Prokop v. Commissioner of Internal Revenue
| Decision Date | 29 May 1958 |
| Docket Number | 12164.,No. 12163,12163 |
| Citation | 254 F.2d 544 |
| Parties | Alice V. PROKOP and Harry W. Prokop. Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Alice V. PROKOP, Respondent. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Chester J. Niebler, Marshall J. Herro, Milwaukee, Wis., for petitioner Prokop.
Charles K. Rice, Asst. Atty. Gen., S. Dee Hanson, Atty., Tax Division, U. S. Dept. of Justice, Washington, D. C., Lee A. Jackson, H. Baum, Attys., Dept. of Justice, Washington, D. C., for C. I. R.
Before FINNEGAN and SCHNACKENBERG, Circuit Judges, and WHAM, District Judge.
The petitioners, Harry W. Prokop and Alice V. Prokop, are husband and wife and were at all times pertinent to this case. For the year 1944 they made a joint income tax return and this is the sole involvement of Harry W. Prokop in these proceedings. For the years 1945, 1946, and 1947 they made individual returns and those years affect Mrs. Prokop only. In their respective returns the income so reported by each was the salary earned in their respective employments — Mr. Prokop as a salaried social worker and Mrs. Prokop as a salaried employee of Local No. 494, International Brotherhood of Electrical Workers, Milwaukee, Wisconsin. The United States Commissioner of Internal Revenue, respondent, acting upon reports of investigations of revenue agents, found that Alice V. Prokop had received unreported income for each of said years and from such reports determined that the understatements of income by Mr. and Mrs. Prokop were $43,920.16 for 1944; and by Mrs. Prokop, $46,073.93 for 1945; $39,811.68 for 1946; and $1,941.34 for 1947. Based on these understatements of income the Commissioner determined deficiencies in taxes with statutory additions as follows:
— Additions To Tax Under —
Year Deficiency Sec. 293(b) Sec. 294(d)
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1944 $25,290.32 $12,645.16 $1,510.35
1945 25,868.45 12,934.23 4,143.10
1946 19,424.18 9,712.09 3,127.39
1947 411.55 205.78 74.56
Proceedings to redetermine and abate the deficiencies and additions as determined by the respondent were initiated in the Tax Court of the United States by the petitioners where the proceedings affecting Mrs. Prokop only were designated as Case No. 49495 and that based on the joint return affecting both Mr. and Mrs. Prokop as No. 49496. The two cases were consolidated for trial. A stipulation of facts was entered into between petitioners and respondent and voluminous other evidence, including both oral testimony and numerous exhibits, was received. Based upon the entire evidence the judge wrote an exhaustive opinion in which detailed findings and conclusions were expressed.
In Tax Court Case No. 49495 which involved Alice V. Prokop only, deficiencies and additions were determined as follows:
— Additions To Tax Under —
Sec. 294
Year Deficiency Sec. 293(b) (d) (1) (A) Sec. 294(d) (2)
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1945 $17,575.10 $8,787.55 $1,584.07 $1,056.05
1946 13,151.06 6,575.53 1,194.59 796.38
The Tax Court further determined that no deficiency or additions for the taxable year 1947 was shown by the evidence due to the fact that the payment by Mrs. Prokop of $36,000 to the Union wiped out all unreported income received by her during that year.
Tax Court Case No. 49496 by reason of said joint return for the year 1944 by Mr. and Mrs. Prokop involved both. Deficiency and additions were determined as follows:
— Additions To Tax Under —
Year Deficiency Sec. 293(b) Sec. 294(d) (2)
---------------------------------------------------------------------
1944 $17,381.70 $8,690.85 $1,035.83
The foregoing decisions were entered by the Tax Court on June 27, 1957. A timely petition for the review of both decisions, consolidated for review under Case No. 12163, was filed in this court. From the petition and the evidence it appears that the petitioners are and at all times have been resident citizens of Milwaukee, Wisconsin, and filed their income tax returns for the years here involved with the Collector (now Director) of Internal Revenue for the District of Wisconsin at Milwaukee, Wisconsin, within the jurisdiction of this court.
As noted above, the Tax Court held there was no deficiency in the year 1947 and reduced deficiencies were determined for the years 1944, 1945 and 1946. Also the enlarged deficiencies sought in respondent's amended answer were denied by the Tax Court. Respondent does not complain here of those decisions. In view of the conclusions of this court hereinafter appearing which uphold the decisions of the Tax Court respondent's alternate petition for review filed herein under No. 12164 to be considered only if this court failed to sustain the Tax Court is no longer in issue. The issue remaining before this court is whether the deficiencies and additions redetermined by the Tax Court for the years 1944, 1945 and 1946 are sustainable. There is no quarrel between petitioners and respondent as to the correctness of the computation of taxes and additions by the Tax Court if the amounts of the deficiencies as redetermined by the Tax Court for the years 1944, 1945 and 1946 are not altered by this court. Petitioners contend earnestly, however, that under the evidence it should be held that Mrs. Prokop received no unreported income for said years and that neither she nor her husband was guilty of fraud or negligence in failing to report taxable income received by her.
From the stipulation of facts introduced in evidence in the Tax Court it appears that Mrs. Prokop was employed by Local 494, International Brotherhood of Electrical Workers, Milwaukee, Wisconsin, from October, 1930 to September 25, 1947; that she and her husband had different employers and received separate incomes; that she and her husband filed a joint income tax return for the taxable year 1944; that Mrs. Prokop filed her separate income tax return for each of the years 1945, 1946 and 1947; that in each return for the years 1944 to and including 1947 she reported only her income earned as bookkeeper, stenographer, office manager and as secretary; that for the year 1944 the joint return showed only the salary received by each of them.
It was further stipulated that of the permit fees collected for said local Union from permit workers during 1944, 1945, 1946 and from January 1 to September 25, 1947 the books of the Union reflected only amounts as follows: 1944, $9,479.84; 1945, $7,326.07; 1946, $13,588.32; 1947 to September 26, $22,485.60.
The question of fact posed by the record is whether permit fees came into the hands and custody of Mrs. Prokop during the years 1944, 1945 and 1946 in addition to those reflected on the books of the Union, as stipulated, and which became income for tax purposes returnable by her and, if so, in what amounts. A brief review of the evidence becomes necessary.
As indicated Mrs. Prokop was an employee of said Local 494 approximately seventeen years in the capacity of bookkeeper, clerk, secretary and office manager. She was discharged on September 25, 1947. Through the years her knowledge of and familiarity with the Union business affairs and practices became extensive and were recognized as being so by Union employees and officers. Increasing authority was placed upon or was assumed by her. In addition to her other duties she early became the secretary of Edward J. Brown, business manager of Local 494. In practice the business manager was the active authority in the operation of the local Union recognized by the other officers and employees. While retaining his office of business manager of the local Union said Brown also became and filled the office of President of the International Brotherhood of Electrical Workers, first, by appointment from 1940 to 1942, and, by election, from 1942 to 1946. In 1946 he failed of reelection as President of International and returned to Milwaukee where he continued to act as business manager of Local 494. He was discharged by the Union in September, 1947, not on the stated ground that he had diverted or authorized diversion of Union funds but by reason of evidence that he had become financially interested in a corporate contractor in the electrical contracting business. He died in Washington, D. C., January 31, 1950. Brown lived in Washington, D. C. practically all of the time he served as President of International. During this time he delegated much of his authority to Mrs. Prokop and permitted her to exercise authority as his representative. This authority she was permitted to exercise without question by Edgar Fransway who was appointed by Brown first as business representative and later as acting business manager, as well as by other officers of Local 494. Among other privileges, she, with the knowledge of the Local's executive board, was permitted to sign the name of the Union treasurer to vouchers authorizing payments out of Union funds. She had access to the safe located in the Union office and was customarily the person who would open it to place in or withdraw funds and other contents from it. She had access to two of the three safe-deposit boxes used by the Union located in different Milwaukee banks used for keeping money and valuable papers.
Local 494 required all workers employed by electrical contractors who were not regular...
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