United Dressed Beef Co. v. Comm'r of Internal Revenue
| Decision Date | 18 February 1955 |
| Docket Number | Docket Nos. 30317–30321. |
| Citation | 23 T.C. 879 |
| Parties | UNITED DRESSED BEEF COMPANY, et al.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
A corporation engaged in slaughtering cattle and hogs and selling meat invoiced its products to customers at the ceiling prices fixed by the Government. The two owners of all the stock collected cash overceiling payments from customers, measured by the quantity of meat delivered. No record of these collections was maintained. Returns of the corporation prepared by accountants did not include these receipts. The stockholders reported on their tax returns certain amounts as “commissions” or “miscellaneous income from other sources,” but less than the amount of the overcollections determined by the respondent. The wives of the stockholders signed returns prepared by accountants reporting their income from their husbands' earnings pursuant to the community property laws.
Held: 1. The amount of overceiling collections determined by respondent is not shown to be erroneous.
2. The overceiling collections were income to the corporation.
3. The stockholders' returns were fraudulent with intent to evade tax.
4. Returns of the stockholders' wives were not fraudulent.
5. Returns of the corporation were not fraudulent. Alva C. Baird, Esq., Benjamin W. Shipman, Esq., William A. Cruikshank, Jr., Esq., and Albert J. Galen, Esq., for the petitioners.
Donald P. Chehock, Esq., for the respondent.
The respondent determined income tax deficiencies and 50 per cent additions to the tax for fraud against the individual petitioners for the calendar years 1943 to 1946, inclusive, in the following amounts:
+---------------------------------------------------------+
¦ ¦Samuel ¦Rose Borne¦Benjamin ¦Jean Borne¦
+---------------+---------+----------+---------+----------¦
¦ ¦Borne ¦ ¦Borne ¦ ¦
+---------------+---------+----------+---------+----------¦
¦1943 Deficiency¦$5,635.89¦$5,635.89 ¦$5,396.29¦$5,415.94 ¦
+---------------+---------+----------+---------+----------¦
¦Addition ¦2,817.95 ¦2,817.95 ¦2,698.15 ¦2,707.97 ¦
+---------------+---------+----------+---------+----------¦
¦1944 Deficiency¦4,835.35 ¦4,835.35 ¦9,116.73 ¦9,446.73 ¦
+---------------+---------+----------+---------+----------¦
¦Addition ¦4,564.08 ¦4,564.08 ¦4,558.37 ¦4,723.37 ¦
+---------------+---------+----------+---------+----------¦
¦1945 Deficiency¦4,681.35 ¦4,681.35 ¦4,592.12 ¦4,652.12 ¦
+---------------+---------+----------+---------+----------¦
¦Addition ¦2,340.68 ¦2,340.68 ¦2,296.06 ¦2,326.06 ¦
+---------------+---------+----------+---------+----------¦
¦1946 Deficiency¦5,505.82 ¦5,505.82 ¦5,434.96 ¦5,510.96 ¦
+---------------+---------+----------+---------+----------¦
¦Addition ¦2,752.91 ¦2,752.91 ¦2,717.48 ¦2,755.48 ¦
+---------------------------------------------------------+
The respondent also determined deficiencies against United Dressed Beef Company in corporation income tax, declared value excess-profits tax, and excess profits tax, and 50 per cent additions for fraud for fiscal years ended August 31, in 1943, 1944, 1945, 1946, and 1947.
+------------------------------------------------------------------------+
¦ ¦ ¦Declared ¦ ¦ ¦
+--------------------+----------+-------------+--------------+-----------¦
¦Fiscal year ended in¦Income tax¦value excess-¦Excess profits¦50 per cent¦
+--------------------+----------+-------------+--------------+-----------¦
¦ ¦ ¦profits tax ¦tax ¦additions ¦
+--------------------+----------+-------------+--------------+-----------¦
¦ ¦ ¦$3,614.70 ¦ ¦$1,807.35 ¦
+--------------------+----------+-------------+--------------+-----------¦
¦1943 ¦ ¦ ¦$28,992.92 ¦14,496.46 ¦
+--------------------+----------+-------------+--------------+-----------¦
¦ ¦ ¦9,057.80 ¦ ¦4,528.90 ¦
+--------------------+----------+-------------+--------------+-----------¦
¦1944 ¦ ¦ ¦76,600.59 ¦38,300.30 ¦
+--------------------+----------+-------------+--------------+-----------¦
¦ ¦ ¦10,722.62 ¦ ¦5,361.31 ¦
+--------------------+----------+-------------+--------------+-----------¦
¦1945 ¦ ¦ ¦97,919.37 ¦48,959.69 ¦
+--------------------+----------+-------------+--------------+-----------¦
¦ ¦ ¦ ¦29,928.78 ¦14,964.39 ¦
+--------------------+----------+-------------+--------------+-----------¦
¦1946 ¦ ¦$29,926.75 ¦ ¦14,963.38 ¦
+--------------------+----------+-------------+--------------+-----------¦
¦1947 ¦ ¦10,425.68 ¦ ¦ ¦
+------------------------------------------------------------------------+
This proceeding involves amounts collected by Samuel and Benjamin Borne, sole stockholders of the United Dressed Beef Company, in excess of the ceiling prices fixed by the Office of Price Administration upon meat sold by the corporation in the years 1942 to 1946, inclusive. The issues are what were the amounts so collected, whether these amounts constituted income to the corporation, and whether the additions to the tax for fraud were properly asserted against the corporation, the stockholders, and the wives of the stockholders.
The returns of all the petitioners for the years involved were filed with the collector of internal revenue at Los Angeles, California.
Petitioner Samuel Borne (hereinafter sometimes referred to as Sam) was born in Poland about 1892, came to the United States in 1911, and became a naturalized citizen about 1916. Rose Borne is Sam's wife. Benjamin Borne (hereinafter sometimes referred to as Ben), who is Sam's half brother, came to the United States about 1914. Jean Borne is Ben's wife. Ben engaged in the business of buying cattle and shipping them to Sam at or near Los Angeles, for slaughter. Sam then operated a butcher shop. The two did business as partners for a time. In 1924 Sam and Ben, with others, incorporated United Dressed Beef Company under the laws of California. Since the early 1930's Sam and Ben have been the sole stockholders, each owning 50 per cent of the stock. The corporation has continuously been engaged in the meatpacking and slaughtering business in Vernon, California. The corporation's books were kept and its tax returns were filed on the accrual basis and for fiscal years ending August 31.
During the taxable years the corporation owned a plant at 4360 South Soto Street, in Vernon. The offices of the corporation were in the southeastern corner of the plant. On the second floor were the general office and offices for Sam Borne and for Frank Smith, the office manager. Below these on the first floor was a sales office located near the loading dock where meats sold were loaded into trucks for transportation to customers. Behind the loading dock were the coolers in which dressed meat was kept for sale.
Sam Borne was president and general manager of the corporation. Ben was vice president. Each received a salary of $15,750 for each of the taxable years. Sam supervised operation of the plant and sold meat from the coolers to some of the customers. He also did the buying of hogs. Ben Borne attended to buying cattle and sheep. He spent little time at the plant. The corporation had not more than 35 employees during the taxable years. G.V. Allen was employed by the corporation from about 1928 to 1944. In 1943 and 1944 he was head salesman at the cooler in the plant. His salary then was $150 per week. He left about October 1, 1944, and went into the business of buying cattle, which he had slaughtered by another packing company, and selling the meat. George F. Lutz was for a time an outside salesman and later was assistant to Allen as cooler salesman. As an outside salesman his salary was $60 per week. When Allen left, Lutz succeeded him as head cooler salesman and was paid $125 per week.
When meat was delivered to customers the quantity sold was reported to the office and an invoice was sent the customer for the amount due. This amount was usually paid by check.
The corporation's tax returns were prepared by Graves and Cobun, certified public accountants, of Los Angeles, from about 1929 to the fiscal year ended August 31, 1947. The returns correctly show the income to the extent it was recorded on the books of the corporation. This accounting firm also prepared the returns for the individual petitioners for calendar years through 1946. These were based upon figures from the corporation's records and other figures furnished by Sam Borne. The returns for Jean Borne and Rose Borne were made in accordance with the community property laws and on the assumption that they had no income separate from that received by their husbands. No books or records of the individual petitioners were furnished to the accountants.
During the war years the supply of meat became reduced and the Government required delivery of certain quotas from meat processors. The amount of meat the corporation had available for sale to civilian customers was limited. The Office of Price Administration fixed ceiling prices on meat early in 1942. Ceiling prices on meat were in effect until June 30, 1946, were reinstated about September 1, 1946, and terminated about October 14, 1946. The corporation invoiced meat to its civilian customers at the prescribed ceiling prices and these amounts were paid usually by check. Sometime in the latter part of 1942 Sam and Ben Borne adopted a policy of requiring customers to pay additional amounts in cash measured by the quantity of...
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