Pleason v. Commissioner of Internal Revenue

• Decision Date: 25 November 1955
• Docket Number: No. 11373.,11373.
• Citation: 226 F.2d 732
• Parties: David PLEASON, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

226 F.2d 732 (1955)

David PLEASON, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 11373.

United States Court of Appeals Seventh Circuit.

November 2, 1955.

Rehearing Denied November 25, 1955.

Maurice J. Walsh, Chicago, Ill., for petitioner.

H. Brian Holland, Asst. Atty. Gen., Joseph F. Goetten, Atty., U. S. Dept. of Justice, Washington, D. C., Ellis N. Slack, Sp. Assts. to the Atty. Gen., for respondent.

Before DUFFY, Chief Judge, and FINNEGAN and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

Petitioner, sometimes spoken of herein as taxpayer, seeks to set aside the decision of the Tax Court of the United States establishing certain deficiencies in income and victory taxes for the year 1943, in income tax for the year 1944 and penalties for those years. The findings of fact and the opinion of the court are reported in 22 T.C. 361. Inasmuch as it is the function of the trial court to weigh the evidence, draw inferences and declare the result, Matthiessen v. Commissioner, 2 Cir., 194 F.2d 659; Burford-Toothaker Tractor Co. v. Commissioner, 5 Cir., 192 F.2d 633, certiorari denied 343 U.S. 941, 72 S.Ct. 1033, 96 L.Ed. 1347, our only function is to determine whether the findings are clearly erroneous, that is whether upon the whole record, there is substantial evidence to support them and whether the court erred as to the law. Inasmuch as the findings have been fully reported, we shall not repeat them. However, we have scrupulously examined the record, and are convinced that they are amply supported by the evidence and that the inferences drawn by the Tax Court are entirely reasonable.

The Tax Court found that the business of the Royal Distillers Products was conducted solely by the taxpayer. He was admittedly its sole proprietor prior to its alleged oral assignment to his daughter Anne. It found also that, after the purported exchange, the business continued to be conducted by the taxpayer and his employees in substantially the same manner as previously. All this appears fully from the reported opinion of the Tax Court, which concluded that the income for the years 1943 and 1944, though the company was purportedly conducted by Anne, was really that of the taxpayer; that, inasmuch as he was the sole proprietor and his daughter merely a figurehead, the income for those years should have been reported by him, and that, therefore, the deficiencies levied because the income was not so reported were proper.

A taxpayer cannot avoid income taxes by assigning his property to others if he reserves such control over the property or business transferred or the receipt of income produced therefrom as to make it reasonable to treat him as the owner or recipient of the income for tax purposes. Helvering v. Clifford, 309 U.S. 331, 60 S.Ct. 554, 84 L.Ed. 788; Harrison v. Schaffner, 312 U.S. 579, 61 S.Ct. 759, 85 L.Ed. 1055; Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898; Stanton v. Commissioner, 7 Cir., 189 F.2d 297. Nor will a transfer of income which has been earned or which will be earned by the services of the assignor be effective to relieve him of tax liability. Lucas v. Earl, 281 U.S. 111, 50 S.Ct. 241, 74 L.Ed. 731; Helvering v. Eubank, 311 U.S. 122, 61 S.Ct. 149, 85 L.Ed. 81. Inasmuch as the evidence fully justifies the Tax Court's finding that the business remained that of the taxpayer, the income earned therein was his. Indeed, we do not understand that the taxpayer seriously contends otherwise. Consequently, there is no escape from the decision that petitioner should have accounted for the income from the business in the two years in question.

The Commissioner had made a determination that income for the year of 1943 in the amount of $174,063.65, and for the year 1944 of $7,706.75 had not been reported and that these amounts should be included in the deficiencies for those two years. The two sums reflected the Commissioner's calculation of income from over-ceiling prices of liquor sold by the taxpayer in those years. The latter claimed that their profits should be reduced by the black market costs which he had been compelled to pay to parties from whom he purchased. The taxpayer kept no records showing what his over-ceiling profits were and none showing what he had paid out in over-ceiling cost prices. His suppliers denied receiving over-ceiling prices. Quite naturally, the Tax Court encountered difficulty in getting at the truth....