Vassallo v. Comm'r of Internal Revenue
| Decision Date | 19 January 1955 |
| Docket Number | Docket Nos. 27406,27407. |
| Citation | 23 T.C. 656 |
| Parties | EUGENE VASSALLO AND GEORGIE VASSALLO, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.VASSALLO, INCORPORATED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Stewart Lynch, Esq., and Harry Friedman, Esq., for the petitioners.
Stephen P. Cadden, Esq., for the respondent.
1. Held, were individual kept no books or records and where those kept for his wholly owned corporation were inadequate, respondent was justified in using the net worth and sources and expenditures methods for determining petitioners' income and his determination thereof is upheld.
2. Held, further, where sole stockholder withdrew all corporation's profits without reserve for any tax liability, he is liable for personal income taxes thereon even though corporation must first pay corporate income tax on the same funds as its income.
3. Held, further, the deficiencies in all taxes herein were due, in part, to fraud with intent to evade tax.
4. Held, further, respondent was justified in asserting the negligence penalty against petitioner corporation for failure to file excess profits tax returns.
5. Held, further, petitioner corporation, a cash basis taxpayer, is not entitled to a deduction for declared value excess-profits tax determined in the deficiency notice to be due but unpaid in computing its income and excess profits tax liability.
The consolidated proceedings involve the following deficiencies in taxes and penalties:
The issues to be determined are: (1) Whether the respondent erred in computing the petitioners' tax liability for the years in issue; (2) whether any part of the deficiencies is due to fraud with intent to evade tax; (3) if not, whether the statute of limitation bars assessment and collection of the deficiencies and penalties asserted against petitioners Eugene Vassallo and Georgie Vassallo for the years 1941 and 1942 and against petitioner Vassallo, Inc., for the fiscal year ended March 31, 1942; and (4) whether the respondent correctly asserted the 25 per cent penalty for negligence against Vassallo, Inc., for failure to file an excess profits tax return for the fiscal years ended March 31, 1943 to 1946, inclusive.
Some of the facts were stipulated, are so found, and are incorporated herein by this reference.
Eugene Vassallo (hereinafter referred to as the petitioner) and Georgie Vassallo were residents of Wilmington, Delaware. Petitioner filed an individual income tax return for 1941. For 1942, he and Georgie Vassallo filed a joint return which both signed. Petitioner filed what purported to be joint returns for 1943 and 1945, but he alone signed them. His 1944 return was on Form W-2, and was signed only by him. The deficiency notice was addressed to ‘Mr. Eugene Vassallo and Mrs. Georgie Vassallo, Husband and Wife.’ Both signed the petition in Docket No. 27406. Their marriage was not formalized. Throughout the course of these proceedings, however, all parties have regarded them as man and wife, and have considered the returns for all of the years in issue as joint returns of a husband and wife, and have further treated the tax liabilities asserted by the respondent as the joint and several liability of a husband and wife filing joint returns. Vassallo, Inc. (sometimes hereinafter referred to as Vassallo's), was incorporated under the laws of the State of Delaware on April 16, 1940. It filed a Federal income and declared value excess-profits tax return for each of the fiscal years here in issue on the cash basis with the collector of internal revenue at Wilmington. It filed no excess profits tax return for any such year.
On March 31, 1940, three of petitioner's creditors filed an involuntary petition in bankruptcy against him in the United States District Court at Wilmington, Delaware. On April 22, 1940, petitioner filed a sworn statement of assets and liabilities with the referee showing assets of $20, consisting of ‘One Hamilton Watch.’ Later in that year, petitioner paid $6,770.42 in discharge of his liability for all claims filed in the bankruptcy proceedings.
On April 18, 1940, Vassallo's, which at all times here in issue was solely owned by petitioner, purchased a taproom located at 105 West Seventh Street in Wilmington for the sum of $20,564.62. Of the purchase price, $11,564.62 was paid in cash and a mortgage of 9,000 was place on the property to secure the balance. Petitioner, through Vassallo's, operated the taproom at which whisky, beer, and wine were sold during all of the years here in issue. The corporation held ‘a license for both ‘on’ and ‘off“ sales. ‘On’ sales constituted the most substantial part of its business.
Vassallo's employed no regular bookkeeper. A friend of petitioner's every week or so entered on a single entry set of books the corporation's receipts and disbursements from information given to him by petitioner. Petitioner kept no personal books or records of any kind.
Respondent commenced an investigation of all of the petitioners' tax returns in September 1946. The investigation disclosed petitioner's receipts of interest and rents in each of the years in issue, which were not reported on the returns. From a comparative net worth statement, the respondent also determined that petitioner received substantial amounts of income, which were presumably withdrawn as dividends from Vassallo, Inc., but not...
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Banks v. Commissioner, Docket No. 42724.
...the taxable years 1945, 1946, and 1947 (3 of the 11 years involved herein) is also evidence of fraud as to those years. Eugene Vassalo Dec. 20,816, 23 T. C. 656 (1955); Abraham Galant Dec. 21,755, 26 T. C. 354 (1956). Some of the factors which were considered indicative of fraud for said ye......
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Drybrough v. Commissioner of Internal Revenue
...See discussion below. 4 Similarly, in Bennett E. Meyers, 1953, 21 T.C. 331, 346 fictitious salaries were involved. In Eugene Vassallo, 1955, 23 T.C. 656, 662-663 the question of the corporation's earnings and profits was not 5 Whether and to what extent petitioners are entitled to deduction......
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Estate of Cardulla v. Commissioner
...to value petitioners' inventory is entirely consistent with the Cardullas' cash basis method of reporting income. In Vassallo v. Commissioner Dec. 20,816, 23 T.C. 656 (1955), the taxpayers who filed their tax returns on the cash basis, argued that it was improper for respondent to use a cas......
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Worcester v. CIR, 6715.
...a false return with intent to evade tax did not form the basis for collateral estoppel. Meyer J. Safra, 1958, 30 T.C. 1026; Eugene Vassallo, 1955, 23 T.C. 656. It changed its position in 1964. John W. Amos, 43 T.C. 50, aff'd, 4 Cir., 1965, 360 F.2d 7 It is questionable, at best, whether pet......