Sly v. Commissioner
| Decision Date | 15 September 1988 |
| Docket Number | 42908-85.,Docket No. 23814-82,538-85 |
| Citation | 56 TCM (CCH) 209,1988 TC Memo 443 |
| Parties | Dona H. Sly and Joann E. Sly v. Commissioner. |
| Court | U.S. Tax Court |
Lowell H. Becraft, Jr., Ohatchee, Ala., for the petitioners. Linda J. Wise, for the respondent.
By three separate statutory notices, respondent determined deficiencies1 in and additions to petitioners' Federal income tax for the years and in the amounts as follows:
Additions to TaxSectionSectionSectionSectionYearAmount6653(a)26653(b)6653(b)(1)6653(b)(2)Docket No. 32814-82 1977 ...................... $ 6,496.70 $324.84 -- -- -- 1978 ...................... 3,383.63 169.18 -- -- -- Docket No. 538-85 1980 ...................... 55,884.87 -- $27,942.44 -- -- Docket No. 42908-85 1981 ...................... 22,061.05 -- 11,030.53 -- -- 1982 ...................... 28,100.01 -- -- $14,050.01 50% of int. due on $28,100.01
For convenience our Findings of Fact and Opinion are combined.
Respondent reconstructed petitioners' income for 1977 and 1978 utilizing the bank deposits method, adding to their income unexplained deposits to their individual checking account plus payments made on behalf of petitioners by the Universal Church of Jesus Christ (the Church), an incorporated entity. Respondent also reconstructed petitioners' income for 1980, 1981, and 1982 using indirect means. Respondent added to petitioners' taxable income for those years the bank deposits of the Church, the Bureau of Collections,3 Industrial Loan Co., Inc. (ILC), Used Car Rentals, Inc. (Car Rentals), and Uni-King, Inc. (Uni-King)4. Respondent asserts that the four corporations were controlled by, and were the alter egos of, petitioner Dona Sly (Sly). Respondent also disallowed all of petitioners' Schedule A and Schedule C deductions for 1980, 1981, and 1982.5 Finally, respondent determined that petitioners are liable for an addition to tax for negligence pursuant to section 6653(a) for 1977 and 1978, and an addition to tax for fraud pursuant to section 6653(b) for 1980, 1981, and 1982. Petitioners bear the burden of proof as to every issue except the fraud addition. Rule 142.
This case is presently before the Court for disposition on the basis of an incomplete record made at the trial held on February 18-20, 1986, and on respondent's motion to dismiss and for default judgment on the grounds that petitioners have failed to comply with our order of May 16, 1988 (the May 16 Order). This Order was designed to require the parties to complete the record by supplemental stipulation. In support of his motion, respondent has attached photocopies of correspondence reflecting the efforts of respondent's counsel and agents to meet with Sly and his accountant in an effort to work out further stipulated facts. Petitioners' response to the motion merely restates their arguments based on Moline Properties, Inc. v. Commissioner 43-1 USTC ¶ 9464, 319 U.S. 436 (1943), to the effect that the separate corporate existence of the several corporations should be respected.
The record in this case consists of a 481-page transcript and stipulated exhibits which may be stacked to a height of nearly five feet. The majority of trial testimony concerns the related declaratory judgment case of Universal Church of Jesus Christ v. Commissioner Dec. 44,590(M), T.C. Memo. 1988-65, in which we held that the Church was not an organization exempt from tax as described in section 501(c)(3). Many of the exhibits are bank statements, cancelled checks and deposit slips for the several corporations (including the Church and the Bureau of Collections) in which Sly had an interest. Bank records with respect to ILC, Uni-King, and Car Rentals consume little space in the record compared with the records for the Church and especially the Bureau of Collections. Examination of the bank records for those entities has been a relatively simple task, thanks to their brevity. As explained later in this opinion, we are persuaded that checks written on the accounts of those three corporations represent legitimate business expenses. This stands in sharp contrast to the overwhelming volume of bank records for the Bureau of Collections. At best, the Court can only choose random examples of checks drawn on that account, some of which appear to be for personal expenses such as charge card payments. While there is some internal organization to these documents, there is virtually no indication of how they relate to the disputed issues in this case. The confusion and complexity has been made worse by the failure of the parties to cooperate. The Court has attempted to lessen the burden imposed upon it by the state of this record through first requesting and then requiring the parties, particularly petitioners, to take specific steps to make our decision-making process reasonable and practical. Their failure to do so leaves disposal in accordance with this opinion the only practical choice left for the Court.
Some of the facts have been stipulated and they are so found. At the time of the filing of the petitions in this case, petitioners were residents of Etowah County, Alabama. The Findings of Fact in T.C. Memo. 1988-65 and the Opinion itself insofar as it bears on the relationship between petitioners and the Church are incorporated herein by reference.
In certain respects, our May 16 Order required no more of petitioners than that which was already required by section 274(d).6 However, we have assumed that in the voluminous receipts, vouchers, etc. submitted by petitioners there are some items which may be related to deductions to which section 274 does not apply.
Petitioners have filed nothing with the Court pursuant to our May 16 Order, which in itself constitutes a violation of that order. Following numerous efforts by respondent's counsel and its agents, petitioners did provide respondent's counsel with what purports to be a series of schedules of Sly's expenses for travel, meals, and lodging paid during the years 1977 through 1982, both inclusive.7 Copies of these schedules are attached to respondent's motion. The names of only a few of the payees of these disbursements are indicated. The purpose of the disbursement is only rarely indicated and no references are made to the record in this case. However, these schedules may not be made part of the record as evidence, as a filing with respondent in and of itself does not constitute a part of the record on which we can base findings of fact.
Were these schedules to be made a part of the record, the verification of these receipts and expenses, all of which are contested by respondent, is a task beyond the capability of this Court by reason of the confused state of the record and the lack of essential facts. The schedules provided to respondent offer Precious little assistance to petitioners' case. For example, information that Sly purchased $18.69 worth of oil and gas on March 27, 1981, even if the record somewhere has documentation of that purchase, does not without more entitle petitioners to a deduction. The same may be said of an expenditure on April 20, 1981, of $162.64 for "Motel for 14 days Florence Al., 4/20."8 Even in those few instances where for example the name and location of a motel is given, the particular purpose for which the expenditure was incurred was not described. Also some personal expenditures are included, such as on July 26, 1982, "medicine for JoAnn" in the amount of $12.01.
Moreover, petitioners provided respondent with schedules of expenses for 1977 and 1978, even though petitioners claimed, and respondent disallowed, no Schedule C deductions for those years. It is, of course, possible, even probable, that some of the items shown on the 1977 and 1978 schedules reflect reimbursement to petitioners for traveling expenses incurred by Sly for the Church on its business activities or similar expenses paid by the Church to third parties which have been taxed to petitioners. But there is no way in which we can supply the information which should have accompanied those schedules if they had been filed with the Court.
Pursuant to Rule 123(a), the Court may hold any party in default "When any party has failed to plead or otherwise proceed as provided by these Rules or as required by the Court * * *." Under Rule 123(b), our discretion is even broader, as a case may be dismissed "For failure of a petitioner properly to prosecute or to comply with these Rules or any order of the Court or for other cause which the...
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