SERRI v. Commissioner, Docket No. 91969.
| Decision Date | 18 August 1964 |
| Docket Number | Docket No. 91969. |
| Parties | William S. and Mary P. Serri v. Commissioner. |
| Court | U.S. Tax Court |
David Berger and Frank S. Deming, for the petitioners. Edward L. Newberger, for the respondent.
Memorandum Findings of Fact and Opinion
In his notice of deficiency dated January 18, 1961, the respondent determined income tax deficiencies and additions to the tax against petitioners for the calendar years 1942 through 1956 as follows:
The issues for decision are:
(1) Whether the petitioners filed a false or fraudulent return with the intent to evade tax for each of the years 1942 through 1956.
(2) Whether the petitioners omitted from gross income an amount in excess of 25 percent of the amount of gross income stated in the return for each year.
(3) Whether the respondent properly determined deficiencies for 1942 through 1956 on the basis of net worth plus expenditures less nontaxable income.
(4) Whether any part of the deficiencies was due to fraud within the meaning of sections 293(b) of the 1939 Code and 6653(b) of the 1954 Code.
(5) Whether the petitioners substantially underestimated their estimated tax for each of the years 1945 through 1954 within the meaning of section 294(d)(2) of the 1939 Code.
The stipulated facts are found accordingly. Some of them are set forth in detail herein.
The petitioners, William S. Serri and Mary P. Serri, are husband and wife, and reside in Merchantville, New Jersey, with their three children. They filed joint income tax returns (income and victory tax in 1943) for the calendar years 1942 through 1951 with the collector of internal revenue at Camden, New Jersey; for the calendar year 1952 with the director of internal revenue, Camden, New Jersey; and for the years 1953 through 1956 with the district director of internal revenue at Camden, New Jersey. Mary P. Serri is a petitioner herein solely by reason of the filing of joint returns, and hereinafter William S. Serri will be referred to as Serri or the petitioner.
The returns for 1942 through 1946 were destroyed in accordance with sections 366 to 374, U. S. C. A., Title 44, and internal revenue policy relating to the periodic destruction of income tax returns. The petitioner paid estimated income tax, and according to his own accounts had income tax liabilities which by independent calculation would indicate net incomes as follows:
Income Net
Estimated Tax Income
Year Tax Paid Liability Computed
1942....... ........ $1,253.76 $ 7,637.50
1943....... $1,829.94 1,630.51 9,175.08
1944....... 1,570.52 1,503.93 7,720.45
1945....... 1,568.33 1,365.84 8,140.82
1946....... 1,400.00 1,696.30 10,418.60
Serri reported net incomes and paid estimated taxes and income tax liabilities in his returns for the calendar years 1947 through 1956 as follows:
Net or
Taxable Income Tax
Income Estimated Liability
Year Reported Tax Paid Paid
1947........ $15,399.28 $1,500 $3,393.11
1948........ 15,346.85 1,500 2,295.68
1949........ 20,695.21 1,500 3,557.76
1950........ 16,040.74 2,400 2,727.52
1951........ 14,812.70 2,500 2,741.42
1952........ 24,384.71 2,800 6,241.58
1953........ 22,889.71 2,800 5,642.10
1954........ 21,708.21 5,000 5,929.12
1955........ 25,240.75 5,000 7,333.52
1956........ 23,745.84 7,000 6,703.42
The petitioner was born on December 26, 1911, in Pennsylvania. He received his elementary and high school education in Camden, New Jersey; he attended the University of Pennsylvania for 2½ years; and is a graduate of Hahnemann Medical College of Philadelphia. He completed his education in 1936 and served an internship with the West Jersey Hospital in Camden, New Jersey.
Serri began his medical practice in the community of Mullica Hills, New Jersey, in 1937. He closed this office a few years later and opened offices in Swedesboro, New Jersey, a farming community, and in Camden, New Jersey, an industrial city. In late 1941 or early 1942 he closed the Camden office due to war conditions but reopened it in 1946. He lived in the same building with his Swedesboro office until he moved to Merchantville in 1949.
During the years 1942 through 1956 Serri engaged in the general practice of medicine and did some X-ray work. From 1946 to 1952 he also did X-ray work for the Veterans Administration. The Swedesboro office building was licensed as a private hospital from 1949 until April 1957. The hospital consisted of two beds used in keeping patients overnight for G. I. Series and X-ray work. The petitioner had an X-ray technician in Camden who helped him two days a week. In addition, he had an assistant, Jeannette Kanady, who worked with him as long as the office was open. In fact, at least part of the time she lived with the Serris or with Serri's mother at Swedesboro upstairs over the office-hospital and was almost like one of the family. She started working for Serri in 1940, and was still his employee at time of trial.
Serri had such an extensive general office practice that he installed a numbering system for his patients. He made no appointments and each patient received a number when he arrived which determined his place in line. The numbers were placed on the porch of Serri's office and this allowed patients to get a number early and then take a nap or have time to run errands or do something else before their turn to see the doctor would come up. The patients would start arriving at 5:00 or 5:30 in the morning to get their numbers. They then would either leave to return later on or some of them would stand around on the porch of the office or sleep in their cars until time for their visit with the doctor. It was not always possible to tell exactly when a number could come up. There were often numbers missing due to the fact that some were never returned and others were taken by passing school children. We find on all of the evidence that Serri managed to see an average of 7 patients an hour and that the average visit per patient was less than 10 minutes.
Serri dispensed most of the required pills and did not write prescriptions except for special drugs. He charged each patient the same fee unless it was an unusual situation. The stipulated average charge for a patient's visit was $3.00 in 1951 and 1952, $3.50 in 1953 and 1954, and $4.00 in 1955. These averages include free visits, home visits, X-rays, lesser charges to old-time patients and other variances. We find that Serri also averaged $3.00 per visit for the years 1942 through 1950. No accounts were run or bills sent; it was a cash system.
Serri opened his office between 7:00 and 8:00 in the morning and saw patients until approximately 12:30 at night. He often worked even later, not closing the office until 1:30 or 2:30 in the morning. He also worked up to 9 hours on Saturday and holidays found him on the job too. Other than occasional days off, he took no vacations. He did take several short rest periods or naps during the day which were necessitated by the fact that he had Mediterranean Anemia. He also spent some time commuting between offices, and between his home and offices, but the distances were not great and at least part of the time he slept at his office at Swedesboro even after he had moved to his new home at Merchantville. The parties stipulated that Serri worked the equivalent of 275 full days a year during the years in question. This figure takes into consideration partial days worked since he opened his office on 301 actual days. We find that Serri averaged at least 14 hours per full working day.
In his medical practice Serri maintained records under the Histacount Bookkeeping System for some of the years in question. Sample pages from these records were introduced into evidence by respondent. Although deductions or expenditures were shown in great detail on these sheets, the total receipts for the day were made in a single entry or sometimes two entries — one for the Swedesboro office and one for the Camden office. According to petitioner's explanation his total receipts figure was arrived at by deducting the daily starting cash from the cash in the drawer at the end of the day. There were numerous changes in the records with respect to income; total daily receipts and even total monthly income was rewritten. No explanation for this was given at trial. The records introduced do not reflect this same rewriting with respect to the detailed expense disbursements recorded therein. Serri did not keep...
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