Sullivan v. C.I.R., 083183 FEDTAX, 15628-80

Docket Nº:15628-80.
Opinion Judge:FEATHERSTON, Judge:
Party Name:JOSEPH W. SULLIVAN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Joseph W. Sullivan, pro se. Charles W. Maurer, Jr., for the respondent.
Case Date:August 31, 1983
Court:United States Tax Court
 
FREE EXCERPT

46 T.C.M. (CCH) 1271

JOSEPH W. SULLIVAN, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 15628-80.

United States Tax Court

August 31, 1983

          Joseph W. Sullivan, pro se.

         Charles W. Maurer, Jr., for the respondent.

          MEMORANDUM FINDINGS OF FACT AND OPINION

          FEATHERSTON, Judge:

         Respondent determined a deficiency in petitioner Joseph W. Sullivan's Federal income tax for 1976 in the amount of $41,482 together with an addition to tax for fraud under section 6653(b)[1] in the amount of $20,741. The issues for decision are as follows:

         (1) Whether petitioner Joseph W. Sullivan understated his taxable income for the year 1976 by failing to report income realized from funds embezzled from his employer in the amount of $136,920; and

         (2) Whether petitioner Joseph W. Sullivan is liable for the addition to tax under section 6653(b) for fraud.

         FINDINGS OF FACT

         Petitioner Joseph W. Sullivan (hereinafter petitioner), resided in Sharon, Massachusetts at the time his petition was filed. Petitioner's return for 1976 was timely filed. On his return, he reported gross income of $5,734.75.

         Petitioner is an accountant by profession. He received a bachelor's degree in accounting from Bentley College, maintaining a B+ average overall. As part of his college accounting curriculum, petitioner took courses in Federal income taxation. Although he is not a certified public accountant in this country, petitioner is certified by the Government of the Bahamas.

         Petitioner received the highest mark in the history of the Massachusetts civil service examination for State bank examiners. He also received the highest mark in the history of the New England region in the Government examination for Federal bank examiners.

         During 1976, the taxable year in question, petitioner was employed as comptroller by Subaru of New England, Inc. (hereinafter Subaru, a regional importer and distributor of Japanese motor vehicles, which is owned and controlled by Ernest Boch. As comptroller, petitioner was the chief financial officer for the corporation. His major duties included responsibility for cash receipts, expenditures, financial statements, payroll, and billing.

         In addition to his work for Subaru, petitioner also maintained a separate public accounting practice and was the owner of two businesses, the Plant Place and the Fun Place. Petitioner employed his brother, Daniel J. Sullivan, (hereinafter Daniel), to help him handle some of these separate business activities.

         Petitioner's employer, Subaru, maintained a checking account with the New England Merchants National Bank, Boston, Massachusetts. During the taxable year 1976, the only persons authorized to sign and draw checks on this account were Ernest Boch and his brother, Richard Boch. In his capacity as the company comptroller, petitioner had lawful access to blank checks for Subaru's New England Merchants National Bank account; however, he was not authorized to sign or draw checks on the account. Petitioner's brother, Daniel, did not have lawful access to the blank checks for the Subaru account; nor was he authorized to sign such checks.

         In February 1976, petitioner, aided by Daniel, initiated steps to effectuate a plan through which ultimately $200,000 was embezzled from Subaru. The first step in the plan was the opening of three bank accounts by petitioner and his brother in different Boston-area banks.

         On February 10, 1976, petitioner opened an account in the name of New England Realty Company at the Boston Safe Deposit and Trust Company of Suffolk County, Massachusetts. Petitioner used the name " Joseph Hogan" in opening the account; however, the signature of " Joseph Hogan" on the account signature authorization card was in petitioner's handwriting, and the company's tax identification number is just one number different from petitioner's social security number.

         On the same day, February 10, 1976, Daniel, using the name " Daniel Flynn", opened an account in the name of Southeastern Transportation Services at the City Bank and Trust Company of Suffolk County, Massachusetts.

         On February 11, 1976, petitioner opened an account with the Walpole Mall branch office of the Hancock Bank and Trust Company of Norfolk County, Massachusetts. Petitioner opened the account in the name of New England Foreign Auto Parts; however, he signed his own name as the person authorized to draw checks from the account, and used his own social security number as the account's tax identification number.

         When he opened the account, petitioner explained to Robert C. Marsh, Jr., the branch manager who assisted petitioner in opening the account and witnessed petitioner sign the signature authorization card for the account, that New England Foreign Auto Parts was being established and financed by Ernest Boch as a separate business entity to purchase automobile parts more cheaply for Subaru automobiles. This explanation was later discovered to be false.

         Approximately one week later, on or about February 17, 1976, accounts were opened at the following fourteen additional Boston-area Banks:

         1. Homeowners Federal Savings and Loan Association

         2. Dorchester Savings Bank

         3. Hibernia Savings Bank

         4. Boston Five Cents Savings Bank

         5. First Federal Savings and Loan Association of Boston

         6. Union Warren Savings Bank

         7. Suffolk Franklin Savings Bank

         8. Eliot Savings Bank

         9. Charlestown Savings Bank

         10. Workingmen's Cooperative Bank

         11. Home Savings Bank

         12. Volunteer Cooperative Bank

         13. Provident Institution for Savings

         14. Merchants Cooperative Bank

         The actual embezzlement was executed in the following manner. During March 1976, seven checks were drawn by petitioner on Subaru's New England Merchants' National Bank account bearing the forged signature of Ernest Boch. These checks were deposited into the three accounts described above, which were initially opened by petitioner or Daniel on the dates and in the amounts as follows:

Amount and Place of Deposit
City Bank
(Southeastern Boston Safe Hancock Bank
Check Transportation (New England (N.E. Foreign
Number Date Services) Realty Co.) Auto Parts)
7378 3/11/76 ......... ......... $ 34,885.00
7382 3/11/76 $30,500.00 ......... ..........
7392 3/11/76 ......... $25,000.00 ..........
7380 3/15/76 ......... ......... 36,115.00
7393 3/16/76 ......... 25,000.00 ..........
7394 3/16/76 $24,500.00 ......... ..........
7401 3/18/76 ......... ......... $ 24,000.00
TOTAL $55,000.00 $50,000.00 $ 95,000.00
TOTAL ALL BANKS $200,000.00
         Petitioner forged the signature of Ernest Boch appearing on the checks and covered up the forgeries through misaddition on Subaru's books. Although the endorsements on the copies of the forged checks are unclear, the handwriting of the endorsements on checks 7380 and 7401 (deposited in the Hancock Bank) and check 7393 (deposited in the Boston Safe Deposit and Trust) is that of petitioner. The handwriting of the endorsement on check 7394 (deposited in the City Bank and Trust Co.) is that of Daniel.          After the embezzled funds were deposited into the three accounts, various amounts were withdrawn from those accounts. During March 1976, petitioner drew sixteen checks on the account of New England Foreign Auto Parts with the Hancock Bank and Trust Company on the dates and in the amounts as follows:
Check
Number Date Amount Payee
110 3/17/76 $ 7,500 J. W. Sullivan
111 3/17/76 9,000 Cash
112 3/18/76 9,000 Cash
113 (typed) 3/19/76 5,000 Union Warren Savings Bank
113 (script) 3/19/76 7,000 Cash
114 (typed) 3/19/76 5,000 Homeowners Federal Savings and Loan Association
114 (script) 3/19/76 2,500 J. W. Sullivan
115 (typed) 3/19/76 5,000 The Hibernia Savings Bank
115 (script) 3/22/76 2,000 J. W. Sullivan
116 (typed) 3/19/76 5,000 The Boston Five Cents Savings Bank
116 (script) 3/25/76 10,000 Joseph W. Sullivan
117 (script) 3/25/76 10,000 Joseph W. Sullivan
117 (typed) 3/19/76 5,000 First Federal Savings and Loan Association
118 (typed) 3/19/76 5,000 Suffolk Franklin Savings Bank
118 (script) 3/20/76 1,000 J. W. Sullivan
119 3/19/76 5,000 Dorchester Savings Bank
         During March, 1976, petitioner drew eight checks on the account of New England Realty Co. with the Boston Safe Deposit and Trust Company on the dates and in the amounts as follows:
Check Signature
Number Date Amount Payee on check
110 3/12/76 $ 750 J. W. Sullivan Joseph Hogan
111 3/16/76 20,000 Federal Reserve Bank of Boston Joseph Hogan
112 3/16/76 3,000 Joseph W. Sullivan Joseph Hogan
113 3/19/76 5,000 Eliot Savings Bank Joseph Hogan
114 3/19/76 5,000 Workingmen's Cooperative Bank Joseph Hogan
115 3/19/76 5,000 Charlestown Savings Joseph Hogan
116 3/19/76 5,000 Daniel Sullivan Joseph Hogan
117 3/29/76 5,000 Hancock Bank and Trust Company Joseph Hogan
         In drawing the New England Realty Company checks petitioner used the name " Joseph Hogan" ; however, the signature of " Joseph Hogan" on each of the checks was in the handwriting of petitioner. Further, it was stipulated that petitioner used the full amount of check number 111, $20,000, to purchase two Federal Treasury Notes.          Similar withdrawal activity occurred in the account of Southeastern...

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