Millikin v. C.I.R., 103059 FEDTAX, 45051

Docket Nº:45051, 45050, 45052.
Opinion Judge:ATKINS, Judge:
Party Name:M. S. MILLIKIN, ET AL.,[1] Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Charles Oliphant, Esq., and Kenneth D. Thomas, Esq., for the petitioners. Raymond Whiteaker, Esq., for the respondent.
Case Date:October 30, 1959
Court:United States Tax Court

18 T.C.M. (CCH) 995 (1959)

T.C. Memo. 1959-210

M. S. MILLIKIN, ET AL., [1] Petitioners,



Nos. 45051, 45050, 45052.

United States Tax Court.

October 30, 1959

Respondent's determination of income by increase in net worth plus non-deductible expenditures method approved with adjustments in accordance with the proof.

Additions to tax under section 293(b), Internal Revenue Code of 1939 approved as to all years except 1949. Additions to tax for 1950 under sections 294(d) (1)(A) and 294(d)(2), I.R.C. 1939 approved.

Held, that the statute of limitations does not bar assessment and collection of the tax liabilities.

Held, further, that respondent failed to meet his burden of proving that the petitioner Dorothy P. Millikin is liable, as transferee of assets of her husband, for his tax liabilities for the years in question.

Charles Oliphant, Esq., and Kenneth D. Thomas, Esq., for the petitioners.

Raymond Whiteaker, Esq., for the respondent.


ATKINS, Judge:

The respondent determined deficiencies in income tax and additions to tax against petitioners as follows:

Additions to Tax

Sec. Sec.

Sec. 294 294

Dk. Income 293 (d)(1) (d)

Petitioner No. Year Tax (b) (A) (2)


Millikin 45051 1945 $9,690.23 $4,845.12

1946 27,297.82 13,648.91

1947 22,570.03 11,285.01

1948 5,893.61 2,946.81

1949 4,692.67 2,346.34


Millikin &

Dorthy P.

Milliken 45052 1950 6,904.60 3,452.30 $1,202.49

By amended answers in the above dockets the respondent made claim for increases in deficiencies in tax and additions to tax for the years 1945, 1947 and 1948 as follows:

Increase in Additions

Increase in to Tax under

Year Deficiencies Sec. 293(b)

1945 $ 912.25 $ 456.12

1947 2,195.33 1,097.67

1948 1,889.20 944.60

and conceded that the deficiencies and additions to tax determined by him for the years 1946 and 1949 were excessive to the following extent:

Excess in Additions

Excess in to Tax under

Year Deficiencies Sec. 293(b)

1946 $1,816.21 $ 908.10

1947 2,902.84 1,451.43

In Docket No. 45050, liability at law and in equity is asserted against the petitioner Dorothy P. Millikin, as transferee of assets of M. S. Millikin, for the deficiencies and additions determined against him for the years 1945 through 1949, plus interest. The principal issue for the years 1945 to 1949 is whether the petitioner M. S. Millikin, and for the year 1950 the two petitioners, failed to report all their income, and, if so, whether any part of each deficiency in tax was due to fraud with intent to evade tax. Other issues relate to whether assessment and collection of any deficiencies or additions for the years 1945, 1946, 1947 and 1948 are barred by the statute of limitations, whether the petitioners are liable for additions to tax for 1950 for failure to file a declaration of estimated tax and for substantial underestimation of estimated tax, and whether the petitioner Dorothy P. Millikin is liable, as transferee, for any deficiencies and additions to tax due from M. S. Millikin for the years 1945 to 1949. FINDINGS OF FACT. Some of the facts were stipulated at the hearing and are incorporated herein by this reference. The petitioners are husband and wife. The petitioner M. S. Millikin timely filed Federal income tax returns for the years 1945 to 1949, inclusive, with the collector of internal revenue at Greensboro, North Carolina. The petitioners filed, on April 16, 1951, a joint income tax return for the year 1950 with the same collector. Dorothy P. Millikin is a party hereto by reason of having filed with her husband a joint return for the year 1950, and also because the respondent determined that she is liable, as a transferee of assets of her husband, for any deficiencies in tax or additions thereto for the years 1945 to 1949, inclusive. Hereinafter M. S. Millikin will be referred to as the petitioner. The petitioner finished the ninth grade in school. He married the petitioner Dorothy P. Millikin in 1925 at the age of 20. After his marriage petitioner went into the dry cleaning business in Hamlet, North Carolina. He occasionally worked as a part-time railroad brakeman, making a few trips a month. He received pay from the railroad aggregating $589.70 in 1926; $364.05 in 1927; $198.87 in 1928; $343.51 in 1929; $189.98 in 1930; and $69.96 in 1931. He remained in the dry cleaning business until 1932, when he sold out because of the decrease in dry cleaning prices. Petitioner thereafter moved to Hickory, North Carolina, and was employed as assistant manager of a chain store at a salary of $12 to $15 per week until the company soon thereafter went into receivership. In 1933 or 1934 the petitioner Dorothy P. Millikin began the operation of a beauty salon in Hickory, North Carolina. The last date on which she bought equipment of any substantial value for the shop was in 1942 or 1943. It was a going business on January 1, 1945. She sold this business on March 14, 1946 for $3,750 in cash. In 1933 the petitioner organized the Millikin Music Company in Hickory, North Carolina, which business, except for an interruption referred to below, he continued to operate through the years including the years in issue. This was a coin machine business, which consisted principally of placing coin operated phonographs and pinball machines owned by petitioner at locations owned or controlled by other under agreements, generally oral, whereby the receipts of the coin operated machines would be divided between petitioner and the proprietor of the premises, usually upon a 50-50 basis. This division was made in the presence of each other or their representatives. A collection report was made out at each time of division, recording the date, location, total amount, and the division. At some time prior to World War II the petitioner and another operated a flying school at Beacon Field, Hickory, North Carolina. He and his partner owned four airplanes at different times, the petitioner having a one-half interest therein. At some time not disclosed by the record this business ceased because the partner went into military service and because it was not a financial success. On September 6, 1941, petitioner sold assets of his music business, consisting of 47 coin operated machines, some related equipment, one 1941 Chevrolet 1/2 ton pick-up truck, and one typewriter, to Pete Kovachi, for which Kovachi paid petitioner $2,500 in cash and assumed the balance of the payments due on the equipment totaling $8,317.77. Thereafter petitioner moved to Georgia, where he purchased a coin machine business, paying $5,000 down and agreeing to pay $700 per week until an undisclosed balance was paid. Some phases of the operation were illegal in Georgia, it appeared likely that the authorities would close down the business, and the volume of business decreased. Therefore, the petitioner had difficulty keeping up his payments and in 1942 turned the business back to the seller, receiving about $2,500 in final settlement. The petitioner then returned to North Carolina and reacquired his old coin machine business from Kovachi by paying him $3,600 on March 25, 1942, and assuming an indebtedness of $4,389.51. Kovachi had not been able to make money out of the business. After petitioner returned to North Carolina he resumed work in October 1942 as a railroad brakeman. He continued this through April 1943 earning an average of about $265 per month for those 7 months. Sometime in 1943 petitioner transferred some of his music and pinball operations to Camp McCall, North Carolina, placing some of his machines in officers' and enlisted men's clubs at that post. His operations at Camp McCall continued for about a year and a half and until at least January 1, 1945, he owning the coin operated phonographs and pinball machines and splitting the gross receipts from those with the clubs on a 50-50 basis. At some time in this period he bought some slot machines and furniture for the clubs at Camp McCall under an arrangement by which a percentage of the receipts from the machines was to be paid to him in payment of an undisclosed price for the machines. Under agreement the petitioner also kept the machines in working condition in consideration of either a percentage of the collections or a flat fee, depending upon the particular club involved. The operation of slot machines was illegal in North Carolina, but it was a common practice to place them in fraternal club rooms and at army camps. The petitioner filed no Federal income tax returns prior to 1940, nor did he file one for 1942. For the taxable years 1940 and 1941 he filed returns, but showed no tax due. For 1943 and 1944 he filed returns showing taxes due in the amounts of $1,362.91 and $858.53, respectively. The petitioner in his returns for 1945 to 1949, inclusive (and the two petitioners in their joint return for 1950), showed the following gross profit from businesses, net rental income, other income, net income and tax liabilities:

1945 1946 1947 1948 1949 1950

Music Co. $1,675.35 $13,557.07 $ 6,486.67 $(2,673.09) $ 5,840.54 $

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