Willits v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 69300.

• Decision Date: 13 July 1937
• Docket Number: Docket No. 69300.
• Citation: 36 BTA 294
• Parties: LEONARD B. WILLITS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

36 B.T.A. 294 (1937)

LEONARD B. WILLITS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 69300.

Board of Tax Appeals.

Promulgated July 13, 1937.

Alfred T. Glenn, Esq., for the petitioner.

John D. Kiley, Esq., for the respondent.

Respondent determined deficiencies in petitioner's income tax, for the years and amounts set out below, on account of items of income which he claimed petitioner received in the several years but failed to disclose in his returns, with intent to evade taxes. On this account the following 50 percent additional tax was added for each year.

                ------------------------------------------------------------------------
                                     Year                   |   Tax     | 50% additional
                                                            |           |     tax
                --------------------------------------------|-----------|---------------
                1925_______________________________________ | $1,276.20 |        $650.92
                1926_______________________________________ |    308.60 |         154.30
                1927_______________________________________ |  1,447.97 |         723.98
                1928_______________________________________ |    239.63 |         119.82
                ------------------------------------------------------------------------
                

FINDINGS OF FACT.

Petitioner was United States internal revenue agent at Newark, New Jersey, from 1918 to 1921, and from the latter year until July 28, 1928, when he resigned, was agent in charge of that office.

In his returns for the years 1925 to 1928, inclusive, petitioner reported income and deductions as follows:

                ------------------------------------------------------------------------------------------
                                                        |   1925    |    1926    |    1927    |    1928
                ----------------------------------------|-----------|------------|------------|-----------
                Income:                                 |           |            |            |
                  Salary_______________________________ | $4,600.00 |  $4,580.00 |  $4,600.00 |  $3,065.00
                  Rents________________________________ |  3,781.19 |   3,474.16 |   2,895.70 |   2,080.34
                  Interest_____________________________ |    191.59 |     188.08 |     253.78 |     444.51
                  Commissions, fees, etc_______________ |  2,356.63 |   2,710.00 |   2,850.00 |   5,900.00
                  Profit from sales, etc_______________ |  5,000.00 |   3,000.00 |   3,679.86 | __________
                  Dividends____________________________ |    100.00 |     350.00 |     300.00 |     300.00
                                                        | _________ | __________ | __________ | __________
                       Total___________________________ | 16,029.41 |  14,302.24 |  14,579.34 |  11,789.85
                                                        | ========= | ========== | ========== | ==========
                Deductions:                             |           |            |            |
                  Interest_____________________________ |    863.93 |   1,509.92 |     506.46 |     242.83
                  Other deductions_____________________ | _________ | __________ | __________ |   1,300.00
                  Taxes________________________________ |    707.84 |     762.60 |     928.36 | __________
                                                        | _________ | __________ | __________ | __________
                       Total___________________________ |  1,571.77 |   2,272.52 |   1,488.82 |   1,542.83
                                                        | ========= | ========== | ========== | ==========
                       Net income______________________ | 14,457.64 |  12,029.72 |  13,090.52 |  10,247.02
                -------------------------------------------------------------------------------------------
                

Respondent redetermined petitioner's taxable net income on the basis of his bank deposits and found the following amounts as net income:

                     1925_________________________________________ $27,342.92
                     1926_________________________________________  16,777.57
                     1927_________________________________________  28,032.53
                     1928_________________________________________  14,766.41
                

These computations of net income resulted from respondent's inclusion of the following amounts as undisclosed income:

                1925 (bank deposits less other income returned)________________________ $12,885.28
                1926 (bank deposits less other income returned)________________________   4,747.85
                1927 (bank deposits $15,792.01; plus check from C. R. Myers; less
                  other income returned)_______________________________________________  12,942.01
                1928 (miscellaneous income less other income returned, plus deductions)
                  _____________________________________________________________________   4,519.39
                

While petitioner was employed as revenue agent he carried on the business of selling real estate, and earned certain commissions in this way, which were paid him by realty brokers, among others, by one Emmet J. Dugan. He personally prepared for one Charles R. Myers the latter's returns of income for Federal tax purposes for the years 1925 to 1927, inclusive, from figures given him by Myers' secretary. Myers was a friend of petitioner's family and owned "The Breakers", an Atlantic City hotel worth over one and a half million dollars in 1924. Petitioner also prepared Federal income tax returns for the years 1926 and 1927 of one Harold A. Brand, who was an auctioneer with his place of business on the boardwalk of Atlantic City.

In his income tax returns for those years petitioner reported no income for his services in preparing Myers' and Brand's returns. Petitioner stated at the hearing that his returns correctly reflected his income.

During the years 1928 and 1929 an examination of petitioner's returns for 1925 to 1928 was made by special agents in the Intelligence Unit of the Bureau of Internal Revenue, and, when petitioner was confronted with the evidence discovered by these agents, he resigned his office as revenue agent.

A. M. Smith was petitioner's mother-in-law and G. C. Willits his wife. An account was maintained by the petitioner at the Atlantic City National Bank in the name of "A. M. Smith, G. C. Willits, Trustee." Petitioner's wife alone had a power of attorney to draw upon the account; both petitioner and his wife made deposits in the account. Petitioner claimed that all deposits in the account over $500 were made by Charles R. Myers as presents to A. M. Smith. The account of "A. M. Smith, G. C. Willits, Trustee", showed deposits of $10,000 on August 24, 1925; $500 on November 4, 1925; $1,500 on November 10, 1925; $1,000 on August 13, 1927; $2,000 on February 27, 1928; and $2,000 on March 26, 1928. Withdrawals from this account were made in the amount of $3,500 on August 24, 1925, to "Len Willits" for the payment of a mortgage on his property, and to "Len Willits" on the same day in the amount of $5,000. This latter withdrawal was held in petitioner's safe deposit box for a year and a half, so as to avoid having to apply it to a note held by a bank. On August 13, 1927, a withdrawal of $500 was made which was applied on petitioner's note at the Atlantic City National Bank; and on March 26, 1928, another withdrawal of $2,000 was applied to the same purpose. Many of these entries of deposits and withdrawals were in petitioner's handwriting.

Charles R. Myers also presented an automobile to the taxpayer. The latter claimed that this was a gift to his mother-in-law, but admitted that the title thereto was taken in his name. A check for $2,000 was deposited to the account of "A. M. Smith, G. C. Willits, Trustee" in February 1928, drawn by Harold A. Brand on the Atlantic County Trust Co. This check was received by petitioner in payment for preparing Brand's returns and for making an inventory of Brand's stock. No return was made by petitioner, for income tax purposes, covering the automobile or the various amounts received by him from Myers and Brand.

A part of the deficiencies for the years 1925, 1926, 1927, and 1928 was due to fraud with intent to evade taxes.

OPINION.

MILLER:

(1) The first question presented is whether additional income was received which was not disclosed by the taxpayer. Upon this issue the determination of the respondent is prima facie correct. Burnet v. Houston, 283 U. S. 223; Welsh v. Helvering, 290 U. S. 111; Reinecke v. Spalding, 280 U. S. 227, 233; United States v. Anderson, 269 U. S. 422, 443; Botany Worsted Mills v. United States, 278 U. S. 282, 289, 290; Wickwire v. Reinecke, 275 U. S. 101; Old Mission Portland Cement Co. v. Helvering, 293 U. S. 289. The burden was upon the petitioner to overcome the presumption of correctness. This he failed to do. The only evidence submitted in his behalf to support his contention was his income tax returns for the years in dispute and his affirmative answer to his counsel's question: "Do all of these returns show correctly your income, your bank account?" This is obviously insufficient. W. M. Buchanan, 20 B. T. A. 210.

On cross-examination petitioner admitted that he prepared income tax returns for C. R. Myers for the years 1920 to 1927, inclusive, and that he prepared income tax returns for Harold A. Brand for the years 1926 and 1927. The undisputed testimony of special agent Lucas shows that petitioner admitted receiving $2,000 from Brand in 1928 in payment for preparing Brand's returns and for making an inventory of Brand's stock. The undisputed testimony of witness Lucas also established that large amounts of money and an automobile were given by Myers, during the years in dispute, ostensibly as gifts to petitioner's mother-in-law. Title to the automobile was taken in the name of petitioner. The payments of money were deposited in the Atlantic City National Bank in the account of "A. M. Smith, G. C. Willits, Trustee." G. C. Willits was petitioner's wife, and she alone had a power of attorney to draw upon the account. These large deposits were, in practically every instance, followed by large withdrawals in favor of petitioner. The entries of deposits and withdrawals of these large amounts in the check book of the account were in many instances made in the handwriting of the...