Safra v. Comm'r of Internal Revenue
| Decision Date | 11 August 1958 |
| Docket Number | Docket No. 29823. |
| Parties | MEYER J. SAFRA AND RIVKA SAFRA, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
A. Louis Mechlowitz, Esq., for the petitioners.
W. Preston White, Jr., Esq., for the respondent.
1. Petitioners' income determined on the basis of the net worth plus nondeductible expenditures method.
2. Petitioner is not collaterally estopped to deny a determination of additions to tax for fraud under section 293(b), I.R.C. 1939, by reason of a prior conviction for criminal fraud under section 145(b), I.R.C. 1939.
3. A portion of the deficiencies determined for 1943, 1944, 1945, 1946, and 1948 is due to fraud with intent to evade tax.
Respondent has determined deficiencies in the income taxes of petitioners and additions to tax under section 293(b) of the Internal Revenue Code of 1939 for the indicated years as follows:
+--------------------------+
¦Year¦Deficiency ¦Addition ¦
+----+-----------+---------¦
¦ ¦ ¦to tax ¦
+----+-----------+---------¦
¦ ¦ ¦ ¦
+----+-----------+---------¦
¦1943¦$6,766.45 ¦$3,383.22¦
+----+-----------+---------¦
¦1944¦5,726.73 ¦2,863.37 ¦
+----+-----------+---------¦
¦1945¦14,051.78 ¦7,025.89 ¦
+----+-----------+---------¦
¦1946¦10,743.33 ¦5,371.67 ¦
+----+-----------+---------¦
¦1947¦9,256.38 ¦4,628.19 ¦
+----+-----------+---------¦
¦1948¦1,600.22 ¦800.11 ¦
+--------------------------+
The issues presented for our determination are the correctness of the respondent's action in determining (1) that the income of the petitioners was understated for each of the years 1943 to 1948, inclusive; (2) that petitioners are collaterally estopped to deny that some part of the deficiency determined for each of the taxable years here involved was due to fraud with intent to evade tax; and (3) that, in the event that petitioners are not so estopped, some part of the deficiency for each of the years in issue was in fact due to fraud with intent to evade tax.
Additional issues presented by the pleadings have been abandoned by petitioners.
Some of the facts have been stipulated and are found accordingly.
The petitioners, husband and wife, residing in Dade County, Florida, filed their joint income tax returns for 1943 to 1948, inclusive, with the collector of internal revenue for the district of Florida. Inasmuch as the activities of Meyer J. Safra are those with which we are here primarily concerned, ‘petitioner’ or ‘Safra’ as hereinafter used has reference to him.
Issue 1. Deficiency.
In 1924 the petitioner, together with his wife, his mother, brother, and 2 sisters, left Russia, the country of his birth, and emigrated to Bucharest, Rumania. Later in that year the petitioners emigrated to Toronto, Ontario, Canada, where they lived for over 1 year. While living in Toronto, Safra was employed for a few weeks as a rabbi at a salary of $10 a week. After petitioner's mother, brother, 2 sisters, and brother-in-law had emigrated to Toronto at his expense, he and his wife moved permanently to the United States in March 1926 and resided in Philadelphia, Pennsylvania, for 3 years. While living in Philadelphia, Safra learned to read and write English and he served as a rabbi to three different congregations at salaries ranging from $20 per week to $35 per week.
In 1929 petitioner and his wife and son moved to Miami, Florida, where he obtained a position as rabbi at a salary of $35 per week. Safra served as a rabbi in Miami for or about 2 years.
In April 1931, Safra went to Chicago where he enrolled in the Northern College of Optometry which he attended for 2 years. During their 2-year stay in Chicago a second child was born to petitioner and his wife. Petitioner was unemployed during the time he spent in Chicago attending the Northern College of Optometry.
After graduating from the Northern College of Optometry, Safra obtained a position as rabbi at Ann Arbor, Michigan, for approximately 4 months at a salary of or about $25 per week.
In 1934 Safra and his wife returned to Miami, Florida, and have resided in Dade County, Florida, since that time. The petitioner passed the examination given by the Florida Optometry Board in 1934 and he subsequently opened his office for the practice of optometry.
In 1943 petitioner went to the office of the collector of internal revenue in Miami, Florida, and inquired as to whether or not he would be required to pay any taxes on money which he had brought into the United States from another country, and he was advised by that office that he would not be liable for any taxes thereon.
During the years 1943 through 1948 Safra received income from his practice as an optometrist and from his practice as a naturopath, treating eye, ear, nose, and throat conditions, rentals from apartment buildings, and the disposition of real estate.
In the fall of 1949 respondent contacted the petitioner and advised him that the income tax returns filed jointly by him and his wife for the years 1947 and 1948 would be audited and investigated. Accordingly, respondent's agent made an appointment with Safra to examine his records. The petitioner appeared at the office of the respondent and brought only a single-entry ledger which did not contain original entries but only a summary of annual income and expenses which had been entered at the end of each year. The respondent's agent advised petitioner that his records were inadequate. Subsequently Safra returned to respondent's office with his accountant but did not bring additional records. However, the respondent's agent was furnished with a ledger which had been reconstructed by petitioner's accountant who told the agent that he was unable to prove the amount of income received by the petitioner because his records were incomplete.
In February 1950, a special agent entered the investigation and attempted to determine whether or not the petitioner possessed adequate records of his income and expenses. From the records that were furnished the agent by petitioner (a journal, 2 rewritten ledgers, and canceled checks for the years 1947 and 1948), he was unable to verify any of the petitioner's income or expense items. The agent was informed by Safra that he had not maintained any records of the income of his optometry business and he was further informed that petitioner possessed a substantial amount of undeposited cash in his residence. Consequently, the respondent elected to utilize the increase in net worth plus nondeductible expenditures method of reconstructing income.
In the statutory notice of deficiency the respondent determined that the petitioners understated their net taxable income for the years and in the amounts as follows:
+----------------------------------------+
¦ ¦Net ¦Correct ¦Understatement¦
+----+---------+----------+--------------¦
¦Year¦income ¦net ¦of net ¦
+----+---------+----------+--------------¦
¦ ¦disclosed¦income ¦income ¦
+----+---------+----------+--------------¦
¦ ¦on return¦ ¦ ¦
+----+---------+----------+--------------¦
¦ ¦ ¦ ¦ ¦
+----+---------+----------+--------------¦
¦1943¦$2,384.43¦$20,572.76¦$18,188.33 ¦
+----+---------+----------+--------------¦
¦1944¦2,862.06 ¦18,367.43 ¦15,505.37 ¦
+----+---------+----------+--------------¦
¦1945¦4,147.40 ¦32,524.27 ¦28,376.87 ¦
+----+---------+----------+--------------¦
¦1946¦4,977.92 ¦30,664.43 ¦25,686.51 ¦
+----+---------+----------+--------------¦
¦1947¦4,979.69 ¦26,344.98 ¦21,365.29 ¦
+----+---------+----------+--------------¦
¦1948¦4,987.35 ¦12,615.16 ¦7,627.81 ¦
+----+---------+----------+--------------¦
¦ ¦ ¦ ¦ ¦
+----------------------------------------+
The petitioner maintained a personal checking account at the Mercantile National Bank of Miami Beach, Florida, from December 15, 1943, to April 4, 1946. As of December 31 of each of the years 1943 to 1945, inclusive, the balance in that account was as follows:
+----------------+
¦Year ¦Amount ¦
+------+---------¦
¦1943 ¦$222.74 ¦
+------+---------¦
¦1944 ¦181.59 ¦
+------+---------¦
¦1945 ¦2.20 ¦
+----------------+
From February 4, 1946, through December 31, 1948, the petitioner maintained another bank account at the Mercantile National Bank, Miami Beach, Florida. As of December 31 of each of the years 1946 to 1948, inclusive, the balance appearing in that account was as follows:
+----------------+
¦Year ¦Amount ¦
+------+---------¦
¦1946 ¦$698.32 ¦
+------+---------¦
¦1947 ¦265.42 ¦
+------+---------¦
¦1948 ¦541.73 ¦
+----------------+
From September 13, 1943, and continuing through the year 1948, the petitioner maintained a bank account at the Miami Beach First National Bank of Miami Beach, Florida. At the end of each of the years 1943 to 1948, inclusive, the balance appearing in that account as follows:
+-----------------+
¦Year ¦Amount ¦
+------+----------¦
¦1943 ¦$1,951.71 ¦
+------+----------¦
¦1944 ¦771.87 ¦
+------+----------¦
¦1945 ¦3,012.52 ¦
+------+----------¦
¦1946 ¦370.20 ¦
+------+----------¦
¦1947 ¦54.77 ¦
+------+----------¦
¦1948 ¦ ¦
+-----------------+
The petitioners maintained a bank account at the First National Bank of Miami, Miami, Florida, from June 28, 1947, through December 31, 1948. At the end of the years ended December 31, 1947 and 1948, the balance in that account was as follows:
+----------------+
¦Year ¦Amount ¦
+------+---------¦
¦1947 ¦$0.54 ¦
+------+---------¦
¦1948 ¦627.52 ¦
+----------------+
During the year ended December 31, 1942, petitioner maintained a bank account at the Florida National Bank, Miami, Florida, and a special checking account at the Miami Beach First National Bank, Miami Beach, Florida. The balance appearing as of December 31, 1942, in the...
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