Mysse v. Comm'r of Internal Revenue
| Decision Date | 28 February 1972 |
| Docket Number | 6057-71.,Docket Nos. 2611-69,4329-69 |
| Citation | 57 T.C. 680 |
| Parties | PATRICIA E. MYSSE, ET. AL.,1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
John C. Sheehy, for the petitioners.
Eugene P. Bogner and S. Clay Freed, for the respondent.
1. H, the cashier of a small town bank misappropriated substantial amounts from the bank which he failed to report in the joint Federal income tax refunds he filed with his wife, W. Held, minimum amounts of H's unreported income determined.
2. Held, further, W is relieved of her joint liability for the deficiencies in income tax under sec. 6013(e), I.R.C. 1954.
3. Held, further, transferee liability attaches to certificates of deposit purchased by H for W and their son and to funds received by W as the survivor joint tenant of a bank account, which was created by H while he was insolvent.
These three consolidated proceedings involve disputed income tax deficiencies and transferee liabilities. In a notice of deficiency addressed to Arne P. Mysse (deceased) and Patricia E. Mysse (docket No. 2611-69), respondent determined the following deficiencies in income tax:
+------------------+
¦Year ¦Amount ¦
+------+-----------¦
¦1963 ¦$12,192.75 ¦
+------+-----------¦
¦1964 ¦6,002.93 ¦
+------+-----------¦
¦1965 ¦29,772.16 ¦
+------+-----------¦
¦1966 ¦29,709.77 ¦
+------------------+
Jeopardy assessments were made of these accounts, together with interest, on April 4, 1969. Patricia E. Mysse (hereinafter referred to as Patricia) seeks a redetermination of the deficiencies as to her, but no petition has been filed on behalf of Arne P. Mysse, deceased (hereinafter Mysse), or his estate.
In a notice of liability addressed to Arne R. Mysse, transferred (docket No. 4329-69), respondent determined that Arne R. Mysse (hereinafter Arne), son of Mysse and Patricia, is liable as transferee for $20,000 of the income tax liabilities of Mysse. The liabilities referred to in this notice include the foregoing amounts for 1963 through 1966 and, in addition, $30,733.02 and a delinquency penalty under section 66512 in the amount of $7,550.28 for 1967.
After subsection (e) was added to section 6013 for the relief of innocent spouses filing joint returns, a notice of liability was addressed to Patricia (docket No. 6057-71) in which respondent determined that she is liable as transferee for $10,000 of Mysse's income tax liabilities for 1963 through 1967, described above. Patricia filed a new proceeding, and in answer in this docket, respondent alleged that Patricia is liable, as transferee, for an additional amount of $25,900.77, bring respondent's total transferee claim against her to $35,900.77 plus interest as provided by law.
The issues presented for decision are as follows:
(1) Whether Mysse realized income during 1963 through 1966 from the misappropriation of funds from the First National Bank, Hysham, Mont., which was not reported in the joint returns filed for those years by him and Patricia; and what was the amount of his income tax liability for 1967, a year for which he filed no return; (2) If Mysse understated his income in the joint returns filed for 1963 through 1966, whether Patricia is relieved of liability for the resulting deficiencies in income tax by section 6013(e); and
(3) Whether Patricia and Arne are liable as transferees for any part of the unpaid income tax liabilities of Mysse.
Patricia was a legal resident of Forsyth, Mont., at the time she filed her petition. Arne was a legal resident of Billings, Mont., at the time he filed his petition. Patricia and Mysse filed joint Federal income tax returns for 1963 through 1966 with the district director of internal revenue, Helena, Mont. Patricia is now married to Jack Allread, and they reside in Forsyth, Mont.
Issue 1. Unreported Income
Mysse started to work as the cashier for the First National Bank in Hysham, Mont. (hereinafter sometimes referred to as the First National Bank or the bank), in 1951. From that time until he was discharged on October 10, 1967, he was the principal managing officer of the bank. In this capacity, he performed all usual banking functions. He was assisted in these activities by three or four tellers and clerks. However, Mysse alone granted all but a few, insubstantial loans, entered into participation agreements with other banks, and posted interest to savings accounts and certificates of deposit. In addition, he operated an insurance business on the bank premises under the name of Mysse Agency. He also occasionally served as the clerk of local auction sales and, from time to time, served as the executor or administrator of decedents' estates. He received income from all of these sources.
For some time prior to his death in October 1967, Mysse was subject to epileptiform seizures caused by the growth of a brain tumor. In February 1967, he underwent brain surgery, and the tumor was partially removed. His condition was diagnosed as terminal. In July 1967, Mysse was involved in an accident which completely demolished the automobile he was driving. He sustained serious facial fractures and broken jaws. On October 26, 1967, he entered a hospital for an operation on his jaws and remained there through October 28. He was discharged from the hospital on the morning of October 19, and at 12:30 p.m. of that day he suffered a bullet wound in his right temple from which he died that night.
After Mysse's employment at the bank had terminated, Charles W. Thompson (hereinafter Thompson) on October 26, 1967, applied to the bank for a loan, offering four savings certificates of deposit, apparently issued by the First National Bank, in the total face amount of $40,000 as security. Barry M. Edward (hereinafter Edward), who had succeeded Mysse as cashier, granted the loan and requested Bertha Wright (hereinafter Wright) to record on the bank's copies of the certificates a notation that they had been pledged as collateral. Under the administrative procedures followed by the bank, when a certificate of deposit was sold two copies of the certificate were retained in the bank's files and the sale was recorded in the bank's daily blotter, i.e., the daily record of all banking transactions.
Wright did not recognize the forms of the Thompson certificates of deposit, and a search of the bank records by her and Edward failed to disclose any copies of them. Edward thereupon sent Wright to question Mysse, whose signature appeared on the certificates, as to where the copies could be found.
When Wright talked with Mysse about the certificates on October 26, 1967, he seemed to be incoherent and failed to offer a satisfactory explanation as to the location of the copies. After banking hours on the same day, Edward contacted John Grierson (hereinafter Grierson), president and one of the directors of the bank, and the two of them again looked through the bank records for copies of the certificates. When this investigation also failed to produce the bank copies of the certificates, Grierson called Robert R. Mountain (hereinafter Mountain), a certified public accountant and the bank's auditor, and asked him to assist.
Mountain came to the bank after business hours on October 27, 1967, and made another search of the bank records. When this examination also failed to produce copies of the certificates, Mountain examined the bank's daily blotters and found that they did not reflect the issuance of the Thompson certificates. On October 27 or 28, 1967, calls were made to the regional administrator of national banks, the Federal Bureau of Investigation (hereinafter FBI), and the bank's bonding company. On Saturday, October 28, 1967, bank examiners and FBI agents appeared at the bank and commenced an investigation. Mountain was retained by the bank to determine the extent of its loss and to prepare a proof-of-loss statement for presentation to the bank's bonding company.
After his father's death, Arne found among the Mysse Agency files, which had been removed from the bank during October, copies of 36 certificates of deposit and written notations relating to the issuance of two other certificates, numbered 415 and 422. The certificates were all of the same type, and all of them bore Mysse's signature. Among these papers were the missing copies of Thompson's four certificates. On November 5, 1967, Arne turned these copies and notations over to one of the FBI agents at the bank.
Subsequent investigations showed that the following certificates, all paid for by individuals or corporations in money or money's worth, were not reflected on the records of the bank:
+--------------------------------+
¦TABLE I ¦
+--------------------------------¦
¦Certificate of deposit¦ ¦
+----------------------+---------¦
¦ ¦ ¦ ¦
+----------------+-----+---------¦
¦Date ¦No. ¦Amount ¦
+----------------+-----+---------¦
¦1963 ¦ ¦ ¦
+----------------+-----+---------¦
¦Jan. 16 ¦112 ¦$2,977.75¦
+----------------+-----+---------¦
¦Oct. 22 ¦124 ¦4,000.00 ¦
+----------------+-----+---------¦
¦ ¦ ¦ ¦
+----------------+-----+---------¦
¦1964 ¦ ¦ ¦
+----------------+-----+---------¦
¦Dec. 23 ¦171 ¦10,000.00¦
+----------------+-----+---------¦
¦Dec. 31 ¦172 ¦2,000.00 ¦
+----------------+-----+---------¦
¦ ¦ ¦ ¦
+----------------+-----+---------¦
¦1965 ¦ ¦ ¦
+----------------+-----+---------¦
¦Mar. 30 ¦220 ¦1,000.00 ¦
+----------------+-----+---------¦
¦Apr. 1 ¦221 ¦5,000.00 ¦
+----------------+-----+---------¦
¦Apr. 21 ¦230 ¦2,500.00 ¦
+----------------+-----+---------¦
¦June 24 ¦231 ¦10,000.00¦
+----------------+-----+---------¦
¦June 24 ¦232 ¦10,000.00¦
+----------------+-----+---------¦
¦Oct. 13...To continue reading
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