Pendola v. Comm'r of Internal Revenue, Docket No. 3062-64.
| Decision Date | 25 June 1968 |
| Docket Number | Docket No. 3062-64. |
| Citation | 50 T.C. 509 |
| Parties | MICHAEL PENDOLA AND PAULINE PENDOLA, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Benjamin Mahler, for the petitioners.
William T. Holloran and Rudolph J. Korbel, for the respondent.
The investigation of a widespread conspiracy involving hundreds of taxpayers residing in two adjoining internal revenue districts and also involving many I.R.S. employees of those districts was consolidated under one (Manhattan) of those district directors. Held: The statutory deficiency notice sent to these petitioners, residents of Brooklyn district, and signed by the district director of the Manhattan district, was good and sufficient. Petitioners' motion to dismiss for lack of jurisdiction is denied. Held, further, from the record, the amounts of income unreported for 1961 and 1962; that such failures to report were due to fraud; and that petitioner (wife) is liable for the tax and penalties by reason of having filed joint returns with her husband.
Respondent has determined that the petitioners are liable for the following income tax deficiencies and additions to their taxes:
+--------------------------------------+
¦ ¦ ¦Addition to tax, ¦
+------+------------+------------------¦
¦Year ¦Deficiency ¦sec. 6653(b), ¦
+------+------------+------------------¦
¦ ¦ ¦I.R.C. 1954 ¦
+------+------------+------------------¦
¦ ¦ ¦ ¦
+------+------------+------------------¦
¦1961 ¦$11,138.36 ¦$5,569.18 ¦
+------+------------+------------------¦
¦1962 ¦28,299.74 ¦14,149.87 ¦
+--------------------------------------+
At trial respondent conceded the correctness of the itemized deductions petitioners claimed on their 1961 and 1962 income tax returns. At the conclusion of the trial petitioners filed a motion to dismiss for lack of jurisdiction. The following questions now remain for our consideration: Whether we are without jurisdiction because the statutory notice of deficiency was not sent by the district director of internal revenue for the district where petitioners resided at all relevant times; how much income the petitioners failed to report during 1961 and 1962; whether such failure was due to fraud; whether Pauline Pendola is liable for any additions to the tax which will arise if it is found that the failure to report income was due to fraud.
Michael and Pauline Pendola are husband and wife. Their legal residence at the time of filing the petition herein was Maspeth, Long Island, N.Y. They filed joint individual income tax returns for the years 1961 and 1962 with the district director of internal revenue, Brooklyn, N.Y. Pauline is a party to this litigation with respect to the issues of unreported income and fraud solely because she signed joint returns with her husband Michael. Consequently, we will refer to Michael as the petitioner.
A stipulation of facts was filed, and its contents are incorporated as a finding by this reference. During 1961, 1962, and part of 1963, petitioner was a tax technician (office auditor) working for the Brooklyn district director of internal revenue. While working for the Brooklyn district director, petitioner became involved in a conspiracy to defraud the United States. The conspiracy initiated and employed a system whereby taxpayers were induced to file fraudulent income tax returns, which when accepted gave rise to refunds to which the taxpayers were not entitled. In furtherance of this conspiracy petitioner was responsible for recruiting coworkers within the Brooklyn district director's office to process the fraudulent tax returns in such a manner as to avoid their being audited and discovered by the Internal Revenue Service.
Petitioner and nine other coconspirators were indicted by a Federal grand jury in Brooklyn, N.Y., on or about September 23, 1964. On September 24, 1965, petitioner pleaded guilty to all counts of the indictment.
During 1961 and 1962 petitioners filed joint individual income tax returns with the Brooklyn, N.Y., district director of internal revenue.
At all relevant times their residence was within the geographical district under the direction of the Brooklyn district director.
On May 22, 1964, a deficiency notice was mailed to the petitioners by the district director of internal revenue, Manhattan District, New York, asserting deficiencies in tax and additions to the tax for the calendar years 1961 and 1962. The notification was issued on official stationary bearing the heading:
U.S. Treasure Department
Internal Revenue Service
District Director
P.O. Box 3100
and concluded as follows:
Very truly yours,
Charles A. Church was district director of the Manhattan district at the time the statutory notice of deficiency was mailed. He was in charge of investigating the entire conspiracy to defraud the Government which was first discovered in the Manhattan district but which was found to spill over into the Brooklyn district. The investigation revealed that fraudulent returns had been filed in both districts, and it disclosed that employees of the Internal Revenue Service in both districts were conspirators. Because the investigation involved the office of the regional inspector and that of both the Manhattan and Brooklyn district directors, it was decided to consolidate the investigation under the director of the Manhattan district.
Within 90 days after receiving the statutory notice, petitioners filed a petition with this Court seeking a redetermination of the deficiencies of which they had been notified. At trial petitioners filed a motion to dismiss. The motion urges that this Court lacks jurisdiction to hear this case because the deficiency notice is null and void. The notice is alleged to be null and void because it was not issued by the Brooklyn district director of internal revenue but by the Manhattan district director.
OPINIONThe petitioners argue that the Manhattan district director lacked authority to issue a deficiency notice to a resident of the Brooklyn district, and that therefore the notice is null and void and we lack jurisdiction. The relevant Code provision, sec. 6212(a),1 states:
SEC. 6212. NOTICE OF DEFICIENCY.
(a) IN GENERAL.— If the Secretary or his delegate determines that there is a deficiency in respect of any tax imposed by subtitle A or B, he is authorized to send notice of such deficiency to the taxpayer by registered mail.
Section 301.7701-9(b), Proced. and Admin. Regs., provides that if a function is vested by the Code in the Secretary or his delegate, and Treasury regulations approved by the Secretary provide that such function may be performed by the Commissioner or a district director, such provision in the regulations shall constitute a delegation by the Secretary of the authority to perform such function to the designated officer. Accordingly, the authority to send deficiency notices is delegated by section 301.6212-1(a), Proced. and Admin. Regs., which states in pertinent part that:
If a district director * * * determines that there is a deficiency in respect of income * * * tax * * * he is authorized to notify the taxpayer * * * by * * * mail * * *
This regulation makes it clear that district directors have the authority to send deficiency notices. There is no provision in the Code or Treasury regulations which limits district directors' authority to send deficiency notices to taxpayers within a particular district.
The petitioner relies upon section 301.7701-10, Proced. and Admin. Regs., which states in pertinent part: ‘The term ‘district director’ means the district director of internal revenue for an internal revenue district. * * * ‘ He appears to argue that this definition of the term ‘district director’ limits the authority of a director to the particular district. We do not agree.
The logical place for such a limitation to have appeared would have been section 301.6212-1(a), Proced. and Admin. Regs., however, as we have noted above none appears there. The definition of a district director contained in section 301.7701-10 does no more than state the obvious. It in no way limits the authority of directors to do as was done in the instant case, i.e., coordinate an investigation involving taxpayers in more than one district under one director.
Consider the circumstance of the instant case. There were indications of a widespread conspiracy involving many hundreds of taxpayers residing in two adjoining internal revenue districts. Also suspect were many employees of the Internal Revenue Service in each of these two districts. It was not only practical and expedient for the investigation of this far-ranging scheme to be consolidated under the direction of one of the two district directors, but any other course would have been dangerous and perhaps self-defeating. Separate efforts would almost certainly have resulted in costly, time-consuming duplications of activities. Coordination would have been difficult, and it is likely that taxpayers and employees in one district would have been ‘tipped off’ by happenings in the other, thereby endangering and defeating the revenues and allowing the guilty to go unpunished.
The investigation thus having been properly consolidated under one district director (Manhattan), it would be vain and wholly formalistic for us to require that a statutory notice of deficiency dictated by that investigation be issued by some other district director.
We refuse to dignify form over substance. Recently, in Ben Perlmutter, 44 T.C. 382 (1965), affd. 373 F.2d 45 (C.A. 10, 1967), another case involving the authority of the signatory of a statutory notice of deficiency to issue such notices, we said (p. 400):
It is axiomatic that the intent...
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