Petterson v. Comm'r of Internal Revenue

• Decision Date: 18 December 1952
• Docket Number: Docket No. 35873.
• Citation: 19 T.C. 486
• Parties: P. C. AND ETHEL PETTERSON, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

19 T.C. 486

P. C. AND ETHEL PETTERSON, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 35873.

Tax Court of the United States.

Promulgated December 18, 1952.

Seymour Wells, C.P.A., for the petitioners.

R. G. Harless, Esq., for the respondent.

Original deficiency in income tax liability held proper base for computing 50 per cent fraud penalty, despite later reduction in tax deficiency due to loss carry-back from subsequent year. Nick v. Dunlap (C.A. 5), 185 F.2d 674, followed.

OPINION.

OPPER, Judge:

A deficiency for 1947 in addition to tax on account of fraud in the amount of $4,475.32 is the sole controversy. There is no question as to the existence of fraud and the sole issue is one of law. It is whether the amount of the 50 per cent fraud penalty is to be computed on the original deficiency or on the smaller sum admittedly reduced by a net loss carry-back from a subsequent year.

All of the facts have been stipulated and are hereby found accordingly. Petitioners' returns for 1947 and for 1949, the net-loss year, were filed with the collector for the district of Utah. The computations of the fraud penalty on the conflicting theories presented, as stipulated, are as follows:

+-----------------------------------+
                ¦Computation of Deficiency—1947   ¦
                +-----------------------------------¦
                ¦           ¦           ¦           ¦
                +-----------------------------------+
                

 Before After
                carry-back carry-back
                loss loss  
                Net income                                 $48,169.15   $34,209.77
                Less   exemptions                          2,500.00     2,500.00
                Income subject to normal tax and surtax    $45,669.15   $31,709.77
                Tentative combined normal tax and surtax   23,701.79    14,280.06
                Less   5 per cent reduction                1,185.09     714.00
                Total income tax                           22,516.70    13,566.06
                Income tax liability per return            2,076.71     2,076.71
                Deficiency                                 $20,439.99   $11,489.35
                50 per cent penalty-Sec. 293 (b), I. R. C. $10,219.99   $5,744.67
                

Although the question is novel in the Tax Court, the precise problem was disposed of in Nick v. Dunlap, an unreported opinion (June 22, 1950) of the District Court for the Northern District of Texas, 1950-5 C.C.H. 9436, 1950-4 P.H. 73236, which was affirmed (C.A. 5), 185 F.2d 674, on authority of Manning v. Seeley Tube & Box Co., 338 U.S. 561; and certiorari was denied, 341 U.S. 926. That decision held that the original...