Morris v. Commissioner
| Decision Date | 13 November 1990 |
| Docket Number | Docket No. 32983-85. |
| Citation | 60 T.C.M. 1218 |
| Parties | Stephen Marco Morris v. Commissioner. |
| Court | U.S. Tax Court |
Stephen Marco Morris, pro se. Willie Fortenberry, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in and additions to petitioner's Federal income tax as follows:
Additions to Tax Under Sections
Year Deficiency 6653(b)1 6654
1978 ......................... $ 3,108.00 $ 1,554.00 $ 99.00
1979 ......................... $79,069.00 $39,535.00 $ 3,315.00
1980 ......................... $42,242.00 $21,121.00 $ 2,692.00
Respondent also determined that petitioner was liable for the self-employment tax provided by section 1401 during each of the years in issue.
The issues to be decided are: (1) whether petitioner received unreported taxable income in the amounts determined by respondent for the years in issue; (2) whether petitioner is liable for the addition to tax for fraud; (3) whether petitioner is liable for the addition to tax for failure to make estimated payments of tax; and (4) whether petitioner is liable for self-employment tax for the years in issue.
Some of the facts have been stipulated and are so found. The stipulation of facts and the exhibits attached thereto are incorporated herein by reference. Petitioner resided in North Carolina at the time the petition in the instant case was filed.
Petitioner graduated from Florida Technology University (now the University of Central Florida) in 1971, where he majored in history/pre-law. Prior to graduation, petitioner was arrested in April 1970 for possession of marijuana and was arrested in July 1970 for inciting to commit perjury.
During such time, petitioner drove an older car and did not wear expensive clothes. In 1973, petitioner's father, K.A. Morris, gave petitioner a 1965 Ford Mustang. Petitioner also drove a Volkswagen. Petitioner was interested in guns; in the 1960's, he had developed a friendship with Madison (Max) Lankford, a gun dealer. From 1975 to 1983, petitioner lived with Sara Jane Sherer.
In November 1975, petitioner was arrested for possession and sale or delivery of heroin, as well as for carrying a concealed firearm. He was found guilty by a jury on the possession and sale counts, but adjudication was withheld, and the court ordered two years of probation.
In December 1976, petitioner purchased a 1977 Lincoln Mark V for $14,694, trading a 1976 Buick Park Avenue and paying the $6,489 balance in cash. In June 1977, petitioner borrowed $5,000 from the Southeast Bank of New Symrna Beach, Florida, using the Lincoln as collateral. As of December 31, 1977, the unpaid balance of the loan was $3,024.64. All loan payments were made in cash.
Prior to the years in issue, Sara Jane Sherer owned a 1976 Chevrolet Corvette, which was encumbered by a debt. Prior to the years in issue, the Corvette was sold to Sara Jane Sherer's brother, and the debt was paid off.
Petitioner held no job from 1975 through 1980. Although petitioner filed Federal income tax returns for taxable years prior to 1973, in which he reported modest amounts of income, petitioner filed no such returns for the years 1973 through 1987, inclusive.
Around 1977, petitioner began purchasing Rolex watches from Ned John Meis. Petitioner also purchased two guns from Mr. Meis in 1980. Petitioner ordered watches, some of which were customized with diamond-studded faces, from Mr. Meis. Petitioner did not make his purpose in purchasing the watches clear to Mr. Meis. It seemed to Mr. Meis, however, that petitioner purchased the watches for resale, although he believed one or two of the watches were for petitioner's own use.
Nearly all of the payments for the watches were made by cashier's checks drawn for less than $10,000. Petitioner once, however, paid Mr. Meis $6,500 cash for a watch or a gun. Payment generally was made before delivery of the watch, although sometimes the watch was sent first. Petitioner used cashier's checks extensively in his business dealings, but he could not recall ever drawing one for more than $10,000. During the years in issue, petitioner paid Mr. Meis $83,600 for watches and guns. Petitioner and Mr. Meis continued to do business until 1981 or 1982.
Petitioner also obtained watches from Mr. Meis to be sold through Mr. Lankford's shop. Mr. Lankford and Mr. Meis did not deal with each other directly; merchandise and payments were transmitted through petitioner. Mr. Lankford could not afford to pay for the watches in advance; instead he transmitted the proceeds of the sale to petitioner in cash, regardless of whether the buyer paid by cash or check. Mr. Lankford stated that he remitted the sale proceeds to petitioner in cash because "(dealing in Rolex watches was) a cash-type business." Mr. Lankford was unaware of petitioner's payment arrangements with Mr. Meis. Mr. Lankford claimed to have records of his watch dealings, but he did not produce any such records during respondent's investigation or at trial.
Petitioner also was involved in purchases and sales of real estate during the years in issue. In 1979, William Smiley sold houses which Ludlow Florida Corporation (Ludlow) had built in a subdivision called "A Quiet Place in the Country." One of the houses was located at 430 Country Circle Drive (430 Country Circle). Petitioner and Sara Jane Sherer visited 430 Country Circle while Mr. Smiley was holding it open. Petitioner told Mr. Smiley that he wished to purchase 430 Country Circle, and Mr. Smiley put him in contact with Ludlow's general manager, Mr. John Irwin.
Petitioner handled all negotiations concerning the purchase of 430 Country Circle with Mr. Irwin. Petitioner and Mr. Irwin settled on a purchase price of $124,000 for 430 Country Circle. The terms of the sale called for a $40,000 down payment and assumption of an $84,000 mortgage, which called for monthly payments of $715.59. The $40,000 obligation was paid with four cashier's checks of $7,500 each, a personal check for $2,000 drawn on an account in the name of Sara Jane Sherer, and $8,000 of currency in $100 denominations. The cashier's checks showed K.A. Morris and L.D. Sherer, Sara Jane Sherer's father, as remitters, but the funds represented by the checks did not come from them.
Petitioner initially tried to qualify for the mortgage, but he could not qualify because he had no job and no verifiable income. Both Mr. Smiley and Mr. Irwin attempted to persuade the bank to let petitioner assume the mortgage, but were not successful. Petitioner became irritated at his inability to qualify for the mortgage. Petitioner insisted that he had the required income or funds and one evening came to Mr. Smiley's house with a paper bag full of $100 bills to prove his assertion. Petitioner asked Mr. Smiley to count the money. Although Mr. Smiley declined to count the money, he believed that the bag contained more money than he ever had seen collectively.
After failing to qualify for the mortgage, petitioner considered putting 430 Country Circle in his father's name. In the end, however, Sara Jane Sherer was listed as the buyer. Sara Jane Sherer filled out and signed a mortgage application. The mortgage application listed an unidentified co-borrower with an annual income of "$75,000+."
During the years in issue, Sara Jane Sherer's adjusted gross income, as reported on her Federal income tax returns, was $5,379.00 in 1978, $1,779.87 in 1979, and $1,304.61 in 1980. From May 1978 until February 1979, she was employed as an interior designer by Bellemead Development Corporation, which paid her $4.55 per hour for her services. Sara Jane Sherer did not hold gainful employment for the remainder of 1979, and she was unemployed until September 1980, when she began work as a real estate associate. She did not, however, receive any remuneration from her employment in 1980. Sara Jane Sherer's adjusted gross income for 1981 was $4,143.70.
After the purchase of 430 Country Circle, Mr. Irwin and petitioner discussed other properties Ludlow had for sale in the subdivision. Mr. Irwin and petitioner negotiated the sale of lot 99, which adjoined 430 Country Circle, for $14,500 cash. Mr. Irwin did not deal with K.A. Morris prior to the sale; K.A. Morris, however, signed the sales contract, dated February 29, 1980, for lot 99 and was listed as its owner on the deed, which was dated April 8, 1980.
Mr. Irwin and petitioner also negotiated the sale of a house at 410 Country Circle Drive (410 Country Circle) in the "A Quiet Place in the Country" subdivision for $100,000. Mr. Irwin did not meet K.A. Morris during the negotiation process. Again, K.A. Morris signed the sales contract, dated April 1, 1980, and the property was recorded in his name. At the time of such transactions, K.A. Morris worked at a space center in Florida and was near retirement.
In summer 1980, petitioner met James and Myrtice Peacock, who recently had acquired an automobile dealership in the area and were interested in buying a home. While driving through the subdivision one day, the Peacocks stopped to inspect 410 Country Circle, which was vacant. Petitioner was next door inspecting the ruins of 430 Country Circle, which recently had burned to the ground. Petitioner came over to 410 Country Circle and showed them the house. He then opened negotiations with the Peacocks for the sale of 410 Country Circle. Sara Jane Sherer, who was also present, admired the 1980 Dodge Mirada which Mr. Peacock was driving that day. Petitioner and Mr. Peacock subsequently made a deal to sell 410 Country Circle for $118,828, using the automobile, valued at $10,828, as the down payment on the house and financing the remainder by assumption of the existing mortgage on the property and by giving K.A. Morris a second mortgage. Mr. Peacock dealt with petitioner in arranging the sale, although he saw...
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