Wills Corp. v. C.I.R., 022469 FEDTAX, 89712

Docket Nº:89712, 89713.
Opinion Judge:HOYT, Judge:
Party Name:THE WILLS CORPORATION, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ALCUIN WILLENBRING and VIOLA WILLENBRING, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Attorney:Viola Willenbring, pro se. Eli Elumenfeld, for the respondent.
Case Date:February 24, 1969
Court:United States Tax Court
 
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28 T.C.M. (CCH) 174 (1969)

T.C. Memo. 1969-36

THE WILLS CORPORATION, Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

ALCUIN WILLENBRING and VIOLA WILLENBRING, Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos. 89712, 89713.

United States Tax Court.

February 24, 1969

Petitioner Alcuin Willenbring was convicted of wilful tax fraud for the years 1954 and 1955. The conviction was affirmed. Willenbring v. United States, 306 F.2d 944 (C.A. 9, 1962). Willenbring transferred his assets to The Wills Corporation for no consideration and later converted many of the assets to cash which was deposited in secret bank accounts. The returns for 1953 and 1954 bore only his name and were signed only by him, but joint rates were used in computing the tax due shown thereon, and his wife, Viola, filed no other returns.

Petitioner Viola Willenbring was ignorant of her husband's activities during all the years in issue and knew nothing about his business or financial affairs. Alcuin was not present of trial, and although Viola was present, she presented little evidence

Held: 1. The deficiencies are presumed to be correctly determined by respondent, and petitioners failed in their burden of proving error therein.

2. Additions to tax, other than fraud, for failure to file a declaration of estimated tax in 1953, and filing a substantial underestimation of estimated tax in 1954 are sustained. Petitioners did not meet their burden of proof to show error in respondent's determination thereof.

3. Respondent's determinations of additions to tax for civil fraud in each of the years in question are upheld. Respondent proved fraud by clear and convincing evidence.

4. Although Viola failed to file her own returns for 1953 and 1954, the returns for both years in the name of Alcuin alone and signed solely by him were not joint returns.

5. Since respondent proved that at least part of the income omitted by petitioners was due to fraud with intent to evade tax, the general 3-year statute of limitations is not a bar to assessment of taxes for the years 1953, 1954, and 1955 even though the statutory notice was not mailed until 1960.

6. The Wills Corporation is liable as transferee as determined by respondent.

Viola Willenbring, pro se.

Eli Elumenfeld, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HOYT, Judge:

Respondent determined deficiencies in the income taxes of Alcuin and Viola Willenbring (Docket No. 89713) for the taxable years 1953, 1954, 1955, and 1958. Further, respondent determined additions to tax on account of fraud for the same years.[1] Respondent also determined addition to tax for 1953 and 1954 for failure to file a declaration of estimated tax.[2] The conglomerate of determinations may be expressed as follows:

Additions To Tax

Failure To

Year Deficiency Civil Fraud File Estimate

1953 $ 71,606.05 $35,803.03 $ 6,812.71

1954 55,527.26 27,763.63 5,398.07

1955 9,311.11 4,655.56 -

1958 141.58 70.79 -

$136,586.00 $68,293.01 $12,210.78

A determination of liability for the same amounts was made by respondent against The Wills Corporation (Docket No. 89712) as transferee of the assets of Alcuin and Viola Willenbring. If the Court should find that the income tax returns for 1953 and 1954 were Alcuin's separate returns and not joint returns as alleged by petitioners, respondent has alternatively asked for increased deficiencies in taxes and additions. Those increases are as follows:

Additions To Tax

Failure To

Civil File

Year Deficiency Fraud Estimate

1953 $15,740.45 $7,870.22 $1,416.64

1954 14,582.42 7,291.21 1,348.88

Respondent's motion to consolidate the two cases was granted at trial as was his motion to amend his answer in two particulars: First, part of the deficiency determined resulting from capital gain on the sale of certain property located at Long Beach, California, was decreased by respondent's concession that the petitioners' basis in the property was $10,281.43 in lieu of $3,500 as originally found. Second, respondent's determination of an addition to tax for failure to file an estimate for the year 1954 was conceded to be improper. Respondent substituted in its place an addition to tax for that year for filing an estimated return containing a substantial underestimate of tax.[3] The increased deficiency now alleged by respondent for 1954 on account of the addition for substantial underestimate of estimated tax is $3,441.45 under section 294(d)(2). Respondent made jeopardy assessments against Alcuin and Viola Willenbring, and The Wills Corporation, transferee, on June 22, 1960, summarized in his statutory notice of deficiency as follows:

Additions Interest To

Year Deficiency To Tax June 16, 1960

1953 $ 60,486.48 $30,243.34 $22,692.36

1954 37,508.58 18,754.29 11,633.82

1958 2,517.81 1,258.91 176.65

$100,512.87 $50,256.54 $34,502.83

In his deficiency determination, respondent found it necessary to make certain adjustments in the jeopardy assessments. These adjustments were as follows:

Assessment In

Additional Deficiency Excess Of Liability

Additions Additions

Year Income Tax To Tax Income Tax To Tax

1953 $11,119.57 $12,372.40

1954 18,018.68 14,407.41

1958 $2,376.23 $1,188.12

$29,138.25 $26,779.81 $2,376.23 $1,188.12

Essentially, these consolidated cases evolve from respondent's determination that substantial income was omitted by Alcuin Willenbring from his income tax returns during the years in question. Respondent has attempted to reconstruct petitioners' income using the specific item method, corroborating it by using the net worth method. We are faced at first with determining whether income from four sources has in fact been omitted. They are: (1) business receipts from the Club Moderne, (2) interest, (3) dividends, and (4) capital gains. If any of the deficiencies are sustained, the Court must then examine each of the additions to tax determined by respondent. The alleged additions may be categorized according to cause as follows: (1) omission due to fraud with intent to evade tax pursuant to sections 293(b) of the 1939 Internal Revenue Code, and 6653(b) of the 1954 Internal Revenue Code, (2) failure to file an estimate of tax pursuant to section 294(d)(1)(A) of the 1939 Internal Revenue Code, and (3) filing of a substantial understatement of estimated tax pursuant to section 294(d)(2) of the 1939 Internal Revenue Code. We must also decide whether Alcuin and Viola Willenbring filed joint returns in 1953 and 1954, or whether the returns for those years were those of Alcuin alone and whether the statute of limitations bars the assessment and collection of any of the deficiencies determined. Respondent has conceded on brief that if the 1953 and 1954 returns are held to be Alcuin's separate returns, Viola is not liable for deficiencies or additions to taxes for those years. As hereinafter used the term ‘ petitioners' will refer to Alcuin and Viola for the years 1953 and 1954 only if we find that joint returns were filed in those years. It will refer to Alcuin alone for those years whenever used if we determine that the returns for those years were not joint. Finally, we must pass upon the liability, if any, if The Wills Corporation, as the transferee of the assets of Alcuin and Viola Willenbring or as respondent alternatively claims as their alter ego or nominee. FINDINGS OF FACT Alcuin and Viola Willenbring were husband and wife and resided at Downey, California, during the taxable years 1953, 1954, 1955, and 1958. All the returns in issue were filed with the district director of internal revenue at Los Angeles, California. Although Alcuin and Viola were divorced in 1966, they were married during the years in issue. Alcuin always filed income tax returns. Viola never filed a return to her own but she, upon occasion, was named therein and executed joint returns. The returns for the years 1953 and 1954 were in the name of Alcuin Willenbring alone and signed only by him. On both returns, however, Alcuin indicated that his wife would not be filing a separate return, and joint income tax rates were used in computing the tax liability reported. Alcuin listed his wife's name on both returns in the appropriate space, and took a deduction for a personal exemption for her. For 1955 and 1958, the returns were in the names of and signed by Viola as well as Alcuin, thereby indicating that the returns were joint for those years. No issue as to this is presented here. Alcuin was born in 1912 in Wisconsin, and attended school there. He was graduated from a university in Minnesota, and taught school for three and a half years following his graduation. He then did some farming. In 1936, he went to California, and became employed as a payroll bookkeeper for a machine company for about three years. From 1939 to 1945, he served as a purchasing agent for an engineering company in California. In 1945, Alcuin borrowed money to go into business for himself. He purchased a bar, but it was not successful, and Alcuin lost...

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