Source: https://law.justia.com/cases/federal/appellate-courts/F2/762/891/406321/
Timestamp: 2019-06-24 22:30:06
Document Index: 583868148

Matched Legal Cases: ['§ 7482', '§ 6651', '§ 6653', '§ 61', '§ 6001', '§ 1']

Rawlin L. Stovall, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee, 762 F.2d 891 (11th Cir. 1985) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Eleventh Circuit › 1985 › Rawlin L. Stovall, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee
Rawlin L. Stovall, Petitioner-appellant, v. Commissioner of Internal Revenue, Respondent-appellee, 762 F.2d 891 (11th Cir. 1985)
US Court of Appeals for the Eleventh Circuit - 762 F.2d 891 (11th Cir. 1985)
Before KRAVITCH and CLARK, Circuit Judges, and PECK* , Senior Circuit Judge.
Appellant Rawlin Stovall appeals from the decision of the United States Tax Court determining a deficiency of $1,386,664 and additions to tax of $346,666 and $69,333 in his 1972 tax year. This court has jurisdiction under 26 U.S.C. § 7482. For the reasons set forth below, we affirm.
In the present action, the Commissioner of Internal Revenue issued a notice of deficiency to Stovall charging him with income in 1972 and 1973 equal to the net amounts either he or American received for investment in commodities. The Commissioner also asserted additions to tax under 26 U.S.C. § 6651(a) for failure to file timely returns for 1972 and 1973 and under 26 U.S.C. § 6653(a) for negligence or intentional disregard of rules and regulations for those years. Stovall filed a petition for redetermination of the deficiencies and also sought a review of the additions to tax for 1972 and 1973. Before the Tax Court, the Commissioner argued that Stovall's investment activities were fraudulent and the proceeds were therefore income to him. Further, the Commissioner contended that American was a sham corporation and should be disregarded for purposes of determining Stovall's 1973 tax liability. Stovall maintained that his activities were not fraudulent and that American was a separate viable entity that conducted legitimate business activities. The Tax Court held that the amounts paid to Stovall in 1972 by the investors constituted taxable income to him. As to the 1973 deficiencies, the court held that American was a separate taxable entity and Stovall was thus not liable for deficiencies asserted against him with regard to 1973. Further, the Tax Court held that Stovall was liable for the additions to tax asserted for 1972, but not for 1973. The Commissioner has not appealed the Tax Court's decision with regard to Stovall's 1973 tax liability; Stovall appeals from the decision insofar as the court held that he was liable for the deficiency and additions to tax for 1972.
The principal issue before this court is whether the amounts paid to Stovall by investors in 1972 constituted taxable income to him. The Tax Court held that Stovall exercised complete dominion over the funds within the meaning of Commissioner v. Glenshaw Glass, 348 U.S. 426, 431, 75 S. Ct. 473, 476, 99 L. Ed. 483 (1955), so as to constitute income under 26 U.S.C. § 61. The underlying facts in this case are basically not in dispute; the parties entered into an extensive agreement of stipulation of facts. Generally, the Tax Court's findings of facts are subject to the "clearly erroneous" standard of review prescribed by Fed. R. Civ. P. 52(a). However, whether the deposits Stovall received from the investors were income is an ultimate fact and as such is to be treated as a legal rather than a factual determination, and is subject to "normal appellate review." See Steffens v. Commissioner, 707 F.2d 478 (11th Cir. 1983); Reese v. Commissioner, 615 F.2d 226, 230 n. 5 (5th Cir. 1980). Thus, the function of this court is to determine whether there is substantial evidence on the record as a whole to support the Commissioner's conclusion that the investor's deposits in 1972 constituted income to Stovall.
The Tax Court also pointed out that Stovall failed to observe federal regulations in effect in 1972 which required him to deposit the investors' funds with a financial institution in accounts clearly reflecting the ownership of the amounts therein. Commodity and Securities Exchange, 17 C.F.R. Sec. 1.20(a) (1972). As the Tax Court noted, Stovall complied with none of the applicable regulations; rather, he deposited the sums and purchased investments in his own name. The court further determined that the findings of the administrative law judge, which were specifically adopted by the Commodity Futures Trading Commission, were entitled to collateral estoppel under the standards set forth in United States v. Utah Construction & Mining Co., 384 U.S. 394, 86 S. Ct. 1545, 16 L. Ed. 2d 642 (1966).2 The Tax Court also noted that Stovall failed to keep records that would accurately reflect his equity in the investors' accounts. The court concluded that Stovall's actions were inconsistent with his claims that he was operating a bona fide cash commodities business. We find nothing in the record to convince us that this conclusion is erroneous. Accordingly, we hold that there is substantial evidence to support the Commissioner's determination that the investors' 1972 deposits constituted income to Stovall.
Stovall failed to file a tax return for 1972. Before the Tax Court, he asserted that he reasonably relied on the advice of his accountant, who had advised him that no return need be filed. As the Tax Court stated, Stovall bears the burden of proof on both the issue of addition to tax under Sec. 6651(a) for failure to file timely his tax return and for addition under Sec. 6653(a) for negligent or intentional disregard of rules and regulations. Bixby v. Commissioner, 58 T.C. 757, 791 (1972); Fischer v. Commissioner, 50 T.C. 164, 177 (1968). The Tax Court sustained the Commissioner's determination with respect to Sec. 6651(a), holding that Stovall failed to establish reasonable reliance because he did not prove that he had provided his accountant with sufficient knowledge of the true nature and extent of his commodities activities to make an informed decision. As to the additions to tax under Sec. 6653(a), the court held that Stovall's failure to keep adequate books and records as required by 26 U.S.C. § 6001 and the regulations thereunder constituted clear negligence.
During the years in issue, the Commodity Exchange Authority of the Department of Agriculture was the agency charged with administering the Commodity Exchange Act, 7 U.S.C. § 1 et seq. In April 1975, the Commodity Futures Trading Commission, an independent regulatory agency, succeeded to the operations of the Commodity Exchange Authority