Williams v. Commissioner
| Decision Date | 03 November 1994 |
| Docket Number | Docket No. 19278-92.,Docket No. 19462-92. |
| Citation | 68 T.C.M. 1172 |
| Parties | James R. Williams, Jr. v. Commissioner. James R. Williams, Jr., and Vicki L. Williams v. Commissioner. |
| Court | U.S. Tax Court |
James R. Williams, Jr., pro se. Ronald T. Jordan, for the respondent.
Respondent determined deficiencies in petitioners' Federal income taxes and additions to tax as follows:
James R. Williams, Jr. Docket No. 19278-92
Additions to Tax
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Year Deficiency Sec. 6653(b) Sec. 6654
1979 .................................................. $77,600.68 $38,800.34 $3,235.48
1980 .................................................. 13,451.57 6,725.78 857.07
1981 .................................................. 20,658.10 10,329.05 --
Aditions to Tax
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Year Deficiency Sec. 6651(a)(1) Sec. 6653(a)(1) Sec. 6653(a)(2)
1982 .......................... $1,312.24 $328.06 $ 65.61 1
1983 .......................... 345.21 86.30 17.26 1
1984 .......................... 789.07 197.26 39.45 1
1985 .......................... 2,531.14 632.79 126.56 1
Aditions to Tax
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Year Deficiency Sec. 6651(a)(1) Sec. 6653(a)(1)(A) Sec. 6653(a)(2)(B)
1986 ..................... $3,117.95 $779.49 $155.90 1
1987 ..................... 57.31 100.00 2.87 1
James R. Williams, Jr., and Vicki L. Williams Docket No. 19462-92
Addition to Tax
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Year Deficiency Sec. 6653(b)
1978 ..................................... $37,267.66 $18,633.83
1 50 percent of the interest due on the deficiency
After concessions, the issues for decision are: (1) Whether petitioners underreported income during the years in issue; (2) whether petitioners are entitled to additional deductions for the years in issue; (3) whether petitioner James R. Williams, Jr.,1 is liable for the addition to tax for fraud under section 6653(b)2 for the taxable years 1978, 1979, and 1980;3 (4) whether petitioner is liable for the addition to tax for failure to file a timely return under section 6651(a)(1) for the taxable years 1982 through 1987; and (5) whether petitioner is liable for the addition to tax for negligence under section 6653(a) for the taxable years 1982 through 1987.
Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. For purposes of convenience, our findings of fact with respect to respondent's specific determinations will be combined with our opinion on each issue.
Petitioners resided in Zionsville, Indiana, when they filed their petitions. Petitioners filed a joint Federal income tax return for the taxable year 1978. On March 27, 1989, petitioner filed delinquent returns for taxable years 1979 through 1987. Petitioner's filing status on these returns was shown as married filing separately. With respect to taxable years 1979 through 1985,4 petitioner had previously submitted to respondent Forms 1040 in which each relevant line contained the word "object", except that on line 8 of petitioner's 1979 Form 1040, he reported wages of $8,587.01. On separate occasions, respondent sent letters to petitioner indicating that the Forms 1040 filed by petitioner for his taxable years 1979 through 19845 were not acceptable "because [they did] not contain information required by law, and [they did] not comply with the Internal Revenue Code requirements."
On January 21, 1987, petitioner was indicted for evasion of Federal income taxes under section 7201 for the taxable years 1978, 1979, and 1980. On August 17, 1987, a Plea Agreement was filed with the District Court for the Southern District of Indiana in which petitioner agreed to plead guilty to tax evasion under section 7201 for the taxable year 1979. Furthermore, in paragraph 6 of the Plea Agreement, petitioner conceded that section 6653(b), the civil fraud penalty, was applicable to any underpayment of personal income taxes determined for his taxable years 1978, 1979, and 1980. Pursuant to paragraph 5 of the Plea Agreement, petitioner agreed to file returns for the taxable years 1978 through 1985, which returns he filed on March 27, 1989. On October 15, 1987, petitioner was convicted of tax evasion under section 7201 for the taxable year 1979.
During the years at issue, petitioner sold insurance, securities, and other types of investments, and he promoted partnership ventures and tax shelters. Petitioner was also the managing partner of Frozen Creek Associates and the trustee of Bank Creek Coal Trust, Speedway Coal Trust, and the Edward B. Morris Coal Trust. In addition, petitioner was the president/owner of Financial Sheltering Corp., a corporation that engaged in the securities business as a broker-dealer. In 1979, petitioner incorporated a business entity, Economic Energy Enterprise, Inc.; of which he was the president and sole shareholder.
Petitioners maintained a joint personal checking account at the Boone County State Bank (Boone) in Lebanon, Indiana. Petitioner Vicki L. Williams also maintained a separate personal checking account at Boone. For each business entity operated by petitioner, a separate account was opened at Boone.
Respondent determined additional income and disallowed certain Schedule C deductions and itemized deductions claimed by petitioners. Respondent's determination is presumed correct, and petitioners bear the burden of proving otherwise.6 Rule 142(a); Welch v. Helvering [3 USTC ¶ 1164], 290 U.S. 111 (1933).
Respondent reconstructed petitioners' taxable income and deductions from a variety of sources — canceled checks, deposit slips, bank statements, and credit memos reflecting deposits made into petitioners' personal accounts; canceled checks drawn by entities controlled by petitioner and deposited in petitioners' accounts, and a check spreadsheet prepared by petitioner detailing business and personal expenditures.
On December 30, 1978, petitioner opened a checking account at Boone in the name of Frozen Creek Associates.7 As of December 31, 1978, this account had a balance of $92,000. Petitioner received two checks dated December 30, 1978, from Frozen Creek Associates totaling $30,000. These checks did not clear the account of Frozen Creek Associates until January 3, 1979, and January 5, 1979, respectively.
The parties agree that this $30,000 constitutes gross income. Petitioners claim, however, that because they did not receive the checks until 1979, they do not constitute income until that year. Respondent determined that petitioners constructively received the $30,000 in 1978. We agree with respondent.
The general rule is that income is includable in gross income in the taxable year in which it is received, unless includable in a different year in accordance with the taxpayer's method of accounting. Sec. 451(a); sec. 1.451-1(a), Income Tax Regs. Section 1.451-2(a), Income Tax Regs., provides:
(a) General rule. Income although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions.
* * *
We have long held that the doctrine of constructive receipt is to be applied sparingly. Thus, amounts owed to a cash basis taxpayer but unpaid are not to be included in the taxpayer's income unless it appears that the money was available to him, the entity was able and ready to pay him, his right to receive the money was not restricted, and his failure to receive the cash resulted from the exercise of his own choice. Basila v. Commissioner [Dec. 24,788], 36 T.C. 111, 115-116 (1961) (citing Gullett v. Commissioner [Dec. 8857], 31 B.T.A. 1067, 1069 (1935)); Haack v. Commissioner [Dec. 37,616(M)], T.C. Memo. 1981-13.
Frozen Creek Associates had sufficient funds in its account as of December 31, 1978, to cover the $30,000 payment to petitioner. Petitioner was the managing partner of Frozen Creek Associates and could sign the checks without an additional countersignature. Furthermore, petitioner testified that he felt he was entitled to the payments in 1978, and there were no substantial restrictions on petitioners' right to receive the $30,000. Therefore, we sustain respondent's determination that petitioners were in constructive receipt of $30,000 in 1978.
During 1978 and 1979, petitioner promoted the Bank Creek Coal Venture, which was operated by Stephen Weidner. In 1978, petitioner received payments totaling $40,266.45 from Mr. Weidner. Respondent determined that the entire amount was taxable income to petitioner in 1978. Petitioner concedes that $24,010 was taxable income in 1978. Petitioner contends, however, that the remainder constituted a reimbursement of travel expenses incurred in connection with a coal symposium.
Beyond petitioner's...
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