Stephens v. Commissioner
| Decision Date | 24 February 1981 |
| Docket Number | Docket No. 6430-78,7730-78. |
| Citation | 1981 TC Memo 85,41 TCM (CCH) 964 |
| Parties | Charles L. Stephens and Nada Rae Evans, Formerly Nada Rae Stephens v. Commissioner. Charles L. Stephens v. Commissioner. |
| Court | U.S. Tax Court |
Gary James Joslin, for the petitioners. Charles O. Cobb, for the respondent.
In these consolidated cases the respondent determined the following deficiencies and additions to tax:
Addition to Tax
Petitioners Dkt. No. Year Deficiency Sec. 6653(b)1
Charles L. Stephens and 6430-78 1971 $1,482.00 $ 741.00
Nada Rae Evans 6430-78 1971 3,188.00 —0—
Charles L. Stephens and 6430-78 1972 5,756.00 2,878.00
Nada Rae Evans 6430-78 1972 5,756.00 —0—
Sec. 6653(a)
__________
Charles L. Stephens 7730-78 1974 9,029.00 $ 451.00
Certain adjustments relating to business expenses and itemized deductions have been resolved by agreement of the parties as reflected in the stipulation of facts. Adjustments for the year 1971 relating to community property allocations of income and expenses have not been contested by the petitioners. Thus, the issues remaining for decisions are: (1) whether the petitioner Charles L. Stephens received unreported taxable income for each of the years 1971, 1972 and 1974 from accounting services; (2) whether the distributive share of partnership income reported by petitioner Charles L. Stephens on his Federal income tax return for 1974 with respect to a partnership known as Land Equities should be increased by $80; (3) whether any part of the underpayment of income tax for each of the years 1971 and 1972 was due to the fraud of petitioner Charles L. Stephens with intent to evade tax; (4) whether petitioner Charles L. Stephens is liable for the section 6653(a) addition to tax for the year 1974; and (5) whether the deficiencies and additions to tax are unconstitutional on the grounds that they violate rules of uniformity, due process of law or equal protection of the law.
All of the facts have been stipulated by the parties. The stipulation of facts and attached exhibits are incorporated herein by the reference and are summarized below.
In 1971 and 1972 Charles L. Stephens (petitioner) and Nada Rae Evans, formerly Nada Rae Stephens, were husband and wife who resided in Hacienda Heights and Granada Hills, California, respectively, when the petitions were filed in these cases. They were divorced in 1974.
The petitioner and Nada Rae Evans filed separate Federal income tax returns for the year 1971. On the petitioner's separate return he reported income from employment by Pacific Intermountain Express Company of $13,871, partnership income of $1,248 and interest income of $16. Taxable income as shown on this return is $8,026. On the separate return filed by Nada Rae Evans for 1971 she reported income from employment by Beneficial Standard Life Insurance Company in the amount of $1,875.89. Adjusted gross income shown on her return is $1,875.89.
The petitioners filed a joint Federal income tax return for the taxable year 1972 on which they reported $17,332 in income from the employment of Charles L. Stephens by Pacific Intermountain Express Company and $1,270 in partnership income. Taxable income shown on the return for that year is $9,266.
Petitioner filed a separate return for the year 1974 on which he reported income from employment by Pacific Intermountain Express Company of $13,212, income from employment by IML Freight Lines, Inc., of $2,910, and partnership income of $1,792. He also reported $16,613 in accounting fees against which $12,160 in deductions were claimed. Taxable income shown on the return for that year is $14,928.
In addition to his employment by Pacific Intermountain Express Company in 1971, 1972 and 1974, and his employment by IML Freight Lines in 1974, the petitioner was during those years in the business of providing accounting services to various individuals and companies primarily involved in the trucking and transportation business.
In exchange for providing accounting services, the petition received fees in the form of checks. The total face amount of the checks received by him in 1971, 1972 and 1974 for such services were as follows:
Year Amount
1971 ............ $12,913
1972 ............ 15,037
1974 ............ 24,504
Petitioner incurred business expenses in connection with providing accounting services as follows:
Year Amount
1971 ............ $ 3,197
1972 ............ 3,252
1974 ............ 5,670
None of the fees for accounting services or related business expenses were reported by petitioner or Nada Rae Evans on their Federal income tax returns for 1971 and 1972.
Petitioner had itemized deductions as follows:
Year Deduction Amount
1971 Medical ....... $1,104
Other ......... 4,157
1972 Medical ....... 2,142
Other ......... 4,511
1974 Other ......... 5,131
The parties have stipulated that the nets of the amounts set out above, taking into account the amounts shown on petitioners' Federal income tax returns for the years in issue and the limitation on medical deductions, are as follows:
Year Net Amount
1971 ........... $18,111
1972 ........... 24,646
1974 ........... 31,697
Petitioners have not stipulated that the amounts set out above are "properly characterized as dollars but rather as Federal reserve note units." They also have not stipulated as to the value of the checks received by petitioner Charles L. Stephens.
For the years in issue the number of Federal Reserve notes of one unit required in exchange for 25.8 grains of gold, .9 fine, was as follows:
Year Number
1971 .............. 2.16
1972 .............. 2.96
1974 .............. 8.33
During these years a Federal Reserve note of one unit would exchange for the following portion of 25.8 grains of gold, .9 fine:
Year Number
1971 ............... .46
1972 ............... .34
1974 ............... .12
In summary, $18,111 divided by 2.16 equals $8,384.72 in 1971; $24,646 divided by 2.96 equals $8,326.35 in 1972; and $31,697 divided by 8.33 equals $3,805.16 in 1974.
On or about March 1976, an indictment was filed in the criminal case of United States v. Charles L. Stephens, No. 76-370 (C.D. Calif. July 12, 1976), charging the petitioner, in two counts, of signing and filing returns for the years 1971 and 1972 which he did not believe to be true and correct, in violation of section 7206(1), Internal Revenue Code, because the returns did not report income from accounting fees he had received in those years. On July 12, 1976, the United States District Court for the Central District of California entered a judgment of conviction finding petitioner Charles L. Stephens guilty as charged in the two count indictment.
Issue 1. Understatements of Taxable Income
The stipulated facts in these cases establish that the petitioner not only received income from his employment with Pacific Intermountain Express Company and IML Freight Lines but he also provided accounting services to individuals and companies engaged in the trucking and transportation business. For the latter services he received fees of $12,913 in 1971, $15,037 in 1972 and $24,504 in 1974. These accounting fees were not reported by the petitioner on the Federal income tax returns filed for 1971 and 1972. The amount of $16,613 was reported by him on his Federal income tax return for 1974, thus resulting in an understatement of fees for that year of $7,891. After taking into consideration the stipulated business expenses and itemized deductions, the understatements of taxable income for the years 1972 and 1974 are $13,130 and $15,269, respectively.
For the year 1971, when the petitioners, who were then husband and wife, filed separate returns, the community property laws of California are applicable. Cal. Civ. Code, Sec. 5110. Thus, all items of income and expense of a husband and wife must be evenly divided between them for reporting purposes if they elect to file separate returns. Kimes v. Commissioner Dec. 30,655, 55 T.C. 774 (1971); Porter v. Commissioner Dec. 35,950(M), T.C. Memo. 1979-104. When applied herein, the community property rules of California require that both the accounting fees earned by the petitioner in 1971 together with other income reported by him and Nada Rae Evans on their 1971 returns be equally divided between them. The result is total gross income properly reportable on the separate return of petitioner of $14,962, and gross income in the same amount properly reportable on the separate return of Nada Rae Evans. Total business and itemized deductions must also be divided between them. Hence there is an understatement of taxable income for 1971 on petitioner's separate return of $1,758 and an understatement of taxable income on the separate return of Nada Rae Evans of $8,583.
Issue 2. Increase in Distributive Share of Partnership Income
In the notice of deficiency sent to petitioner for the year 1974 respondent determined that he received income from a partnership, known as Land Equities, in the amount of $1,872 rather than the $1,792 reported on the return. This adjustment was placed in issue by the petition, but no evidence regarding the adjustment was offered by petitioner. Therefore, we sustain respondent's determination.
Issue 3. Section 6653(b) Additions to Tax
The issue of fraud is one of fact to be determined upon a consideration of the entire record. Stratton v. Commissioner Dec....
To continue reading
Request your trial