Sclafani v. C.I.R., 103163 FEDTAX, 39863

Docket Nº:39863, 39864, 42708, 43336, 48972, 48973, 54482, 54483, 65418, 88031, 88034, 92196, 92197, 92198, 92199, 92200.
Opinion Judge:OPPER, Judge:
Party Name:JAMES V. SCLAFANI AND FLORA F. SCLAFANI, ET AL.,[1] Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Albert I. Schmalholz, for the petitioners. Joseph Touhill, Stephen M. Miller, and John J. O'Toole, for the respondent.
Case Date:October 31, 1963
Court:United States Tax Court
 
FREE EXCERPT

22 T.C.M. (CCH) 1526 (1963)

T.C. Memo. 1963-298

JAMES V. SCLAFANI AND FLORA F. SCLAFANI, ET AL., [1] Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 39863, 39864, 42708, 43336, 48972, 48973, 54482, 54483, 65418, 88031, 88034, 92196, 92197, 92198, 92199, 92200.

United States Tax Court.

October 31, 1963

Albert I. Schmalholz, for the petitioners.[2]

Joseph Touhill, Stephen M. Miller, and John J. O'Toole, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION.

OPPER, Judge:

These consolidated proceedings involve income tax deficiencies and additions to tax for fraud, failure to file declarations of estimated tax, and substantial underestimation of estimated tax for the calendar years 1945 through 1949, and income tax deficiencies and additions to tax for negligence or intentional disregard of rules and regulations for the calendar years 1955 and 1956. The deficiencies and additions to tax as to each petitioner are hereinafter set forth.

For the taxable years 1945 through 1949, the deficiencies and additions to tax are based primarily upon respondent's determination that the individual petitioners, principally Joseph L. Sclafani, had increases in net worth due to undisclosed income. Since the corporate petitioner appeared to be the source of income of the individual petitioners, the undisclosed income of each individual was determined to be additional income of the corporate petitioner.

Our findings of fact include general findings applicable to all petitioners and separate findings as to each petitioner. Some of the findings with respect to the separate petitioners, particularly the findings as to Joseph L. Sclafani and Lillian Sclafani, Docket No. 65418, apply also to the other petitioners in these consolidated cases.

Additions to tax under section 294(d)(2), I.R.C. 1939, as to the individual taxpayers, are conceded by respondent upon the authority of Commissioner v. Acker, 361 U.S. 87 (1959).

GENERAL FINDINGS OF FACT.

Some of the facts have been stipulated and such facts are found as stipulated.

It is stipulated that during the years 1945 through 1957, the officers of Joseph L. Sclafani, Inc., were:

Joseph L. Sclafani President

Dominick L. Sclafani Vice President

James J. Sclafani Vice President

James V. Sclafani Treasurer

William M. Sclafani Secretary

These individual petitioners will sometimes hereinafter be referred to by their first names, and Joseph L. Sclafani, Inc., will sometimes hereinafter be referred to as the corporate petitioner.

During the years 1945 to 1949, inclusive, the stockholders of the corporate petitioner were: Joseph L., James V., James J., Dominick L., William M., Victoria N., and Joseph Sclafani. To the extent pertinent here, it is stipulated that the Sclafani family consisted of two branches: (1) Louis, his wife Victoria N. and their five sons, James V., Joseph L., Dominick L., William M., and Leo, all except Leo being petitioners herein; and (2) Joseph (brother of Louis), his wife Josephine and their three children, James J., Marie, and Augusta.

The number of shares of capital stock held by each of the individual petitioners and the total number of shares of capital stock outstanding of the corporate petitioner at December 31 of each of the years 1937 and 1944 through 1949 were as follows:

Stockholder 1937 1944 1945 1946 1947 1948 1949

Joseph L. 61 264 284 294 294 314 334

James J. 31 123 143 153 153 173 193

William 31 131 151 161 161 181 201

Dominick 31 123 143 153 153 173 193

James V. 51 212 232 242 242 262 282

Total 205 853 953 1,003 1,003 1,103 1,203

Others 110 397 437 457 457 497 537

Total outstanding 315 1,250 1,390 1,460 1,460 1,600 1,740

None of the individual petitioners maintained books of account during the taxable years. The corporate petitioner maintained its books of account and filed its returns for the taxable years on an accrual basis. In 1950 respondent's revenue agents began auditing the income tax returns for the taxable years of the corporate petitioner and of the individual petitioners, particularly Joseph. On April 27, 1956, Joseph was convicted in the United States District Court for the Eastern District of New York on seven counts of an eight-count information charging evasion of corporate and personal income taxes under section 145(b), I.R.C. 1939, during the years 1945 through 1949. Joseph was sentenced to concurrent terms of 15 months on each count, and fines of $5,000 on the first and sixth counts were imposed. That judgment of conviction was sustained by the United States Court of Appeals for the Second Circuit on March 30, 1959 ( 265 F.2d 408, certiorari denied 360 U.S. 918). Counts one, two, and three of the eight-count information charged Joseph, as president of the corporate petitioner, with wilfully and knowingly attempting to defeat and evade income taxes due and owing to the United States by the corporate petitioner for 1947, 1948, and 1949 by filing and causing to be filed false and fraudulent income tax returns for the corporate petitioner. Count two, relating to 1948, was subsequently dismissed. Counts four and five charge Joseph with wilfully and knowingly attempting to defeat and evade income taxes due and owing by himself and his wife for 1945 and 1946 by making, filing, and causing to be filed with representatives of the Treasury Department certain false and fraudulent statements of his financial condition for the purpose of concealing additional unreported net income for 1945 and 1946. Counts six, seven, and eight charge Joseph with wilfully and knowingly attempting to defeat and evade income taxes due and owing by himself and wife for 1947, 1948, and 1949 by filing and causing to be filed with the collector of internal revenue false and fraudulent joint income tax returns wherein their income was understated. In the course of the 1950 investigation, respondent's agents wrote to each of the other individual petitioners and asked him to come into the office for questioning. When he failed to receive a reply, the revenue agent requested their attorney to se that these individuals visited the internal revenue office. The attorney refused this request and the other individual petitioners did not visit the agent's office. Joseph L. Sclafani and Lillian Sclafani Docket No. 65418. For the calendar years 1945 through 1949 respondent determined deficiencies in income tax and additions to tax under the Internal Revenue Code of 1939 as follows:

Additions to tax

Sec. 293 Sec. 294 Sec. 294

Year Income Tax (b) (d)(1)(A) (d)(2)

1945 $27,016.91 $13,508.46 $2,644.00 $1,586.40

1946 3,442.07 1,721.04 309.63 185.78

1947 31,291.14 15,645.57 3,085.97 1,851.58

1948 1,242.54 621.27 102.82 61.69

1949 6,175.71 3,087.86 601.48 360.89

The issues presented for each of the taxable years are: (1) whether petitioners received unreported income during each of the taxable years, such income including dividends and capital gains determined by use of the net worth and expenditures method; (2) whether a medical expense deduction of $185.91 for 1949 was properly disallowed; (3) whether any part of any deficiency is due to fraud with intent to evade tax; (4) whether there should be additions to the tax for each taxable year for failure to file a declaration of estimated tax; (5) whether the statute of limitations bars any of the deficiencies determined. Lillian Sclafani is a party to this proceeding. She failed to appear at the hearing either in person or by counsel. The Commissioner's motion for judgment by default as to her was taken under advisement. FINDINGS OF FACT. Petitioners Joseph L. and Lillian Sclafani are husband and wife. At all times pertinent to this proceeding they resided at 8312-19th Avenue, Brooklyn, New York, 1951-81st Street, Brooklyn, New York, and Oakley Lane, Greenwich, Connecticut. For the taxable years 1945-1949, inclusive, the petitioners timely filed their joint income tax returns with the collector of internal revenue for the first district of New York. Joseph, a brother of James V., Dominick, and William, and a cousin of James J., petitioners herein, was born in 1912. He finished grammar and high school, attended college at night for part of a year and then dropped out because he was more interested in business than an education. Thereafter, he worked full time as a salesman in the wholesale grocery business operated by his father and uncles. During his grammar and high school years he worked in the grocery business after school and on weekends. He earned his first salary in the summer of 1926, when 14 years of age, by working as a bank messenger. In the summer of 1928 he worked again as a bank messenger. Prior to May 1931, Joseph lived with his parents and brothers at the family home at 1951-81st Street, Brooklyn, New York. In May 1931, shortly after attaining 19 years of age, Joseph married Lillian Rinelli, daughter of Peter and Josephine Rinelli. Thereafter, Joseph lived with the Rinelli family, first in their family home at 8312-19th Avenue, Brooklyn, and later in their family home at Oakley Lane, Greenwich, Connecticut. Joseph and Lillian have two children, a son, Joseph R., born in July 1932, and a daughter, Liliana N., born in June 1933. The occupants of the Rinelli family home...

To continue reading

FREE SIGN UP