United States v. Rexach
| Decision Date | 05 July 1960 |
| Docket Number | No. C 72-58.,C 72-58. |
| Citation | 185 F. Supp. 465 |
| Parties | UNITED STATES of America, Plaintiff, v. Felix Benitez REXACH et al., Defendants. |
| Court | U.S. District Court — District of Puerto Rico |
COPYRIGHT MATERIAL OMITTED
Francisco A. Gil, Jr., U. S. Atty., San Juan, P. R., for plaintiff.
Brown, Newsom & Cordova, San Juan, P. R., for defendants.
This is an action for foreclosure of liens for income taxes assessed and outstanding against the taxpayer Felix Benitez Rexach for the years 1951 to 1956, both inclusive, in the sum of $2,354,478.48, in which assessed interest, fraud, delinquency and negligence penalties plus accrued interest are included. The other defendants are not involved as taxpayers but were joined as defendants merely because they had the immediate control of certain properties the government sought to reach in satisfaction of its tax claims. The action was brought pursuant to Sections 6321, 6322 and 6323, Internal Revenue Code of 19391, 26 U.S.C. §§ 6321-6323. Sections 7401, 7402(a) and 7403, Internal Revenue Code of 1954, 26 U.S.C. §§ 7401, 7402(a), 7403 and 28 U.S.Code § 1345, and was initiated under the sanction and direction of the Attorney General of the United States.
Felix Benitez Rexach was born in Puerto Rico on March 27, 1886, becoming an American citizen under the provisions of the Act of March 2, 1917, commonly known as the Puerto Rico Organic Act of 1917, 48 U.S.C.A. § 731 et seq. He continued to be an American citizen during all of the tax years involved in this case. However, on July 14, 1958, he was denaturalized by the State Department under Section 349(a) of the Immigration and Naturalization Act, 66 Stat. 163, 8 U.S.C.A. § 1481(a).
The taxpayer resided in Puerto Rico until 1934 when he went to Santo Domingo where he undertook harbor construction for the Dominican government. He and his wife established a residence in the Dominican Republic where they continued to reside until 1940, when they returned to Puerto Rico, remaining here as residents until 1944, when they returned to the Dominican Republic. Since that year the taxpayer has been, and now is, a resident of the Dominican Republic and has been and now is domiciled there.
The taxpayer and his present wife Lucienne D'Hotelle Benitez, a native of France, were married in Puerto Rico in 1927. Mrs. Benitez was naturalized but lost her American citizenship in 1949 by reason of having resided outside of the United States for more than three consecutive years. She has been a naturalized citizen of the Dominican Republic since 1949. The taxpayer and his wife have never been legally separated or divorced. The marriage ceremony between the taxpayer and his wife was performed in Puerto Rico by the proper Puerto Rican authority and not by any foreign consul, diplomatic or other foreign agent, and the first matrimonial domicile of the taxpayer and his wife was in Puerto Rico. Since 1944 the matrimonial domicile has uninterruptedly been in the Dominican Republic. The taxpayer and his wife never signed any antenuptial contracts or articles either at the time of their marriage or prior or subsequent thereto relative to their property, either under the laws of Puerto Rico or the Dominican Republic.
The Escambron Development Company is a corporation legally organized under the laws of Puerto Rico. At all times material herein it owned and operated a hotel known as the Hotel Normandie. Escambron was organized and incorporated prior to 1944 and has been in legal existence without dissolution ever since that date and ever since that date and at the present time is an active Puerto Rican corporation. All of the stock in Escambron, except three qualifying shares, is held in the name of taxpayer either directly or in his wife's name, taxpayer being the real owner of this stock, subject to any community property rights which his wife may have therein. The taxpayer is also the real owner of the three qualifying shares subject to any community property rights of his wife. The taxpayer is also, subject to community property rights of his wife, the owner of a farm in Puerto Rico, legal title of which is held in his name, which situation was true during the years 1951 to 1956, inclusive, and long prior thereto.
During the years 1951 to 1956, inclusive, the taxpayer received from Escambron a salary of $3,000 annually for his services as president of that corporation.
Escambron's principal income was from the operation of the Hotel Normandie and Escambron Beach Hotel, in and near San Juan, Puerto Rico. During its fiscal years ended June 30, 1951, to June 30, 1956, inclusive, Escambron sustained net losses which converted into taxable years for the periods here in controversy produced or resulted in the following net losses each year:
1951 .......................... $ 50,599.90
1952 .......................... 63,198.77
1953 .......................... 73,995.29
1954 .......................... 76,908.09
1955 .......................... 126,658.09
1956 .......................... 113,047.74
The outstanding stock certificates in Escambron are now held in the names of the following persons:
Number
Certificate Date of of
No. Issue Issued To Shares
----------------------------------------------------------------------
1 February 16, 1940 Felix Benitez Rexach 1,998
2 February 16, 1940 Luis Antonio Miranda 1
3 February 16, 1940 Modesto Bird 1
4 March 31, 1944 Felix Benitez Rexach
and Mme. Lucienne
D'Hotelle 4,900
5 January 2, 1943 Cruz Montes 1
The Escambron Development Company was organized about 1943 after taxpayer discovered that it was impossible, without incorporating, to issue bonds to finish the construction of the Normandie Hotel then in progress. The books of Escambron disclose that it is indebted to the taxpayer for approximately $1,300,000— for advances made to the corporation from time to time. The taxpayer ran the hotel largely from the Dominican Republic, although he made some trips over to Puerto Rico. The hotel lost money for some time, but is now making money. The last of the bonds was paid off about three years ago and the corporate property is now free of liens. It was absolutely necessary to have the business incorporated because of the bond issue; the corporation kept its own books; has a corporate seal; the taxpayer was its president and drew a salary as such. The corporation had a separate accounting system. Stock in the corporation was issued according to legal procedure and bonds were also issued. Suits were brought against the corporation and defended in the corporate name. Escambron filed its own separate tax returns.
The Commissioner made assessments against the taxpayer for income taxes for the years 1951 to 1956, inclusive, including penalties and interest. The details of the assessments are set forth in Exhibit A, attached to the complaint which is the deficiency letter and which discloses the following assessments:
Penalties under
Sec. 294(d) Internal
Rev.Code
of 1939, 26 U.S.C
§ 294(d), and
Secs. 6654(a) and
6665(a), Int.Rev
Code of 1954, 26
Fraud Delinquency U.S.C. §§ 6654
Year Tax Penalties Penalties (a), 6665(a)
-------------------------------------------------------------------------
1951 $258,912.96 $129,456.48 $64,728.24 $38,824.80
1952 102,401.82 51,200.91 25,600.46 15,348.12
1953 154,307.91 77,153.96 38,576.98 23,134.02
1954 290,049.28 145,024.64 ......... 44,216.04
1955 316,207.88 158,103.94 ......... 8,850.29
1956 269,884.34 134,942.17 ......... 7,553.24
_________________________________________________________________________
Totals $1,391,764.19 $695,882.10 $128,905.68 $137,926.51
The taxpayer filed no income tax returns with the United States Government for any of the years 1951 to 1956, inclusive. He kept insufficient books and records during each of these years and subsequent and prior thereto from which could be adequately determined the amount of his gross income, deductible expenses or net income with respect to the contracts here involved.
The taxpayer's income was computed solely on the proceeds which he received from various contracts entered into between himself and the Dominican Republic. Thus all of the income sought to be taxed was earned in the Dominican Republic. There is no claim respecting any income derived from sources in Puerto Rico or the Continental United States.
The deficiency letter discloses that the net income from 1951 to 1956, inclusive, was computed as follows:
(a) The total gross receipts were first determined according to the contractual provisions, as shown in schedule attached to the deficiency letter.
(b) Net profits on the contracts were determined by treating as profits one-eleventh of the total contract price received.
(c) For the years 1951 to 1953,...
To continue reading
Request your trial
-
United States v. Rexach
...was deemed profit. This formula would have resulted in substantial tax obligations during the period 1951-1958, see United States v. Rexach, 185 F.Supp. 465 (D.P.R. 1960), but for a single happenstance. In late May of 1961, the taxpayer paid $1,552,000 in taxes to the Dominican Republic for......
-
INTERNATIONAL T. & T. CORP. v. General Tel. & Elec. Corp.
...be construed in "pari materia"). 251 See 26 U.S.C. §§ 931, 933 (1970). 252 See, id., §§ 61, 931(c), 932(a) (1970); United States v. Rexach, 185 F.Supp. 465 (D.P.R.1960). 253 See 29 U.S.C. § 205 (1970). 254 26 U.S.C. § 4911 et seq. (1970). 255 Exec. Order No. 11071, 3 C.F.R. 684 (1963), supe......
-
U.S. v. Lucienne D'Hotelle De Benitez Rexach
...situs where the income was earned determined its character, Felix could be sued only for his half of the earnings. United States v. Rexach, 185 F.Supp. 465 (D.P.R.1960). Predictably, the United States eventually sought to tax Lucienne for her half of that income. Whether by accident or desi......
-
United States v. Benitez Rexach
...a naturalized citizen of the United States on December 7, 1942. As it appears from the finding of facts in the case of U. S. v. Benítez Rexach, 185 F.Supp. 465, in 1944 Lucienne left for the Dominican Republic with her husband. From the facts in the above case we can infer that she resided ......