Stoller v. Commissioner
| Decision Date | 06 June 1983 |
| Docket Number | Docket No. 8731-72. |
| Citation | 1983 TC Memo 319,46 TCM (CCH) 345 |
| Parties | Philip Stoller and Mildred Stoller v. Commissioner. |
| Court | U.S. Tax Court |
Philip Stoller, New York, N.Y., for the petitioners. Richard A. Mandel and Jody Tancer, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies of income tax against petitioners and additions to tax against petitioner Philip Stoller as follows:
Section
6653(b)1 Additions
to Tax (Philip
Tax Year Deficiency Stoller only)
1967 ...... $127,463.84 $63,731.92
1968 ...... 59,348.65 28,174.32
After concessions,2 the issues remaining for decision are as follows: (1) Whether the deficiency notice was issued by respondent prior to the expiration of the statute of limitations on assessment for the years 1967 and 1968; (2) whether respondent acted arbitrarily in determining deficiencies against petitioners for 1967 and 1968; (3) whether petitioners realized additional income in 1967 and 1968 as determined by respondent through the use of the bank deposits method of income reconstruction; (4) whether the amounts of $120,000 and $47,000 reported as short-term capital gain by petitioners in 1967 and 1968, respectively, should have been reported as ordinary income for such years; (5) whether petitioners realized fee income of $1,500 in 1968 which was not reported for that year; and (6) whether petitioner Philip Stoller is liable for additions to tax under section 6653(b) for the years 1967 and 1968.
Some of the facts have been stipulated and are so found. The stipulations of fact, together with the exhibits attached thereto, are incorporated herein by this reference.
Philip Stoller (hereinafter referred to as petitioner) and Mildred Stoller (hereinafter referred to as Mildred) were husband and wife during the years in issue, and resided in Woodmere, New York, on the date the petition was filed in this case. They filed joint Federal income tax returns for years 1967 and 1968 on November 4, 1968, and October 13, 1969, respectively. (Hereinafter when "petitioners" is used it will refer to both petitioner and Mildred). Respondent issued a statutory notice of deficiency pertaining to petitioners' 1967 and 1968 taxable years on August 30, 1972.
Petitioner listed his occupation as "financial consultant" on his 1967 and 1968 returns. No occupation is listed for Mildred on such returns. During the years in issue, petitioner was actively and substantially engaged in trading commodity futures and securities. Additionally, petitioner acted as a financial consultant to certain individuals and entities. In this latter capacity, petitioner advised a Mr. Alfred Herbert, an account executive for Bank Hoffman of Zurich, Switzerland, regarding stocks and/or commodities which would be favorable purchases. Petitioner rendered these services pursuant to an agreement that he would receive a percentage of any profits that were generated by Bank Hoffman's purchase and sale of the stock or commodities that petitioner recommended.3 Additionally, petitioner brought the stock of a company called General Neumismatic to the attention of C.E. Unterberg Towbin Company. As compensation for his advice to C.E. Unterberg Towbin Company, that company tendered a check in the amount of $1,500 to petitioner in 1968. However, petitioner felt that this $1,500 was insufficient compensation for the services he rendered, and therefore returned the check uncashed to C.E. Unterberg Towbin Company. At or about 1975, petitioner received $3,000 in full satisfaction of his services rendered to C.E. Unterberg Towbin Company in 1968.
Petitioners received no inheritance in any form either prior to or during 1967 or 1968; nor did petitioners receive any nontaxable or excludable income from other sources during the years in issue.4
Petitioners' 1967 and 1968 Federal income tax returns were prepared by Sol Bennett, a Certified Public Accountant. Mr. Bennett was neither personally acquainted with petitioners nor had any personal knowledge of petitioner's income producing activities, and prepared petitioners' returns from documents and records submitted to him by petitioner.
Although petitioner was engaged in complicated financial transactions involving commodity futures and securities, the records provided to Mr. Bennett were loose and disorganized, and were generally not adequate records of the types of transactions petitioner was engaged in. For example, although petitioner engaged in a large number of commodity transactions, the buy and sell slips relating these to transactions were not matched, and at times were incomplete. Because of this, Mr. Bennett had difficulty in matching up several of the buy and sell slips provided him, and was therefore unable to prepare a breakdown of all of the individual transactions which resulted in capital gains or losses.
Where petitioner's records contained inadequate information from which Mr. Bennett could prepare a transactional breakdown of each commodity or security buy and sell that petitioner engaged in during the years in issue, Mr. Bennett prepared summary schedules of capital gains and losses according to the records provided him, in lieu of a transactional breakdown. These summary schedules were prepared from information contained in various transcripts of stock and commodity accounts which were provided to Mr. Bennett by petitioner, and which listed various debits and credits in petitioner's name. Mr. Bennett had no independent knowledge of whether these records were reflective of all of the transactions petitioner entered into during the years in issue.
When Mr. Bennett completed his schedules of petitioner's 1967 and 1968 commodity and security transactions, he gave the schedules to petitioner for his review. Petitioner reviewed these schedules for approximately one-half hour in Mr. Bennett's office, never questioned the accuracy of the schedules, and told Mr. Bennett to prepare his 1967 and 1968 returns from these schedules, which Mr. Bennett did.
On their 1967 return, as prepared by Mr. Bennett, petitioners reported the following items of gross income from the following sources:
_________________________________________________________________________
Source Amount5 Character
_________________________________________________________________________
Kroll, Dillon & Co. Short-Term
Nominee Stock Account .......... $ 10,490.84 Capital Gain
L.J. Forget Short-Term
Nominee Stock Account .......... 120,000.00 Capital Gain
Interest Income ................ 1,526.50 Ordinary Income
Salary From Levin Stoller & Co.. 100.00 Ordinary Income
___________
Total ........................ $132,117.34
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_________________________________________________________________________
In arriving at total (adjusted gross) income, as reported on line nine of their 1967 return, petitioners reduced the above gross gains by the following losses from the following sources:
___________________________________________________________________________
Source Amount6 Character
___________________________________________________________________________
Kroll, Dillon & Co. Short-Term
Nominee Commodity Account .... ($8,140.50) Capital Loss
L.J. Forget .................. (20,000.00) Short-Term
Nominee Commodity Account Capital Loss
Levin Stoller Co. ............ (1,678.51) Short-Term
Capital Loss
Alleghany Mining ............. (12,700.00) Short-Term
(Worthless Stock) Capital Loss
Carryover From 1966 .......... (26,717.00) Short-Term
Capital Loss
Levin Stoller Co. ............ (285.39) Section 1231 Loss
____________
Total Short-Term
Capital Loss ............... ($69,521.40)
============
Levin Stoller Co. ............ ($5,109.02)
79 Wall St. Corp. Ordinary Loss
(A Subchapter S. Corp.)....... ($10,611.54)
____________
Total Ordinary Loss .......... ($15,720.56)
============
___________________________________________________________________________
After reducing their short-term capital gains by the above short-term capital losses and the section 1231 loss, and further deducting the above ordinary losses, petitioners reported total income on line nine of their 1967 return of $46,875.38. Petitioners then claimed $6,377.87 worth of itemized deductions, and claimed five exemptions, totaling $3,000. Petitioners thus computed their 1967 tax on taxable income of $37,497.51.
On their 1968 return, as prepared by Mr. Bennett, petitioners reported the following items of income from the following sources:
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