Sachs v. Comm'r of Internal Revenue, Docket No. 68647.
| Decision Date | 30 June 1959 |
| Docket Number | Docket No. 68647. |
| Citation | 32 T.C. 815 |
| Parties | IRVING SACHS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Henry C. Lowenhaupt, Esq., and Norman Barken, Esq., for the petitioner.
Leonard A. Hammes, Esq., for the respondent.
In 1951 the petitioner, president of a corporation, pleaded guilty to an indictment charging him with violation of section 145(b), title 26 U.S.C., in willfully attempting to defeat and evade a large part of income tax due by the corporation, was convicted, and a fine of $40,000 and costs was imposed upon him. The corporation was not a party to the criminal proceeding but paid the fine and costs for the petitioner in installments in 1951, 1952, 1953, and 1954. Held, that the amounts so paid by the corporation in each year constituted a taxable dividend to the petitioner. Held, further, that assessment and collection of any deficiency for the year 1951 is not barred since the petitioner, in failing to include in gross income in his return for 1951, the amount paid on his behalf by the corporation, omitted more than 25 per cent of his gross income, and since, prior to the expiration of 5 years from the time of filing his return, he entered into a valid consent to an extension of time within which assessment and collection could be made.
The respondent determined deficiencies in income tax as follows:
+---------------+
¦1951¦$2,512.25 ¦
+----+----------¦
¦1952¦4,328.77 ¦
+----+----------¦
¦1953¦5,862.73 ¦
+----+----------¦
¦1954¦5,275.24 ¦
+----+----------¦
¦1955¦3,672.70 ¦
+---------------+
The principal issue is whether amounts paid by a corporation in discharge of a fine imposed upon the petitioner, who was a stockholder and the president of the corporation, for violation of section 145(b), title 26 of the United States Code, constitute taxable income of the petitioner. The only other issue relates to whether a consent, Treasury Form 872, was effective to extend the statute of limitations for the taxable year 1951. A similar question relative to the statute of limitations for the years 1952 and 1953 was conceded by stipulation.
The facts were stipulated and the stipulations are incorporated herein by this reference.
The petitioner is an individual with residence at Clayton, Missouri. Throughout the calendar years 1951 to 1955, inclusive, he was employed in St. Louis, Missouri, as president of Shu-Stiles, Inc., at an annual compensation varying between $15,600 and $15,900, and was in charge of the conduct of its business and affairs.
For each of the calendar years 1951 through 1955, petitioner filed Federal income tax returns upon the basis of the calendar year and upon the cash receipts and disbursements method of accounting. The return for the year 1951 was filed on March 17, 1952, with the collector of internal revenue for the first district of Missouri.
Shu-Stiles, Inc., is, and at all material times was, a corporation organized and existing under the laws of the State of Missouri. Its principal office and place of business were in the city of St. Louis.
At all material times the stockholders of Shu-Stiles, Inc., the number of shares of stock held by each stockholder, the relationship of the stockholders to petitioner, and the total issued and outstanding shares of stock were as shown in the following schedule:
+---------------------------------------------------------------+
¦ ¦Number of ¦Relationship ¦
+-----------------------------------+-----------+---------------¦
¦Stockholder ¦shares ¦to petitioner ¦
+-----------------------------------+-----------+---------------¦
¦Irving Sachs ¦376.3 ¦Petitioner ¦
+-----------------------------------+-----------+---------------¦
¦Harvey Sachs ¦374.5 ¦Brother ¦
+-----------------------------------+-----------+---------------¦
¦Ben Sachs ¦349.5 ¦Brother ¦
+-----------------------------------+-----------+---------------¦
¦Louis Sachs ¦25.0 ¦Brother ¦
+-----------------------------------+-----------+---------------¦
¦Laura Taylor ¦58.8 ¦None ¦
+-----------------------------------+-----------+---------------¦
¦Total issued and outstanding shares¦1,184.1 ¦ ¦
+---------------------------------------------------------------+
On March 1, 1951, an indictment against petitioner was filed with the Clerk of the United States District Court for the Eastern District of Missouri. It was charged that the petitioner, who was president of Shu-Stiles, Inc. (and who in 1942 was also treasurer), violated section 145(b), title 26, U.S.C. /1/ (sec. 145(b), I.R.C. 1939), in knowingly, willfully, unlawfully, and feloniously attempting to defeat and evade a large part of the tax due and owing by Shu-Stiles, Inc., for the years 1942, 1943, 1944, and 1945 by filing false and fraudulent corporation income, excess profits, and declared value excess-profits tax returns. Petitioner was not charged with any attempt to evade or defeat any income tax which he himself owed.
On March 6, 1951, immediately after petitioner's indictment, at a special meeting of the stockholders of Shu-Stiles, Inc., it was decided that the corporation would engage counsel to represent the petitioner, and would assume all legal fees and expense as a company expense. This action was taken upon the stated ground that the petitioner's indictment apparently resulted entirely from his action as head of the company. The petitioner was not present at the meeting.
On November 2, 1951, the District Court of the United States for the Eastern District of Missouri, Eastern Division, entered its judgment and commitment which provided in part as follows:
IT IS ADJUDGED that the defendant has been convicted upon his plea of guilty of the offenses of unlawfully attempting to defeat and evade a large part of the tax due and owing by Shu-Stiles, Inc. a Missouri Corporation for the calendar years 1942, 1943, 1944, 1945, respectively; said defendant being President and Treasurer of said corporation as charged in cts. 1, 2, 3, and 4 of indictment and the court having asked the defendant whether he has anything to say why judgment should not be pronounced, and no sufficient cause to the contrary being shown or appearing to the Court.
IT IS ADJUDGED that the defendant is guilty as charged and convicted.
IT IS ADJUDGED that the defendant make his fine to the United States of America by the payment of the sum of TEN THOUSAND DOLLARS ($10,000.00) as to and under the charge as contained in EACH of counts one, two, three, and four of the indictment herein, and defendant to pay the costs herein, making an aggregate fine of FORTY THOUSAND DOLLARS ($40,000.00) and costs, and that said defendant be imprisoned until payment of said fines and costs, or until said defendant is otherwise discharged as provided by law.
IT IS ADJUDGED that on oral application, defendant be and he is hereby granted stay of execution of aforesaid judgment and sentence for a period of Thirty (30) Days from this date.
On November 30, 1951, the court entered an order referring to its previous judgment, providing in part as follows:
WHEREAS, it now appearing to the Court that defendant can not pay said fines and costs in full on or before December 2, 1951,
NOW FOR GOOD CAUSE SHOWN IT IS HEREBY ORDERED that said fine of Forty Thousand Dollars ($40,000.00) and costs be paid in installments as follows:
Five Thousand Dollars ($5,000.00) and costs herein to be paid on or before December 3, 1951; Twenty-five Hundred Dollars ($2500.00) on May 3, 1952; Twenty-five Hundred Dollars ($2500.00) every three months thereafter until the said fines are fully paid.
IT IS FURTHER ORDERED that upon default of any of the installment payments hereinabove stated, defendant shall stand committed until said fines and costs are paid in full, or until said defendant is otherwise discharged as provided by law.
The minutes of a special meeting of the stockholders of Shu-Stiles, Inc., held on November 3, 1951, provided as follows:
After a discussion which took into consideration the fact that all of the acts of the President leading up to his indictment and the assessment of the find were done for and on behalf of the corporation and, taking into consideration that he, personally, did not in any way benefit from such acts, but merely acted as an officer of the corporation, it was regularly moved and seconded that the fine assessed against the President, personally, be paid by the corporation, and that all other expenses incurred by the President, personally, incidental to said indictment and to the defense thereof, be assumed by the corporation. Motion carried unanimously, Mr. Irving Sachs being excused from voting.
Shu-Stiles, Inc., paid the fine of $40,000 and the costs of $24.50 imposed upon petitioner, in the amounts and at the times as follows:
+-------------------------------------------------------+
¦Date of payments ¦Amount of payments ¦Yearly totals ¦
+------------------+--------------------+---------------¦
¦Dec. 3, 1951 ¦$5,000.00 ¦ ¦
+------------------+--------------------+---------------¦
¦Dec. 5, 1951 ¦24.50 ¦ ¦
+------------------+--------------------+---------------¦
¦Total for 1951 ¦ ¦$5,024.50 ¦
+------------------+--------------------+---------------¦
¦May 2, 1952 ¦2,500.00 ¦ ¦
+------------------+--------------------+---------------¦
¦July 30, 1952 ¦2,500.00 ¦ ¦
+------------------+--------------------+---------------¦
¦Nov. 1, 1952 ¦2,500.00 ¦ ¦
+------------------+--------------------+---------------¦
¦Total for 1952 ¦...To continue reading
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