Phillips v. Commissioner, Docket No. 4828-78.
| Decision Date | 19 March 1984 |
| Docket Number | Docket No. 4828-78. |
| Citation | 47 TCM (CCH) 1289,1984 TC Memo 133 |
| Parties | Ellison Phillips and Virginia Phillips v. Commissioner. |
| Court | U.S. Tax Court |
John J. Vassen, 1801 North Belt West, Belleville, Ill. Patrick B. Mathis, and Roger L. Vetter, for the petitioners. David T. Karzon, Jr., and Reid M. Huey, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in and additions to petitioners' Federal income taxes:
Year Deficiency Sec. 6653(b)1
1966 ........ $ 2,379 $1,190
1967 ........ 3,284 1,642
1968 ........ 10,404 5,202
1969 ........ 6,458 3,229
1 Unless otherwise indicated, all section references
are to the Internal Revenue Code of
1954, as amended and in effect during the taxable
years in question, and all references to
Rules are to the Tax Court Rules of Practice
and Procedure
This is a civil fraud case involving a claimed "cash hoard." Respondent determined petitioners' income for the years in question using the net worth-expenditures method. Because the statute of limitations precludes assessment and collection of the deficiencies unless the fraud exception (section 6501(c)(3)) applies, the principal issue for decision is whether petitioners filed fraudulent returns with the intent to evade taxes. Petitioners claim to have had a "cash hoard," their lifetime savings from their earnings and gifts from their parents, that accounts for the otherwise unexplained increases in net worth and cash expenditures that respondent has determined.
Some of the facts have been stipulated and are so found. The several stipulations of facts and all exhibits attached thereto are incorporated herein by this reference.
Petitioners, Ellison Phillips ("Ellison") and Virginia Phillips ("Virginia"), are husband and wife and resided in Mt. Vernon, Illinois, when they filed their petition in this case. Petitioners timely filed joint U.S. Individual Income Tax Returns (Forms 1040) for the calendar years 1966 through 1969 with the Internal Revenue Service Center at Kansas City, Missouri.
Ellison was born in approximately 1915. Virginia was born on October 18, 1916. Ellison and Virginia were graduated from high school in 1934 and were married in 1937.
Ellison was an only child. Ellison's father, Alonzo Phillips ("Alonzo"), had jobs as a railroad employee and school teacher. Before his death in 1949, Alonzo's primary occupation was farming. Ellison's mother, Carrie Phillips ("Carrie"), was primarily a housewife; her only outside jobs were as a babysitter and ironing clothes for neighbors. After Alonzo's death, Carrie never worked to support herself.
Virginia was one of three children. Until Virginia was in the fifth grade, her father, Gilbert Wente ("Gilbert"), worked as a switchman for the railroad in East St. Louis. After Virginia's family moved to Mt. Vernon, Illinois, her father continued to work for the railroad except during the crop season when he worked on his farm. At some point after moving to Mt. Vernon, Gilbert worked part time at Pollock Lumber Company, making concrete blocks and worked at a bakery shop. Virginia's mother, Ethel Wente ("Ethel"), had worked in a restaurant in East St. Louis before moving to Mt. Vernon and worked in a bakery shop. She worked at a restaurant in Mt. Vernon for 10 years before she and Gilbert themselves took over operation of the restaurant. Gilbert and Ethel supported Virginia and her brother and sister during their childhood.
Ellison's first employment was in 1937 at the Davidson Bakery in Mt. Vernon, Illinois, earning approximately 35 cents per hour. After that bakery burned down, he worked for bakeries in Chicago and Peoria, Illinois. Prior to 1942, Ellison was employed as a punch machine operator at the American Car and Foundry Co., receiving piecework payments of approximately $100 per week. From 1942 to 1943, Ellison was employed as a truck driver and lumber yard laborer by the Pollock Lumber Company, earning approximately $25 per week. From 1943 until 1951, Ellison was employed by Mt. Vernon Distributing Company, first as a salesman and then as a truck driver. While driving a truck for Mt. Vernon Distributing Company, he earned approximately $65 per week.2 From 1951 until his retirement in 1972, Ellison was employed by the East Side Lumber Company in Mt. Vernon, Illinois. Between 1951 and 1959, his earnings there generally increased steadily from approximately $65 per week to approximately $100 per week.
Virginia's first employment was in 1934 as an apprentice in a beauty shop and as a part-time salesperson at Woolworth's. Soon thereafter, Virginia quit her job at the beauty shop and retained her job at Woolworth's at a salary of approximately $10 per week. In 1937, petitioners moved to Chicago, where Virginia worked at a YWCA cafeteria. Petitioners rented an apartment and incurred food expenses while working in Chicago. Later they moved to Peoria and Virginia was pregnant and did not work while Ellison was employed at a bakery in that city. Petitioners' daughter, Nancy Gowler ("Nancy"), was born in Peoria in 1938. Petitioners' son, Jerry Phillips, was born in 1940. During the period 1940-1947, Virginia worked for about five years doing piecework as a sleevesetter at the Mt. Vernon Garment Company. From sometime in 1947 to December 31, 1959, Virginia worked for her parents at Wente's Cafe in Mt. Vernon, earning the minimum wage throughout the period. Virginia has worked throughout her adult life except for the two short periods of time during the years 1938 to 1941, when her children were born.
During the years 1943-1959, petitioners reported the following items on their Federal income tax returns:
_______________________________________________________________________________________________________________________
Adjusted Medical Federal Income FICA
Gross Sales Tax Expenses Taxes Withheld/Paid2 Taxes Withheld/Paid3
Year Income Deduction Claimed1 Other Deductions
_______________________________________________________________________________________________________________________
1943 ......... $ 2,214.34 $ 15.00 —0—4 $ 169.20 $ 53.85 $ 22.143
1944 ......... 2,977.42 35.00 —0—4 367.50 162.23 29.773
1945 ......... 3,274.09 50.00 $ 269.00 370.50 217.11 32.743
1946 ......... 3,273.42 30.003 382.35 382.73 127.68 32.733
1947
Ellison ........ 2,520.00 18.005 —0—4 219.24 148.72 25.203
1947
Virginia ....... 1,146.46 18.005 —0—4 191.20 83.08 11.463
1948 ......... 2,680.00 —0—4 —0—4 —0—4 —0—4 26.803
1949 ......... 3,470.00 45.00 —0—4 388.00 6.14 33.003
1950 ......... 4,863.22 75.00 359.00 453.50 212.08 61.173
1951 ......... 4,683.54 —0—4 —0—4 —0—4 369.00 70.333
1952 ......... 5,063.31 80.00 275.00 526.53 451.76 73.81
1953 ......... 5,425.68 100.00 —0—4 656.26 503.82 78.33
1954 ......... 4,701.436 75.00 522.20 513.66 266.32 104.68
1955 ......... 5,560.34 84.00 626.50 565.42 410.25 111.21
1956 ......... 5,725.40 75.00 —0—4 603.65 649.35 114.51
1957 ......... 6,532.12 90.00 —0—4 816.82 765.06 139.253
1958 ......... 7,083.39 105.00 —0—4 1,007.61 837.57 139.43
1959 ......... 7,217.75 125.007 —0—4 1,241.85 793.95 172.00
__________ _________ _________ _________ _________ _________
TOTALS: ........ $78,411.91 $1,020.00 $2,434.05 $8,473.67 $6,057.97 $1,278.56
_______________________________________________________________________________________________________________________
1 Total expenses claimed before reduction by
"floor" (percentage of AGI)
2 Total taxes net of refunds and credits
against subsequent years' estimated taxes. Includes
"Victory Taxes" paid in 1943
3 Neither petitioners' tax returns and attached
W-2 Forms nor the other evidence of
record indicate how much in FICA taxes were
withheld from petitioners' incomes during
these years. We have calculated the amounts
shown based on petitioners' reported earnings
for these years and the applicable rates and
wage ceilings during these years. See sections
1400, 1426(a), IRC 1939, as amended and in
effect during the taxable years 1943-1951, and
sections 3101, 3121(a), IRC 1954, as amended
and in effect during the taxable year 1957.
4 None were claimed or reported during
these years.
5 On the returns for those years, the deductions
claimed for state sales taxes and gasoline
taxes appear to have been lumped together.
Based on petitioners' returns for the other
years, which segregate between the two items,
and giving petitioners the benefit of the doubt,
we believe the figures shown accurately report
the portion of the deduction allocable to state
sales taxes. Cf. Cohan v. Commissioner, 39 F.
2d 540 (2d Cir. 1930).
6 This is a net figure that includes a
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