National Land Co. v. Commissioner

*528 The taxes in controversy are income and excess profits taxes for the calendar year 1919 in the amount of $3,576.20. The petitioner is also charged with fraud in the preparation of its return for that year. The deficiency alleged is $2,384.12 and a penalty of $1,192.07 was asserted by the respondent.

The petitioner assigns as error the claim of the respondent that petitioner was guilty of fraud in the preparation of its tax return for the year 1919.

FINDINGS OF FACT.

The petitioner is a Georgia corporation with its principal office at Savannah. The deficiency letter was mailed to petitioner on November 21, 1925, and states a deficiency*4081 of $3,576.20. The return for the calendar year was filed March 14, 1920. No assessment or collection of the deficiency asserted was made within five years from March 14, 1920.

During 1919, the books of the petitioner were kept by James A. Gross, who is now dead. The president at that time was W. H. Johnson, who is now incapacitated. C. H. Bell, who was treasurer of the corporation at that time and who, with Johnson, filed the return for 1919, is also deceased.

In 1919, the National Land Co. sold certain land for an agreed price of $25,000, of which $10,000 was paid in 1919. The cost of this land was $10,300. No amount was included in the income and profits-tax return of the company on account of such sale. With the return there was filed a trial balance showing a property account at the beginning of 1919 of $139,358.19 and at the end of the year of $123,060.79. It was stipulated by the parties that the net income of $13,365.49 asserted by the respondent should be increased by miscellaneous items aggregating $279.72, which were not included in the return, and should be reduced by $199.57, nontaxable Liberty bond interest and $6,354.91 understatement in deduction for interest*4082 paid by petitioner. The petitioner, during the year 1919, was not very active, and employed no expert assistance in making out its tax return.

The farm account of the petitioner contains an item of $4,464, which a witness testified was not income in 1919, but was a summary of the farm account over a number of years to make a balance. In this account there was nothing received and nothing paid in 1919.

In its return, the petitioner showed a gross income of $6,354.91, composed entirely of interest received, and deductions of $7,689.42, resulting in a deficit. The respondent determined that in 1919 the petitioner, by selling a parcel of land for $25,000, made a profit of $14,500, which the petitioner did not include in its return.

*529 OPINION.

SIEFKIN: The first question to be considered in this case is whether the petitioner is guilty of an intent to defraud, as a result of its failure to include certain items in its return for the year 1919.

Section 250(b) of the Revenue Act of 1918 reads, in part, as follows:

If the understatement is false or fraudulent with intent to evade the tax, then, in lieu of the penalty provided by section 3176 of the Revised Statutes, *4083 as amended, for false or fraudulent returns willfully made, but in addition to other penalties provided by law for false or fraudulent returns, there shall be added as part of the tax 50 per centum of the amount of the deficiency.

In this proceeding the parties who filed the original return for 1919 are not available as witnesses, one being dead and the other being incapacitated. However, it is shown that the errors in the return are not all in favor of the petitioner. An item of $6,354.91 and one of $199.57 were included as income by the petitioner, which were properly deductible from income. As against this there is an item of $14,500, the profit from the sale of a parcel of land, an item of $279.72, and an item of $4,444.62, which were not included as income in the return. The last item, we find from the evidence, was not income during the year 1919, being the summary of the farm account carried from previous years.

There was apparently to attempt to conceal the transaction, since the balance sheet submitted with the return showed a decrease of $16,299.40 in the property account during the year 1919. The cost of the land which was sold was $10,300, and as the $10,000*4084 received had not exhausted the basis, it would be possible that those who filed the return did not consider that income on this deal had been realized in 1919.

The character of C. H. Bell, who was charged with the management of the business, it is testified, was good.

In view of the evidence we are of the opinion that the understatement was not false or fraudulent with intent to evade the tax.

The return was filed on March 14, 1920, and assessment or collection not having been made within five years after such date, there is no deficiency. See .

Judgment of no deficiency will be entered for the petitioner.