Rosano v. Comm'r of Internal Revenue, Docket No. 6051-64.

• Decision Date: 26 August 1966
• Docket Number: Docket No. 6051-64.
• Parties: TERRY C. ROSANO, FORMERLY TERRY C. WHITTAKER, A.K.A. RANDY SCOTT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

46 T.C. 681

TERRY C. ROSANO, FORMERLY TERRY C. WHITTAKER, A.K.A. RANDY SCOTT, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 6051-64.

Tax Court of the United States.

Filed August 26, 1966.

John H. Duhig, for the petitioner.

William L. McCulley and Louis J. DeReuil, for the respondent.

Books and records of T's employer were illegally sized by local authorities without a warrant. Held, burden of proof in respect of deficiencies in T's income tax is upon T notwithstanding that the Commissioner relied in part upon facts disclosed by the seized books and records in making his determination of deficiency. Held, further, petitioner failed to carry the burden in respect of all matters in dispute, including ‘commissions' received by T as a ‘B-girl’ in a nightclub, compensation earned by T as an entertainer, addition to tax for negligence, and liability for self-employment tax.

The Commissioner determined deficiencies in income tax against petitioner for the years 1959, 1960, and 1961 and additions to tax pursuant to section 6653(a), I.R.C. 1954, in the following amounts:

+----------------------------+
                ¦    ¦          ¦Addition to ¦
                +----+----------+------------¦
                ¦Year¦Deficiency¦tax,sec.    ¦
                +----+----------+------------¦
                ¦    ¦          ¦6653(a)     ¦
                +----+----------+------------¦
                ¦1959¦$2,228.00 ¦$111.40     ¦
                +----+----------+------------¦
                ¦1960¦2,261.57  ¦113.08      ¦
                +----+----------+------------¦
                ¦1961¦925.99    ¦46.30       ¦
                +----------------------------+
                

At issue is whether petitioner failed to report all of her income earned during the years involved, and if so was that failure due to negligence or intentional disregard of rules and regulations. Also remaining at issue, is whether petitioner was self-employed during those years.

FINDINGS OF FACT

The stipulated facts and exhibits are incorporated herein by this reference.

Petitioner, Terry C. Rosano, residing at 1430 Northwest 173 Terrace, Miami, Fla., filed income tax returns for the calendar years 1959, 1960, and 1961 with the district director of internal revenue, Jacksonville, Fla. During those years she was married to Harry E. Whittaker but was separated from him.

Petitioner is an entertainer and during the years 1959, 1960, and 1961 performed at various nightclubs in Miami Beach, Fla., and at the Club Peachtree in Atlanta, Ga. She is, and was during these years, a member of American Guild of Variety Artists, a branch of the Associated Actors and Artists of America which is affiliated with the AFL-CIO. Her stage name is Randy Scott, and her act is that of an ‘exotic’ dancer.

At all times during 1959, 1960, and 1961, when petitioner performed her act for compensation she did so under standard American Guild of Variety Artists contracts. In a typical contract, in which the nightclub was referred to as the ‘Operator’ and the performer as the ‘Artist,‘ it was provided in part as follows:

1. The Operator hereby warrants that he is the operator herein at the present time and for the duration of this contract, and engages the Artist and the Artist hereby accepts said engagement, to present his act under the direction, supervision and control of the Operator, * * *

During these years petitioner was entirely and solely dependent for her livelihood on the compensation or emoluments received by her for the services she rendered in the nightclubs where she worked.

In her returns for 1959 and 1960 petitioner reported receipts of $6,500 in each year from her activities as a ‘singer and dancer.’ In her return for 1961 she stated that she worked only 12 weeks and reported receipts of $1,500.

During 1961, petitioner worked at Club 23, Miami Beach, Fla., for 7 weeks; at Club Piccadilly, Miami Beach, Fla., for 6 weeks; at Place Pigalle, Miami Beach, Fla., for 12 weeks; and Club Peachtree, Atlanta, Ga., for 2 weeks. For her 2 week engagement at Club Peachtree, Atlantic, Ga., during 1961, petitioner was paid $700, less 10-percent commission to the Roland Muse Agency which was deducted by management of Club Peachtree. The net amount of $630 received by petitioner during the taxable year 1961 was not reported on her Federal income tax return for that year.

On December 26, 1955, S.A.M. Corp. was incorporated under the laws of Florida. During the years involved herein the corporation operated a B-girl nightclub under the name of Place Pigalle at 215 22d Street, Miami Beach, Fla. For about 30 days prior to July 22, 1960, the State Beverage Department of Florida had conducted an undercover investigation of the Place Pigalle and its B-girl operations. At 1:50 a.m. on July 22, 1960, agents of the State Beverage Department of Florida considered to be in violation of Florida law were observed by the agents, who seized the following records of S.A.M. Corp. from the premises:

1 drink tally sheet for employees

1 payroll book for withholding and social security

1 tally sheet (ledger) listing payments

1 standard daily journal 1960

1 bank book (check)

These corporate records were seized by District Supervisor J. E. Little of the State Beverage Department of Florida who gave a receipt therefor dated July 22, 1960.

On July 26, 1960, Harry Ridge, president of S.A.M. Corp., filed a complaint for replevin in the Justice of the Peace Court, district No. 1, Dade County, Fla., to recover the aforementioned records from the State Beverage Department of Florida. While in the possession of the State Beverage Department of Florida, these records were photo-stated and then physically were turned over to Judge Hugh F. Duval, Jr., justice of the peace, district No. 1, Dade County, Fla. Photostatic copies of these original records were retained by the beverage department.

On July 29, 1960, the State of Florida filed suit against S.A.M. Corp., d.b.a. Place Pigalle, and others (including Harry Ridge) to enjoin a criminal nuisance in the Circuit Court, 11th judicial district, Dade County, Fla.

On September 8, 1960, a hearing was had on a request for a temporary injunction in the criminal nuisance suit, and on that day Justice of the Peace Duval, in response to a subpoena, physically turned over the seized originals of the corporate records to the clerk of the Circuit Court in which the criminal nuisance suit was pending. On September 15, 1960, the Circuit Court issued a temporary injunction in favor of the State, and denied a motion to quash service of the subpoena on Justice of the Peace Duval, thereby retaining jurisdiction of the records.

On September 21, 1960, Justice of the Peace Duval entered a Final Order on the Complaint For Replevin which directed the beverage department to return these records to Harry Ridge and S.A.M. Corp. on the grounds that the search and seizure conducted by the beverage department was illegal and deprived the plaintiff of due process under both the State and Federal constitutions.

On October 12, 1960, a final decree enjoining specified practices was entered with the consent of the parties in the criminal nuisance suit which, as set forth above, had been filed on July 29, 1960. In the ‘Bill To Enjoin Nuisance And For Injunctive Relief’ filed in that suit the State of Florida alleged, among other things, that incident to the sale of alcoholic beverages at the Place Pigalle female entertainers engaged in immoral and indecent dances; that such female entertainers, while they were not performing, sat and mingled with the male patrons soliciting them to purchase drinks for such female entertainers; that the female entertainers received a percentage of profit from each such alcoholic beverage solicited by them and purchased by the male patrons; and that in soliciting such purchases of drinks, the female entertainers engaged in certain specified intimate sexual play with the patrons and ‘do offer to commit or to engage in and do commit and engage in lewdness, assignation, and/or prostitution with said male patrons.’

The recitals in the final decree entered October 12, 1960, in the criminal nuisance suit included the following:

On September 8, 1960, this cause came on to be heard on the relator's request for a temporary injunction, and as a result thereof a temporary injunction was entered by this Court on September 15, 1960. The respondents, through their undersigned counsel, state that it would appear that some of the acts and things complained of in relator's Bill of Complaint may have existed on the premises on July 22, 1960, and prior to that time, although respondents specifically deny any knowledge or notice of the existence of the acts and things complained of in the aforesaid Bill of Complaint prior to the presentation of the evidence by the relator on September 8, 1960. The respondents further state that they agree with the relator that the acts and matters alleged in the aforesaid Bill of complaint should not be conducted and should not exist, and specifically have requested the opportunity to take such action as is necessary to prevent an occurrence of such activity. Based on the above, the following final decree to enjoin is hereby stipulated and agreed upon for the entry by this Court.

On July 11, 1961, about 9 months after the final decree in the criminal nuisance suit, S.A.M. Corp. filed a motion in that proceeding for return of the books and records which were then still in the custody of the clerk of the Circuit Court. The motion recited the history of the situation, the seizure of the books and records, the replevin action, and the criminal nuisance proceeding. The concluding allegation pointed out that all litigation relative to the matter had been terminated and completed, and the motion asked for a return of the books and records. On July 17, 1961, an order was entered directing the clerk to deliver the seized records to S.A.M. Corp. The records were then delivered to the possession of S.A.M. Corp. On or about June 26, 1062, the seized records were either lost or destroyed and presently are unavailable.

Thereafter,...