, to erect steel at various locations and to transport steel and other property. The petitioner owned all the stock of each corporation except qualifying shares, and was the executive officer of each. The principal place of business of each corporation was Fort Worth, Texas. Each of the corporations had a set of books and a bank account. The petitioner had no personal books but retained bank records, deposit slips, cancelled checks and bank statements; also various memoranda, such as ad valorem tax statements and copies of information returns and of individual income tax returns with supporting data furnished by the accountant who prepared the returns. The petitioner owned capital stock of certain banks. During the taxable years involved he received checks in payment of dividends on such stock. The amounts of such dividends were not reported in full in his income tax returns. Dividends received and not reported in any of the fiscal years involved amounted to $699.50 in the fiscal year 1951, $1,775.00 in fiscal year 1952, and $2,667.50 in fiscal year 1953. During the taxable years the petitioner received certain checks representing payment for scrap material sold to the payers by Maxwell Steel Company. He also received checks representing payments for transportation by one or the other of his corporations, checks in payment for equipment sold by one or the other of such corporations, checks from insurance companies in payment of damage claims made by the corporations, checks from certain railroads in payment of freight and damage claims by Maxwell Steel Company, checks for rental of equipment payable to John H. Maxwell & Co., checks in payment of refunds of gasoline and motor fuel taxes from the State of Texas, checks in payment of insurance dividends, rebates, and credit balances, and checks in reimbursement of expenses paid by one of the corporations. These checks were payable to one or the other of the corporations or, in some instances and at his request, made payable to him. He endorsed by stamp the company name on those payable to a company and cashed the checks, retaining the proceeds or applying them against personal loans. To a limited extent some of the proceeds were reported as income on his or one of the corporation's tax returns, but the proceeds generally were not reported as income on his returns or those of either corporation. The amounts of the checks are stipulated, as well as the amounts of the proceeds reported for tax purposes. The following is a summary of the unreported amounts involved in the checks described above:

Fiscal Years

1951 1952 1953 1954

Scrap metal sales $ 8,704.94 $10,207.22 $ 8,341.79 $ 6,536.30

Transportation charges 2,144.17 2,845.54 11,000.94 12,400.47

Sales of equipment 500.00 24,500.41 450.00

Insurance payments 3,891.21 5,875.67 1,516.50 1,937.59

Railroad claims 48.00 1,838.35 1,326.85 1,996.73

Reimbursements 1,015.94

Rental of equipment 30.30 1,614.00 61.50 15.00

Sale of merchandise 6,666.26

Fuel tax refunds 481.39 885.36 383.64 642.24

Credit balance 127.58

Totals $15,800.01 $47,894.13 $24,097.16 $30,194.59

The petitioners' returns reported net income and tax liability as follows:

Fiscal Years

Returns 1951 1952 1953 1954

Net income reported $36,982.94 $36,958.73 $24,633.12 $29,052.87

Tax
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