Staffilino v. C.I.R., 012566 FEDTAX, 265-64

Docket Nº:265-64.
Opinion Judge:DAWSON, Judge:
Party Name:LOUIS L. STAFFILINO, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:John Kennedy Lynch and D. Paul Camilletti, for the petitioner. Gordon B. Cutler and Alan E. Cobb, for the respondent.
Case Date:January 25, 1966
Court:United States Tax Court
 
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25 T.C.M. (CCH) 110 (1966)

T.C. Memo. 1966-20

LOUIS L. STAFFILINO, Petitioner,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 265-64.

United States Tax Court.

January 25, 1966

         Held: 1. That respondent has failed to prove fraud for the years 1954 and 1955 by clear and convincing evidence. 2. That, in absence of fraud or waivers, the deficiencies determined by respondent are barred by the statute of limitations.

          John Kennedy Lynch and D. Paul Camilletti, for the petitioner.

          Gordon B. Cutler and Alan E. Cobb, for the respondent.

          MEMORANDUM FINDINGS OF FACT AND OPINION.

          DAWSON, Judge:

         Respondent determined the following income tax deficiencies and additions to tax against the petitioner:

Additions to Tax

Year Deficiency Sec. 6653(b) 1

1954 $3,272.36 $1,636.18

1955 6,722.14 3,361.07

         The principal issue for decision is whether any portion of any deficiency determined by respondent in income tax for the years 1954 and 1955 is due to fraud. A subsidiary, but related, issue is whether the assessment and collection of the deficiencies determined by respondent for such years are barred by the statute of limitations.          FINDINGS OF FACT.          Some of the facts have been stipulated and the stipulation of facts, together with the exhibits attached thereto, are incorporated herein by this reference.          Louis L. Staffilino (hereafter sometimes referred to as petitioner) resides in Mingo Junction, Ohio. He timely filed his Federal income tax returns for the years 1954 and 1955 with the district director of internal revenue, Cleveland, Ohio.          Petitioner's parents, Rose and Guiseppe Staffilino (hereafter sometimes referred to as Rose and Guiseppe), were married in 1917 in Steubenville, Ohio, shortly after immigrating from Italy. They lived their entire married life in Mingo Junction.          Except for sporadic short layoffs, Guiseppe worked continuously from 1909 until about two years before his death in 1959. His work included employment as a millwright, part of the time as a foreman, with the Carnegie-Illinois Steel Corporation (Mingo Works) from January 9, 1909 to September 8, 1945, and employment with Steel Service, Inc. (The Berkman Company), from August 19, 1946 to June 10, 1957.          When Rose and Guiseppe married they had already saved $1,100. They set up housekeeping in a home for which they paid $10 a month rent and immediately took in six boarders. With Guiseppe's pay and the rent paid by the boarders the Staffilinos were able to save between $50 and $100 a month. This pattern of saving continued throughout their married life. They lived frugally, worked hard, and as their earnings increased, so did their savings. Petitioner's older brother, Fred Staffilino, was born on December 5, 1917, and petitioner was born on December 30, 1918. They were the only two Staffilino children.          By 1921 the Staffilinos had saved at least $12,500 and took a trip to Italy to see their family during a temporary shutdown of the steel mill. Guiseppe stayed for a short period of time, until the mill reopened, while the rest of his family stayed for approximately one year. During this period the boarders remained and paid rent. Rose and her two sons, without Guiseppe, made another trip to Italy in 1930. At this time Rose was still taking in boarders. Guiseppe had inherited one-half of a large house in Italy and while Rose was there she bought the other half of the house from Guiseppe's brother for $3,000. By this time the Staffilinos had saved approximately $20,000. The house in Italy produced rental income until it was sold. Shortly after her second return from Italy, Rose invested $10,000 in the purchase of 200,000 Italian lire. She did not make any money on this investment. At some subsequent time Rose and Guiseppe received several inheritances from relatives in Italy.          From about 1932 to May 1946, Rose operated a grocery store in the family home which was located in the steel mill workers' area of Mingo Junction. This store was open from approximately 6 o'clock in the morning to 11 o'clock at night, 7 days a week. There was infrequent hired help. The store was operated by Rose with the assistance of Guiseppe (during the hours he was not working at the steel mill) and her two sons. On May 4, 1946, the steel company, which was purchasing all the property in the area, purchased Rose's property. She was paid $7,000 for the premises and $2,000 for the grocery business.          During the depression several of the banks in which the Staffilinos had money on deposit closed temporarily. Although Rose and Guiseppe recovered 90 percent of their money, they lost some of their faith in banks. It was also during this period that the Staffilinos received an extortion note from the Maffia. The Staffilinos, because of their consistent bank deposits and real estate transactions, had gained the reputation of being well-to-do. Although they never paid any money to the Maffia, the Staffilinos, fearing recurrences of this sort of thing, became even further afraid of depositing substantial sums of money in banks. However, they did maintain bank accounts.          Rose at all times managed the cash for the family. She kept the cash in a box from which she paid the store expenses and the family expenses. Several months after the steel company purchased the Staffilino's property at 229 Cleveland Avenue, the family moved to 603 St. Clair Street. At that time Rose had accumulated approximately $35,000 in her money box.          Guiseppe received a pension from the Carnegie-Illinois Steel Corporation from 1945 until he reached age 65 in 1953 and became eligible for Social Security. However, Guiseppe chose to work until 1957 rather than collect Social Security, but he received Social Security payments from 1957 until his death in 1959.          Rose and Guiseppe made the following purchases of real estate, all in Mingo Junction, Ohio, paying cash with no mortgage loans: December 20, 1939, 229 Cleveland Avenue, cost approximately $1,000; April 10, 1946, 707 St. Clair Street, cost approximately $12,000; November 14, 1947, 668 Commercial Street, cost approximately $5,500; June 12, 1946, 603 St. Clair Street, cost approximately $8,600. In the latter part of 1955 they built a residence on the rear of their property at 603 St. Clair Street which cost approximately $10,000.          Rose and Guiseppe sold the following real estate in Mingo Junction, Ohio: March 7, 1941, rear house and land, 229 Cleveland Avenue, sale price $1,000; May 2, 1946, front portion of real estate at 229 Cleveland Avenue (to the steel corporation), sale price $9,000.          The Staffilino family was close-knit and the parents were very generous to their sons. The boys received frequent gifts from their mother and father, often sums of money. Rose and Guiseppe also purchased several automobiles for each of their sons. When Fred married in 1942 they gave him money and furniture. They also gave him a home rent free at 707 St. Clair Street.          Guiseppe and Rose made the following stock transactions as recorded in the Securities Register books in the Mingo National Bank:

Name of Shares Shares

Date Stockholder Name of Stock Bought Sold Amount

1-8-51 Joseph Staffilino Wheeling Steel 100 $3,680.65

8-24-51 Joseph Staffilino Wheeling Steel 100 4,194.77

12-19-51 Joseph Staffilino Wheeling Steel 100 3,781.15

2-23-53 Joseph Staffilino Penn. Railroad 100 1,787.75

10-11-52 Rose Staffilino Wheeling Steel 10 352.55

9-18-53 Rose Staffilino Wheeling Steel 10 321.55

4-14-54 Joseph Staffilino U.S. Steel 48 2,117.26

11-23-54 Joseph & Rose Wheeling Steel 120 5,636.75

Staffilino

6-7-55 Rose Staffilino Wheeling Steel 100 5,528.54

11-22-55 Rose Staffilino Wheeling Steel Rights 110 58.33

7-16-59 Rose Staffilino Wheeling Steel 110 6,941.12

3-5-60 Rose Staffilino Wheeling Steel 125 6,432.25

         In addition, from the time they were married and for a number of years thereafter, Rose and Guiseppe bought one share of Carnegie-Illinois Steel Corporation stock each month.          Petitioner graduated from Mingo Junction high school in 1938 at which time he was awarded several football scholarships. He accepted one at the University of Chattanooga but became homesick and returned to Mingo Junction after 6 weeks. A year later he went to the University of Kentucky but again returned home after a short time. Petitioner then went to work at the Carnegie-Illinois steel mill as a laborer. He worked there sporadically until the end of 1945, except for about one year of service in the United States Army from which he was honorably discharged because of an old knee injury. Petitioner worked in Rose's store part time while working for the steel mill and full time from the end of 1944 until the steel mill purchased the store in 1946. Petitioner did not receive a regular salary from Rose but received varying sums of money from her at frequent intervals. For the next 3 years petitioner was not regularly employed although he did do some professional boxing. During this period he continued to live with his parents who provided for him generously. In these years, petitioner spent substantial time collecting some $16,000 in debts owed to Rose by people to whom she had extended credit when operating her grocery store. All of the money was turned over to Rose. Rose and Guiseppe had promised petitioner he would eventually receive a large share of these collections.          In 1950 petitioner opened a variety store, known as Lane's Lounge, at 668 Commercial Street, Mingo Junction, selling cigars, cigarettes,...

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