Estate of Ett v. Commissioner

Memorandum Findings of Fact and Opinion

Respondent determined deficiencies in income tax and additions to tax under sections 293(b) and 294(d)(2) of the Internal Revenue Code of 1939, against E. Homer Ett and Betty Ett, husband and wife, for the years 1944 to 1948, inclusive, in the following amounts:

Findings of Fact

E. Homer Ett was a resident of St. Cloud, Florida, during the calendar years 1944 to 1948, inclusive, and filed a joint Federal income tax return with his wife Betty Ett for each of such years with the collector (now district director) of internal revenue for the district of Florida.

E. Homer Ett, hereinafter referred to as decedent, died on December 6, 1955, and Maxine Jackson was appointed administratrix of his estate by the county judge of Osceola County, Florida, on December 13, 1955.

Decedent did not have or maintain books and records which adequately reflected his income during the taxable years. *45 During the course of various interviews with agents of respondent decedent gave contradictory explanations for the absence of such books and records. One of the explanations which could be checked was untrue.

In order to ascertain petitioner's income during the taxable years, in the absence of such books and records, respondent's agents were forced to determine petitioner's income for the taxable years by the use of the socalled net worth plus personal expenditures method and corroborated the results thereby reached by consideration of petitioner's bank deposits during such period. A schedule reflecting the results reached by such method was exhibited to decedent who agreed with all the figures therein contained, with the exception of the amount of cash on hand as of December 31, 1943. Petitioner had cash on hand as of December 31, 1943, in the amount of $3,432.98.

Decedent, during the year 1944, owned and operated a night club or roadhouse business located near an air base at Kissimmee, Florida. This business had a bad reputation in the community. A large part of the income of such business was realized from the sale of liquor. Because of the presence in that locality of a large*46 number of servicemen, a large amount of income was derived therefrom by decedent.

After the purchase of such business and during the taxable years decedent cashed checks representing receipts of his business at his bank, but usually made one large deposit in his account each week consisting largely of currency. In 1944 his total bank deposits were $46,307.58, of which $36,825 was in cash and the balance in silver or checks.

During 1944 and 1945 decedent had an arrangement with one of the officers of his bank whereby the officer would notify decedent whenever the hank had available a thousand-dollar bill, whereupon decedent would go to the bank and exchange currency in smaller denominations for the thousand-dollar bill. During those years decedent obtained at least ten 1-thousand-dollar bills from his bank. Some of these bills he used in the purchase of agricultural property.

In 1953 decedent was indicted on a charge of income tax evasion for the calendar year 1946. He pleaded not guilty to this indictment but after trial before the United States District Court for the Southern District of Florida, before a jury, he was found guilty of attempting to defeat and evade a large part*47 of his income tax due and owing the United States of America for the calendar year 1946 and causing to be filed a false and fraudulent income tax return for said year, and was sentenced to imprisonment for a period of 2 years.

Petitioner's net taxable income for the taxable years was as follows:

Of these amounts petitioner failed to report net taxable income for the taxable years as follows:

Part of the deficiencies for each of the taxable years is due to fraud with intent to evade tax on the part of decedent.

Opinion

KERN, Judge: The only issue left for our decision in this case is whether respondent erred in determining that there should be additions to decedent's income tax liability for the taxable years under section 293(b) of the Internal Revenue Code of 1939. In order to prevail on this issue the respondent has the burden of proving that a part of each of the deficiencies in decedent's*48 income tax determined by him was due to fraud on the part of decedent with intent to evade tax.

The record in this case establishes that decedent consistently failed to report in the 5 taxable years large amounts of his income, that his manner of conducting business was not that of an honest taxpayer, and that with regard to one of the taxable years he was convicted after a jury trial in the United States District Court of filing a false and fraudulent income tax return.

Upon consideration of these facts, and of the record as a whole, we have concluded that part of the deficiency for each of the taxable years was due to fraud with intent to evade tax on the part of decedent.

Decision will be entered for the respondent.