Mazzocchi Bus Co., Inc. v. Commissioner
| Decision Date | 02 February 1993 |
| Docket Number | Docket No. 36768-86.,Docket No. 36769-86. |
| Citation | 65 T.C.M. 1858 |
| Parties | Mazzocchi Bus Co., Inc. v. Commissioner. Nicholas Mazzocchi and Estate of Rose Marie Mazzocchi, Deceased, Mary Mazzocchi, Executrix v. Commissioner. |
| Court | U.S. Tax Court |
Thomas S. Carles, 570 W. Mount Pleasant Ave., Livingston, N.J., and Douglas R. Eisenberg, for the petitioners. Daniel K. O'Brien and Ismael Gonzalez, for the respondent.
Memorandum Findings of Fact and Opinion
In these consolidated cases respondent determined deficiencies in petitioners' Federal income tax and additions to tax for fraud for the taxable years 1974 through 1979 as follows:
Mazzocchi Bus Co., Inc., Docket No. 36768-86
Fraud Addition to Tax
Year Deficiency Under Sec. 6653(b)1
6/30/75 .............................................. $62,188.04 $37,669.52
6/30/76 .............................................. 86,570.27 43,538.13
6/30/77 .............................................. 91,701.07 49,217.04
6/30/78 .............................................. 58,738.80 29,369.40
6/30/79 .............................................. 26,594.84 26,047.42
1 In the alternative, respondent determined additions to tax under sec. 6651(a)(1) and (2)
Nicholas Mazzocchi and Estate of Rose Marie Mazzocchi, Deceased, Mary Mazzocchi, Executrix
Docket No. 36769-86
Fraud Addition to Tax
Year Deficiency Under Sec. 6653(b)1
1974 ................................................ $ 27,062 $ 13,531
1975 ................................................ 89,073 45,024
1976 ................................................ 128,172 65,387
1977 ................................................ 96,166 48,515
1978 ................................................ 67,686 33,843
1979 ................................................ 58,716 29,358
1 Respondent's determination of additions to tax under sec. 6653(b) relates only to Nicholas Mazzocchi; therefore
the liability of the Estate of Rose Marie Mazzocchi is limited to the deficiency in tax
The issues presented for our consideration are: (1) Whether Mazzocchi Bus Company, Inc. (MBC), had unreported sales for the fiscal years ended June 30, 1975 through 1979; (2) whether MBC is liable for additions to tax for fraud under section 6653(b)1 for fiscal years ended June 30, 1975 through 1979; (3) whether petitioners Nicholas Mazzocchi and the Estate of Rose Marie Mazzocchi had unreported income for the years 1974 through 1979 and, if so, whether it is taxable as ordinary income or capital gain; (4) whether Nicholas Mazzocchi is liable for additions to tax for fraud under section 6653(b) for each of the years in issue; (5) whether Nicholas Mazzocchi is collaterally estopped from denying fraud for taxable year 1976; and (6) whether the statute of limitations bars the assessment of income tax deficiencies and additions to tax of MBC for the years in issue.
Some of the facts have been stipulated and the stipulation of facts and attached exhibits are incorporated herein by this reference. At the time the petitions in these cases were filed, MBC, a corporation duly organized under the laws of the State of New Jersey, had its principal place of business in Bernardsville, New Jersey. Nicholas Mazzocchi resided in Bernardsville, New Jersey, and Mary Mazzocchi resided in Flanders, New Jersey. For the years in issue, Nicholas Mazzocchi and Rose Marie Mazzocchi filed joint Federal income tax returns.
During the fiscal years ended June 30, 1975 through 1979, Nicholas Mazzocchi was president and controlling shareholder of MBC. MBC was engaged in the business of providing school-bus transportation. During the summer months, the company provided bus transportation services for summer camps. MBC leased its corporate headquarters located at 119 Morristown Road from Nicholas Mazzocchi who, along with his late spouse, purchased the property in 1971 and owned it throughout the period under consideration.
During the fiscal years ended June 30, 1975 through 1978, MBC maintained formal books and records consisting of cash receipts sheets, cash disbursement sheets, subsidiary account ledgers, a general ledger, and journal sheets. Paul Maurer, a certified public accountant, prepared the corporation's returns from these corporate records. MBC utilized the cash basis method of accounting. Under MBC's bookkeeping system the deposit of business receipts to the corporate checking account was the event that caused the recording of receipts as gross income on the records, and eventually the income tax returns, of the company. The standard office procedure was as follows: any mail addressed to the business was opened by a secretary; mail addressed to Nicholas Mazzocchi was opened by him. Checks from customers that were received by mail addressed to MBC were given by the secretary to Nicholas Mazzocchi. In his absence, checks received were placed in the bookkeeper's in-box or in a filing cabinet. The customer cash receipts that were either presented to the bookkeeper directly from Nicholas Mazzocchi or left for her attention were then entered by the bookkeeper into the corporate cash receipts book. The bookkeeper endorsed checks she received by affixing an MBC "for deposit" stamp on the back, filled out the deposit slips, and then deposited the checks into the corporate checking account either by mail or hand delivery to the bank. During the fiscal years ended June 30, 1975 through 1978, MBC's records did not reflect any customer business receipts in the form of cash.
Nicholas Mazzocchi occasionally directed the bookkeeper to deviate from standard office procedure: sometimes he would instruct her to cash checks received by the business and not record those checks in the cash receipts book.
On July 7, 1977, Nicholas Mazzocchi opened a savings account in the name of MBC at Midlantic National Bank (Midlantic). On that date, four checks totaling $88,347.96 were deposited into the savings account. Three of these checks were made out to MBC, and the remaining check from Morris County Educational Services Commission was made to the order of Nicholas Mazzocchi. The following day, July 8, 1977, another check in the amount of $32,327.95 from Morris County Educational Services Commission payable to Nicholas Mazzocchi was deposited in the savings account.
Nicholas Mazzocchi was a longtime employee of Gill/St. Bernard's School (Gill/St. Bernard's), a customer of MBC. In his capacity as head of maintenance for the school, Nicholas Mazzocchi was provided with a mailbox on campus. That school did not mail its bus service payments to MBC but instead placed the payment checks in Nicholas Mazzocchi's campus mailbox. During the fiscal years ended June 30, 1975 through 1978, Gill/St. Bernard's received 3 invoices from MBC bearing the company letterhead and 43 invoices bearing the letterhead "N.J. Mazzocchi". During this period Gill/St. Bernard's remitted checks for transportation services in the amounts of $119,963.20, $123,731.95 $133,403.13, and $113,793.852 respectively. These payments were not recorded in the cash receipts records of MBC nor were they reported as part of the receipts on MBC's income tax returns for each of the 4 years.
During the same 4-year period, in addition to the checks from Gill/St. Bernard's, MBC also did not report payment checks from other customers on its corporate returns as follows:
Customer 1975 1976 1977 1978
Holiday Hill Inc. ................................ $9,355.61 $10,403.14 $ 9,309.671 $152.40
Far Hills Country Day School ..................... -- 29,500.00 $14,000.00 13,500.00
Township of Bernards ............................. -- 12,033.14 8,623.02 --
Stonybrook Day Camp .............................. -- 13,042.24 18,286.24 3,605.00
Township of Branchburg ........................... -- -- 2,182.50 --
Township of Passaic .............................. 240.00 -- -- --
Watchung Board of Education ...................... -- -- 150.00 --
Totals ........................................... $9,595.61 $64,978.52 $52,551.43 $17,257.40
1 The parties stipulated $9,309.67 as the correct amount; however, the supporting documents reflect the figure to be
$9,129.67. This difference is unexplained in the record and, accordingly we defer to the amount agreed to by the parties
For fiscal years ended June 30, 1975 through 1978, MBC had unreported business receipts in the respective amounts of $129,558.81, $188,710.47, $185,774.56, and $151,051.25 which were negotiated either at Midlantic or the First National State Bank of West Jersey. Of these unreported customer checks, 60 contain the single endorsement of Nicholas Mazzocchi and 19 contain the initial endorsement of MBC followed by the second endorsement of Nicholas Mazzocchi.
During the fiscal year ended June 30, 1979, Gill/St. Bernard's paid MBC a total of $140,467.12 for busing services rendered. As in the 4 prior years, these business receipt checks were not recorded in the cash receipts records or deposited to the corporate checking account. At the request of Nicholas Mazzocchi and deviating from its standard practice, Gill/St. Bernard's, in payment of a $42,015 invoice, issued separate checks each in an amount under $10,000. In addition, business receipt checks from two other customers totaling...
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