McGlue v. Commissioner of Internal Revenue, Docket No. 100465.
| Decision Date | 19 November 1941 |
| Docket Number | Docket No. 100465. |
| Parties | CHARLES H. McGLUE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Edmund V. Maloney, Esq., for the petitioner.
Davis Haskin, Esq., for the respondent.
The Commissioner made the following determination in regard to the income taxes of the petitioner for the calendar year 1935:
Interest to
Deficiency Delinquency penalty Fraud penalty June 19, 1939
$3,745.20 $936.30 $1,872.60 $732.77
The following issues are raised by the assignments of error made by the petitioner:
1. Was the 50 percent penalty for fraud under section 293 (b) properly imposed?
2. Was the 25 percent penalty for delinquency under section 406 of the Revenue Act of 1935 properly imposed?
3. Was $30,000 received by the petitioner from Lowell Gas Light Company in 1935 income to him in that year?
4. Was more than one-half of the fee of $1,500 received by the petitioner in 1935 from American Gas & Power Company income of the petitioner?
5. Did the petitioner have taxable income in 1935 in excess of $2,000 from a fee of $7,000 which he ultimately received for services to a housing project described as the Brooks Estate?
6. Was the petitioner entitled to the following deductions:
(a) $7,500 for a debt due from the Democratic State Committee of Massachusetts;
(b) $3,000 for money given to John H. McAuliffe for services and expenses;
(c) $1,000 for money given to Robert M. Dobbins for services and expenses;
(d) $1,095.25 for office rent and light;
(e) $550 for postage, stationery and office supplies;
(f) $432 for telephone expenses;
(g) $1,200 for traveling expenses;
(h) $960 for auto expenses;
(i) $600 for interest paid on a first mortgage on his residence;
(j) $400 for real estate tax on his residence;
(k) $16.75 for property tax;
(l) $330 for miscellaneous charitable and religious contributions?
FINDINGS OF FACT.
The petitioner is an individual who has been engaged in the practice of law and has also been active in politics. He did not keep books recording his transactions.
A part of the deficiency for 1935 is due to fraud, with intent to evade tax.
The petitioner failed to make and file an income tax return for the year 1935 within the time prescribed by law, or prescribed by the Commissioner in pursuance of law. The failure continued for more than 150 days. He filed a return for the calendar year 1935 on July 1, 1939, with the collector of internal revenue for the district of Massachusetts.
The Commissioner determined the deficiency without relying upon the return filed on July 1, 1939. He included amounts in income and allowed deductions as follows:
American Gas & Power Co _________________________________ $1,500.00
New England Metal Culvert Co ____________________________ 1,409.81
Lowell Gas Light Co _____________________________________ 30,000.00
Brooks estate ___________________________________________ 7,000.00
_________
Total ______________________________________________ 39,909.81
Deductions
Salary paid secretary ______________________ $1,040.00
Paid to associates _________________________ 6,704.95
Office rent and other expenses _____________ 998.75 8,743.70
___________________
Net income adjusted ________________________________ 31,166.11
The Attorney General of Massachusetts conducted an investigation into certain financial transactions of the Lowell Gas Light Co. The investigation was still in progress in May 1935. The transactions being investigated involved other companies related by security holdings to the Lowell Gas Light Co. The assistant attorney general in charge of the investigation was about to seek indictments charging larceny, conspiracy, and fraudulent conversion of corporate funds against Fred W. Seymour and several other persons who were officers of one or more of the corporations in the group. Seymour was an officer of the Lowell Gas Light Co. and also of some of the other companies. He was president of the American Gas & Power Co., which was one of the companies being investigated or was related to some of those companies.
Gerald T. Mullin, an attorney of Minneapolis who represented Seymour and various of the utility companies in which he was interested, conferred with the petitioner in the early part of May 1935 to see if the petitioner could prevent the individuals from being indicted and terminate the investigation without unfavorable publicity to the Lowell Gas Light Co., which planned some refinancing. The petitioner had had no previous contact with the corporations or persons whom he was asked to assist. Mullin suggested that there might be other work for the petitioner on behalf of one or more of the various utility companies if the petitioner should be successful in the first task. Mullin arranged for a meeting between the petitioner and Seymour and that meeting was held on May 14, 1935. The petitioner agreed at that time to undertake the work on behalf of Seymour and the various interests which he represented, including the Lowell Gas Light Co. The petitioner was paid $1,500, as a retainer for the work, on May 17, 1935, by a check of the American Gas & Power Co. The petitioner deposited that money in his own bank account.
The petitioner then endeavored to arrange a settlement of the difficulties in which his clients were involved. He later advised Seymour that an additional amount would have to be paid to him. The Lowell Gas Light Co. paid to the petitioner $20,000 on July 12, 1935. All of the difficulties were settled during 1935. The petitioner, in order to accomplish the settlement, paid some money to attorneys for the minority stockholders. The Commissioner in determining the deficiency allowed a deduction of $6,000 for amounts thus paid. The record does not show that the petitioner paid any larger amount for this purpose during 1935.
The petitioner was requested by Seymour during 1935 to perform additional services for the Lowell Gas Light Co. to bring about reduction and abatement of local taxes. The Lowell Gas Light Co. paid the petitioner $10,000 on October 24, 1935, in connection with those matters. The petitioner was also directed to engage other counsel to attend to legal steps incident to refunding a bond issue by the Lowell Gas Light Co. The services being performed by the petitioner for Lowell continued into 1936. He did not receive any compensation from these corporations after 1935.
The $1,500 received by the petitioner from the American Gas & Power Co. and the $30,000 received from the Lowell Gas Light Co. during 1935 were paid to him as compensation for his personal services, without restriction as to their use, and represented gross income of the petitioner for 1935. The petitioner had no agreement to share those fees with Mullin, Mullin has never asked for any part of those fees, and the petitioner has never paid any part of those fees to Mullin.
Francis J. Roche, an attorney of Cambridge, Massachusetts, formed an association with the petitioner on February 1, 1935, under the name of McGlue & Roche. They agreed to share equally the fees received for their services in connection with a housing project in Cambridge described in the record as the Brooks estate. They did not agree to share other business or fees. The association continued for one year. They occupied office space together, opened a bank account under the name of McGlue & Roche, and paid office rent and other expenses from that account. Roche received a fee of $14,000 from the Brooks estate in 1935 for the services rendered by McGlue and Roche. McGlue was entitled to one-half of that fee, or $7,000. Roche paid $2,000 of the amount to the petitioner on November 29, 1935, and paid the balance of $5,000 to the petitioner prior to the end of January 1936. The $5,000 was available to McGlue at all times after it was received by Roche.
The petitioner paid money from time to time during 1935 to John H. McAuliffe. The record does not show the total amount of the payments during 1935. The amounts were paid for political purposes and were not paid in carrying on any trade or business of the petitioner. They did not represent the distribution by the petitioner of funds placed in his hands by Seymour, the Lowell Gas Light Co., or any other person or corporation for transmission to McAuliffe.
The petitioner, from time to time during 1935 and 1936, advanced sums of money to Robert M. Dobbins, for which Dobbins gave his "I. O. U.'s." The total amount of the payments during 1935 is not shown by the record. The amount paid to Dobbins during 1935 was not an ordinary and necessary expense of any business being carried on by the petitioner and was not reasonable allowance for salaries or other compensation for personal services actually rendered.
The petitioner was chairman of the Democratic State Committee of Massachusetts from 1922 to 1928. The committee, in 1928, wanted to replace the petitioner with a new chairman. A group of Democratic leaders met with the petitioner on July 11, 1928, to discuss the matter. The petitioner claimed that he had spent his own funds in a large amount during the past for the benefit of the party. An agreement was reached on that day, as a result of which the petitioner resigned as chairman. The agreement was as follows:
AGREEMENT made relative to moneys advanced by Charles H. McGlue and for services to be rendered. Agreement made at Parker House, Boston, early in July, 1928.
Three Thousand Dollars ($3,000.00) to be paid in one week or ten days after McGlue's resignation to take up registration work and then McGlue to be paid Four Thousand Five Hundred ($4,500.00) in 15 equal payments of $300.00 each week.
This is the agreement of six people.
EDWARD W. QUINN.
No amount was ever...
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