t c memo united_states tax_court leo m ryan et al petitioners v commissioner of internal revenue respondent docket nos filed date leo m ryan pro_se in docket no michael a mulroney and marcus schoenfeld for petitioner ronald v giongo in docket no the following cases are consolidated herewith for purpose sec_1 of trial and opinion ronald v giongo docket no john r wilson docket no james g cattalo docket no and david a grove docket no also specially recognized as counsel for petitioner giongo are the following students at villanova law school tax clinic philadelphia pennsylvania edward bernatavicius gregory doran patricia meise greg platt rhon c reid anthony scardino jode shaw lisa sher gary sica and rachel m white christopher s wilson for petitioner john r wilson in docket no james g cattalo pro_se in docket no david a grove pro_se in docket no keith l gorman george d curran and linda a love for respondent memorandum findings_of_fact and opinion wells judge respondent determined deficiencies in and additions to petitioners' federal income taxes as follows petitioner leo m ryan ryan docket no year deficiency additions to tax sec_6653 sec_6653 sec dollar_figure big_number dollar_figure big_number dollar_figure big_number plu sec_50 percent of the interest due on the deficiency petitioner ronald v giongo giongo docket no year deficiency additions to tax sec_6653 sec_6653 sec dollar_figure big_number dollar_figure big_number dollar_figure big_number plu sec_50 percent of the interest due on the deficiency these consolidated cases were tried by the late judge edna g parker and reassigned to judge thomas b wells with the consent of the parties for disposition on the existing record petitioner john r wilson wilson docket no year deficiency additions to tax sec_6653 sec_6653 sec dollar_figure big_number dollar_figure big_number dollar_figure big_number plu sec_50 percent of the interest due on the deficiency petitioner james g cattalo cattalo docket no year deficiency additions to tax sec_6653 sec_6653 sec dollar_figure big_number dollar_figure big_number dollar_figure big_number plu sec_50 percent of the interest due on the deficiency petitioner david a grove grove docket no year deficiency additions to tax sec_6653 sec_6653 sec dollar_figure big_number dollar_figure big_number dollar_figure big_number plu sec_50 percent of the interest due on the deficiency unless otherwise indicated all section references are to the internal_revenue_code in effect for the taxable years before the court and all rule references are to the tax_court rules_of_practice and procedure the following issues are to be decided with respect to giongo wilson cattalo and grove ryan and respondent have entered into a stipulation of continued whether the respective petitioners failed to report income from illegally received money or property in the taxable years and whether the respective petitioners are liable for additions to tax for fraud under sec_6653 and for the years and and whether the respective petitioners are liable for the addition_to_tax under sec_6661 for and findings_of_fact some of the facts have been stipulated pursuant to rule the parties' stipulations of fact are incorporated herein by reference and are found as facts in the instant cases at the time their respective petitions were filed in the instant cases all petitioners resided in pennsylvania continued settlement in which ryan has conceded the issues presented in his notice_of_deficiency with the provision that the amounts of unreported income are to be adjusted on the basis of this court's opinion as to the amounts of income received by the other petitioners such an adjustment is necessary because of respondent's protective position asserting that certain items of income should be attributed to more than one petitioner each petitioner's liability for self-employment_tax will be a computational adjustment dependent on the outcome of this issue petitioners do not argue against the application to them of the self-employment_tax per se but that they did not receive the underlying unreported income resolution of this issue will determine whether the period of limitations under sec_6501 has expired during and the years in issue petitioners were philadelphia police officers assigned to the squad the philadelphia police department was organized on a squad system which included four line squads usually consisting of uniformed officers called squad squad etc the squad and a squad the squad was a narcotics squad within the philadelphia police department which had authority to enforce the ordinances of the city of philadelphia and the laws of the commonwealth of pennsylvania it also assisted in enforcement in surrounding townships by assisting police from those townships the squad's headquarters were located pinciteth street and lancaster avenue in philadelphia the unit the philadelphia police narcotics unit headquarters were located in the police administration building pab pinciteth and race streets the squad was disbanded on or about date squad procedures if a police officer observed a drug transaction that officer could make an immediate arrest and confiscate the drugs otherwise an officer wishing to make an arrest could do so through the use of a search warrant or through the undercover purchase of illegal drugs the officer preparing the search warrant was the assigned officer for that case supervisors did not prepare search warrants for the undercover purchase of illegal drugs one option was termed letting the money walk where the undercover police officer would make the purchase leave the premises complete a property receipt for the supposed drugs and after analysis of the substance if positive later arrest the seller with a warrant the officers would not recover the money used to purchase the drugs as the arrest was not immediate by letting the money walk and establishing a relationship with that dealer it might be possible to apprehend individuals higher up in the drug organization for larger purchases where the authority to let the money walk was not available a buy-bust could be used once the dealer produced the drugs the officer would arrest the dealer and recover the purchase money according to departmental procedure philadelphia police officers prepared investigation reports for any drug searches or purchases they conducted the assigned officer was responsible for completing the investigation report additionally arrest reports were prepared for persons arrested and property seizure reports were prepared for items seized from suspects seized items were taken to the evidence room except that suspected drugs were sent to the police chemical lab where an analysis reflecting the weights and types of drugs seized would be performed the weights of the drugs stated on these reports were the officers' estimates paperwork would be reviewed and signed by two supervisors a copy of each of these reports was required to be maintained at the philadelphia police narcotics unit headquarters squad personnel ryan and cattalo were partners in squad for most of their time on the squad and had been partners in squad prior to their being transferred to squad during and respectively grove joined squad during september or october of and became the partner of charles hund hund when hund was assigned to squad later during giongo became a sergeant during date and at that time was transferred to squad to serve as supervisor wilson had the rank of lieutenant and was also a supervisor both giongo and wilson signed the investigation reports prepared by ryan cattalo grove and hund giongo's job as a supervisor on squad included preparing daily attendance reports giving assignments going on searches and signing investigation reports giongo never made buys worked with informants or prepared warrants on searches he helped to secure the area reducing the officers' chances of an analysis reflecting drug purity was not performed unless requested injury giongo generally would stay in the central area of the search location until a uniformed officer arrived to watch the suspects and then would check on the other officers depending on the number of searches being conducted a supervisor was not always present on each search giongo reviewed the officers' warrants before they went to the magistrate to see if there appeared to be probable cause for the proposed search giongo checked the reports for completeness especially of data used for statistical purposes such as dates times property receipt numbers and types of crimes giongo did not verify the facts contained in warrants or other reports or check seized items against the items as listed unless such items were physically present in the unit giongo signed investigation reports whether or not he had been present on the day of the search giongo was assigned to police radio detail at the pab from june until date during the investigation of a shooting in which he was involved illegal activities as will be set forth in further detail below occasionally some squad members appropriated to their own use money drugs or other items they seized from the suspects the squad members divided the appropriated money among the officers present their partners and sometimes their supervisor s however not all of the persons involved received equal amounts the officers arranged to have the appropriated drugs sold and divided the proceeds but they did not let giongo or wilson their supervisors know about their appropriation and sale of the drugs for certain types of drugs such as cocaine a cutting agent was added to the drugs turned in for evidence so that the quantity submitted was roughly equivalent to what had been seized on the investigation reports and property receipts for searches where money and drugs were appropriated the officers reported incorrect amounts of money and sometimes incorrect weights of drugs seized to correspond with the quantity they submitteddollar_figure drug dealers and informants hund came to squad from a narcotics line squad and had participated in the appropriation and sale of drugs while on that squad scott karasinski karasinski became an informant for hund while hund was on the squad narcotics unit in return for information hund gave karasinski some of the drugs and money appropriated during searches hund also had karasinski sell some of the drugs appropriated during searches a cutting agent also was added to the drugs to be sold the weights of drugs would not appear incorrect if a cutting agent had been added to compensate for the amount appropriated by the officers william gerace gerace worked at gerace jewelers a family business started by his father he also manufactured and sold methamphetamine charles hitchens hitchens supplied gerace with p2p the prime ingredient used in the manufacture of methamphetamine or with methamphetamine itself gerace paid hitchens in cash gold diamonds or methamphetamine pursuant to an arrangement gerace had with hund gerace gave hund money drugs or jewelry in exchange for protection ie not getting arrested or for information on police activities in a similar arrangement that hitchens subsequently had with hund and grove hitchens would give them money for protection or information the other petitioners did not know about such arrangements walter roeder search walter roeder roeder sold illegal narcotics during the early 1980's including quaaludes p2p and cocaine roeder also operated a garage for detailing cars he kept cash in his pockets and in the oven cabinets and safe located in his home on date cattalo obtained a search warrant for roeder's apartment and cattalo ryan and thomas taggart conducted the search the officers found small plastic bags with white powder roeder then arrived home carrying a bag containing dollar_figure in cash cattalo suggested to roeder that the officers would turn the dollar_figure over to the internal_revenue_service irs the officers also threatened to arrest both roeder and his fiancee betty cattalo and roeder then reached an agreement whereby roeder would keep dollar_figure the officers would keep dollar_figure and the officers would neither tell betty about roeder's drug dealing nor arrest either of them betty was told that roeder was working undercover for the drug enforcement agency and that the search was a mixup and neither roeder nor betty was arrested however the officers switched the wrappers on the money and appropriated dollar_figure instead of dollar_figure william gerace search at some point hund grove and wilson conducted a search of gerace's house hund called and warned gerace in advance wilson did not know that hund had called gerace no drugs were found there gerace offered them dollar_figure but wilson refused the money james hampton search during date hund grove ryan and cattalo conducted a search of the house of james hampton ryan had obtained the warrant the officers found no drugs at hampton's house but they confiscated number plays and arrested hampton for illegal gambling when hampton would not open his safe the officers broke into it and appropriated the money contained inside ryan was responsible for distributing the appropriated money petitioners' financial information wilson advised squad members to buy stock and referred several officers to his broker william johnson at the brokerage firm of hopper soliday co hopper soliday generally the officers referred by wilson would buy stock in the same companies that wilson bought the officers discussed the advantages of placing assets in the names of their children petitioner wilson wilson bought and sold stocks regularly wilson opened custodial accounts for his three children the following accounts were held at the brokerage firm hopper soliday account name account no john r wilson lisa diwilliam sec_1 j r wilson c f jennifer wilson john r wilson c f christopher s wilson john r wilson c f marc james wilson 1lisa diwilliams was wilson's fiancee when the account was opened they married on date william johnson dealt exclusively with wilson on all of these accounts the largest account in terms of dollar value was that of wilson himself wilson made the following cash transactions with hopper soliday date account amount purpose date date john r wilson john r wilson dollar_figure dollar_figure cash deposit mci shares lisa diwilliams j r wilson c f jennifer wilson john r wilson dollar_figure dollar_figure deposit for mci peco peco shares dollar_figure cash deposit date date date all other transactions with hopper soliday were by check the dollar_figure cash payment on date was a partial payment for the purchase of big_number shares of mci stock at a total cost of dollar_figure the cash consisted of old bills in denominations of twenties fifties and hundreds thereafter the mci stock split and on date wilson sold big_number of the resulting mci shares receiving a net amount of dollar_figure on date wilson purchased philadelphia electric co peco stock for dollar_figure on or about date wilson withdrew the amount of dollar_figure from the account jointly held by wilson and his wife lisa mrs wilson at the police and fire federal credit_union account on or about date wilson made a dollar_figure deposit to the brokerage house of quick reilly that deposit consisted of nine dollar_figure personal money orders from philadelphia savings fund society and one dollar_figure money order from germantown savings bank all dated date wilson purchased the dollar_figure money order with cash during the years in issue mrs wilson and grove's wife maryann mrs grove worked at the police and fire federal credit_union during or about january of wilson and grove and their wives went on a vacation to rio de janeiro the trip cost approximately dollar_figure to dollar_figure per person wilson gave grove cash for the wilsons' fares petitioner giongo on date giongo purchased acres of undeveloped real_property in huntington mills pennsylvania for the purchase_price of dollar_figure giongo made an initial payment of dollar_figure plus dollar_figure in closing costs and undertook a dollar_figure purchase_money_mortgage for the balance with monthly payments of dollar_figure the property was titled in the names of giongo and his wife the giongos later located a trailer and constructed a dirt road on the property on date giongo purchased shares of at t stock in the name of ronald v giongo sr custodian for ronald v giongo jr for the amount of dollar_figure through william johnson at hopper soliday petitioner cattalo cattalo purchased mci stock in his son's name by date cattalo had purchased at least dollar_figure of peco stock in the name of james g cattalo custodian for james g cattalo jr cattalo was the payee of a money order in the amount of dollar_figure dated date on date cattalo deposited dollar_figure in cash into his bank account on date cattalo received a loan advance of dollar_figure from the credit_union on date cattalo purchased a ford cargo van for dollar_figure cattalo paid dollar_figure in cash at the time of the sale and financed the remaining dollar_figure the van as purchased from the dealer was a stripped-down model which cattalo had customized elsewhere petitioner grove grove opened accounts at hopper soliday for himself and his wife and for his daughters he conducted all the transactions for these accounts he used william johnson as his broker having been referred to him by wilson grove made the following stock purchases through hopper soliday date title owner date date date date date david maryann grove david maryann grove d grove c f francine grove d grove c f francine grove d grove c f jordan grove payment amount type dollar_figure check dollar_figure check dollar_figure cash dollar_figure cash dollar_figure check stock mci chronar chronar contracap peco at t the date purchase of chronar stock in the name of david and maryanne grove was paid for by a check dated date written on the checking account of alan grove grove's father on date a dollar_figure cash deposit was made into the checking account of alan grove on or about date grove purchased stock through the brokerage house of quick reilly by paying dollar_figure in cash on date grove purchased peco stock for dollar_figure in the name of david a grove custodian for francine m grove on date mrs grove signed a check from their joint checking account to quick reilly in the amount of dollar_figure on date check no made payable to at t in the amount of dollar_figure was written on the checking account of alan grove and used to purchase at t stock in the name of david grove custodian for jordan ann grove on date grove entered into a contract to purchase a motor boat and trailer from jack's marine for dollar_figure grove received dollar_figure for the trade-in value of his motor boat the remaining balance after taxes and fees to be paid for the new boat was dollar_figure grove made the following cash payments to jack's marine for the new boat date date date date date date date amount dollar_figure big_number big_number big_number big_number big_number on date grove signed a deposit receipt and agreement of sale with united farm agency to purchase acres in bradford county pennsylvania for dollar_figure on date a dollar_figure cash deposit was made into the checking account of alan grove at east girard saving bank on the same date check no made payable to united farm agency in the amount of dollar_figure was written on the checking account of alan grove for the required_deposit on the land the purchase of the property was never consummated and on date a check in the amount of dollar_figure made payable to grove was issued by united farm agency the dollar_figure check was endorsed by grove and on date deposited along with dollar_figure cash into the checking account of alan grove during date grove and alan grove decided to purchase real_estate located in sullivan county pennsylvania the sullivan county property from james bonnano for dollar_figure on date check no made payable to james bonnano in the amount of dollar_figure was written on the checking account of alan grove on date a cash deposit of dollar_figure was made into the checking account of alan grove prior to settlement grove delivered dollar_figure in cash to james bonnano in two installments of dollar_figure each the settlement sheet for the sullivan county property reflects a contract sale price of dollar_figure it also reflects that dollar_figure was paid at settlement on date the amount was paid as follows certified check nos and in the amounts of dollar_figure and dollar_figure respectively written on the account of alan grove and a dollar_figure cash payment a dollar_figure mortgage was obtained from northern central bank by grove and his wife grove represented the purchase_price to the bank as dollar_figure petitioner ryan the following cash deposits were made into the joint account of ryan and nancy ryan who was then his wife at first pennsylvania bank date date date date date date amount dollar_figure big_number big_number big_number big_number on date ryan entered into an agreement to purchase a oldsmobile cutlass for dollar_figure on date ryan entered into an agreement to trade in his oldsmobile cutlass and purchase a oldsmobile firenza for dollar_figure hund's financial information hund made the following purchases of stock through hopper soliday in the names of charles and patricia hund date payment amount type stock date dollar_figure cash date dollar_figure cash date date date dollar_figure cash dollar_figure cash dollar_figure cash check arlen realty chronar chronar solid state scientific contracap royal palm beach colony hund used william johnson as his broker having been introduced to him by wilson ryan's criminal indictment and convictions during date ryan staged a phony burglary at his house he then filed a false police report and a false claim with his insurer which in march of after ryan obtained the assistance of an attorney sent him a check for dollar_figure sometime during or ryan was interviewed by the ethics accountability division ead of the philadelphia police department about the activities of squad with regard to possible corruption after discussing the interview with wilson ryan took steps to sue the city for harassment in order to deter their investigation during early ryan heard rumors about his wife's cooperation in an investigation soon thereafter the fbi searched his house and seized the items which ryan had reported as stolen on date a federal grand jury returned an indictment against ryan the grand jury indicted ryan for one count of mail fraud and three counts of filing false tax returns under sec_7206 for the and taxable years the mail fraud charge arose from ryan's obtaining the insurance money from the phony burglary at his house the false returns counts charged ryan with willful and knowing omission of substantial income derived from moneys obtained from drug dealers during through and omission of the proceeds from the false insurance claim received in the ensuing criminal case was ryan v united_states criminal no e d pa ryan's criminal case the trial of ryan's criminal case was held during date in preparation for the trial of ryan's criminal case some of the squad members had numerous discussions as well as a few meetings some of the squad members including ryan cattalo hund grove and wilson among others but not giongo met to review discovery material ryan cattalo hund grove and wilson also attended a meeting held just prior to ryan's taking the stand ryan was convicted of one count of mail fraud and three counts of filing a false tax_return for the through taxable years after his conviction ryan agreed to cooperate with the authorities in their investigation of squad hund's cooperation ead also interviewed hund about squad's appropriation of money and drugs seized from suspects hund informed wilson of the ead interview and wilson suggested initiating a lawsuit to slow down the investigation hund talked to some lawyers about the potential lawsuit but did not file or join any suit after ryan's conviction hund began to cooperate in the investigation during about date hund entered into a pre-indictment plea agreement wherein he agreed to plead guilty to one count of conspiracy to distribute cocaine and one count of distributing cocaine hund also agreed to cooperate with the u s attorney's office and to testify as requested by the u s attorney's office in exchange for immunity from further criminal prosecution other petitioners' criminal indictments and convictions on date a federal grand jury returned an indictment against petitioners other than ryan on date a federal grand jury returned a superseding indictment against giongo wilson cattalo grove richard jumper jumper and francis hilt hilt that superseding indictment charged the named defendants with varying counts including engaging in racketeering activity conspiring to do so with the purpose of using their power and authority as police officers to illegally obtain money and property for personal gain distribution and possession with intent to distribute methamphetamine and cocaine conspiracy to obstruct justice making false statements ie perjury and filing false tax returns under sec_7206 each count charging the filing of a false return alleged that the respective defendant willfully and knowingly filed a return that he did not believe to be true and correct whereas he then and there well knew and believed that he received substantial income in addition to that reported which included moneys stolen or otherwise obtained from drug dealers and others the ensuing criminal case was wilson v united_states criminal no e d pa the wilson case grove giongo cattalo and wilson were defendants in the wilson case the first trial of the wilson case began on date and ended on date the jury was deadlocked after approximately days of deliberations and the judge declared a mistrial the second trial of the wilson case began on date and the jury returned its verdict on date jumper and hilt were acquitted on all charges giongo wilson cattalo and grove were found guilty of engaging in a pattern of racketeering and conspiracy to do so the individual racketeering activities underlying these convictions for which at least one petitioner was found guilty are listed below search other cipriani guilty petitioner s act s wilson cattalo robbery conspiracy mingone wilson cattalo aiding_and_abetting bribery bribery conspiracy roeder wolff wilson giongo cattalo aiding_and_abetting bribery bribery conspiracy grove cattalo robbery conspiracy wolff distribution of drugs hitchens payment hitchens lees garrett distribution of drugs myles distribution of drugs kaminski grove cattalo intent to distribute marijuana and cocaine aiding_and_abetting grove cattalo grove cattalo wilson giongo bribery conspiracy bribery robbery conspiracy conspiracy grove wilson giongo robbery conspiracy conspiracy grove cattalo intent to distribute cocaine aiding_and_abetting grove cattalo intent to distribute cocaine aiding_and_abetting grove cattalo wilson robbery conspiracy kaminski distribution of drugs grove cattalo intent to distribute cocaine aiding_and_abetting aiding_and_abetting grove cattalo bribery conspiracy gerace payment roeder grove cattalo wilson giongo bribery conspiracy aiding_and_abetting bribery intent to distribute cocaine aiding_and_abetting aiding_and_abetting pontarelli grove cattalo search other carr sims guilty petitioner s grove cattalo wilson giongo act s robbery aiding_and_abetting conspiracy aiding_and_abetting aiding_and_abetting grove cattalo wilson robbery conspiracy tesylar distribution of drugs gonzales distribution of drugs grove cattalo intent to distribute methamphetamine aiding_and_abetting grove intent to distribute cocaine aiding_and_abetting baker grove cattalo wilson robbery conspiracy aiding_and_abetting conspiracy baker distribution of drugs hitchens payment hampton grove cattalo intent to distribute cocaine aiding_and_abetting grove bribery conspiracy grove cattalo wilson giongo robbery conspiracy aiding_and_abetting robbery conspiracy aiding_and_abetting robbery grove and cattalo were found guilty of possession with intent to distribute methamphetamine with respect to the tesylar drugs grove was found guilty of possession of cocaine with intent to distribute with respect to the gonzales drugs grove and cattalo were found guilty of possession of cocaine with intent to distribute with respect to the baker drugs on counts separate from the racketeering charges wilson was found guilty of three counts of making false statements with respect to his testimony at the trial of ryan's criminal case regarding the roeder search that he had no knowledge of whether money was illegally obtained the roeder search that the total amount of money found was dollar_figure and that no safe was found and the carr search that he had no knowledge of money being stolen cattalo was found guilty of three counts of making false statements with respect to his testimony at the trial of ryan's criminal case regarding the roeder search that no money was illegally obtained the roeder search that nothing was illegally obtained and that money found there was only dollar_figure and the carr search that the money found totaled dollar_figure wilson grove and cattalo were found guilty of filing false returns for the through taxable years under sec_7206 giongo was found guilty of the same charge for the and taxable years but not guilty for the taxable_year the district_court granted the government's motion to mold the jury's forfeiture verdict and for the entry of judgment of forfeiture 742_fsupp_905 e d pa affd without published opinion 909_f2d_1478 3d cir as a result giongo wilson cattalo and grove were held jointly and severally liable for dollar_figure the amount the jury determined the racketeering enterprise had derived from its racketeering activity the district_court ordered petitioners and hund to pay restitution of dollar_figure to james carr in accordance with statutory provisions they were held jointly and severally liable for that amount federal_income_tax returns petitioners each filed joint and federal_income_tax returns with their respective wives on their respective returns petitioners reported the following amounts of total_tax petitioner giongo wilson cattalo grove dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number wilson reported net gain from the sale of stock in the amounts of dollar_figure and dollar_figure for and respectively respondent's determinations using the specific items method respondent determined that petitioners had additional gross_receipts as follows petitioner taxable_year taxable_year ryan giongo wilson cattalo grove dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number respondent granted each petitioner's spouse innocent spouse status as to the deficiencies and additions to tax respondent mailed the respective notices of deficiency to petitioners on date i unreported income burden_of_proof opinion petitioners argue that the notices of deficiency in the instant case are arbitrary and excessive and request that we place upon respondent the burden_of_proof with respect to the issue of the income_tax deficiency determined against petitioners based on unreported income in determining the amounts stated in the notices of deficiency respondent took a protective position attributing the same income to more than one petitioner generally the notice_of_deficiency is afforded a presumption of correctness and the taxpayer has the burden_of_proof as to the amounts of the deficiencies rule a 794_f2d_884 3d cir vacating and remanding tcmemo_1985_101 the court_of_appeals for the third circuit to which an appeal of the instant cases would lie will not give effect to the presumption of correctness without some predicate evidence connecting the taxpayer to the charged activity id pincite 552_f2d_549 3d cir affg in part revg in part and remanding tcmemo_1975_341 91_tc_179 affd without published opinion 872_f2d_411 3d cir if the taxpayer rebuts the presumption by showing the determination is arbitrary and erroneous the presumption disappears and the burden of going forward shifts to the commissioner but the court_of_appeals for the third circuit has held that the ultimate burden_of_proof or persuasion remains with the taxpayer anastasato v commissioner supra 618_f2d_1001 3d cir the commissioner has the right to make see 54_tc_742 affd 11_f2d_985 10th cir inconsistent determinations to protect the public fisc as long as none of the deficiencies has been collected and the commissioner acknowledges only one tax_liability is due gerardo v commissioner supra pincite at trial respondent's counsel stated respondent's intention to ask the court to decide the amounts of income each petitioner received individually accordingly on brief respondent no longer attributes the same dollar of income to more than one petitioner and asserts the following amounts as petitioners' respective unreported gross_receipts petitioner giongo wilson cattalo grove dollar_figure big_number big_number big_number dollar_figure big_number big_number big_number in gerardo v commissioner supra the taxpayer was convicted of conspiracy to operate a lottery between date and date the commissioner computed a deficiency in federal_income_tax based on the average daily gross_receipts of the lottery operation on february and which were projected over the period from date through these figures represent the totals of respondent's primary assertions as to the way income from each search was divided generally respondent has asserted that each petitioner deriving income from a search received an equal amount of income in several instances respondent has suggested alternative ways of allocating the proceeds eg fewer individuals receiving larger amounts of income thus depending on what the court decides as to each search the total annual receipts for any one of petitioners could exceed that amount shown above date the taxpayer presented no evidence other than his self-serving denials of his involvement however the record contained no evidence of the taxpayer's involvement in the lottery prior to date the court_of_appeals for the third circuit stated some evidence must appear which would support an inference of the taxpayer's involvement in gambling activity during the period covered by the assessment without that evidentiary foundation minimal though if sic may be an assessment may not be supported even where the taxpayer is silent citation omitted id pincite accordingly the taxpayer was held to be not liable for the portion of the deficiency attributed to the period prior to date as we review each of respondent's assertions concerning each respective search we consider whether respondent has presented predicate evidence linking the specific petitioner to the tax- generating activity from which respondent asserts income has arisen for such petitioner where there is no such predicate evidence we attribute no income to that petitioner id where the record provides some evidence that a particular petitioner received income on a particular occasion but that evidence is sparse or conflicting as to the amount of the income we charge the respective petitioner with an amount of income based on the record as a whole 533_f2d_959 5th cir affg ash v commissioner tcmemo_1974_219 arouth v commissioner tcmemo_1992_679 puppe v commissioner tcmemo_1988_311 see also 757_f2d_36 3d cir revg tcmemo_1983_ gerardo v commissioner supra mandina v commissioner tcmemo_1982_34 affd 758_f2d_1399 11th cir and affd in part revd in part and remanded sub nom 779_f2d_849 2d cir barber v commissioner tcmemo_1980_39 affd without published opinion 679_f2d_896 9th cir giongo also argues that determining as to him the same deficiencies as those determined against the other petitioners when he had at most a small role in the conspiracy violates his rights under the eighth amendment to the constitutiondollar_figure the imposition of liability for a federal_income_tax deficiency and the additions to tax for fraud however has been held to be remedial and not punitive 303_us_391 83_f3d_779 6th cir 62_f3d_97 4th cir affg tcmemo_1994_128 13_f3d_432 1st cir affg tcmemo_1993_61 98_tc_165 accordingly the eighth amendment does not apply in the context of this civil tax proceedingdollar_figure the eighth amendment provides that excessive bail shall not be required nor excessive fines imposed u s const amend viii however in keeping with the opinion of the court_of_appeals continued amounts of unreported income15 throughout the instant proceedings petitioners giongo wilson cattalo and grove have maintained that they received no income from illegal activities and they testified to that effect we will not repeat their denials in our discussion carlos ayala search on or about date hilt jumper cattalo and ryan executed a search warrant obtained by hilt for the home of carlos ayala the officers seized marijuana from ayala's home respondent asserts that giongo wilson and cattalo each received dollar_figure from the ayala search ryan testified that he received some money from either jumper or hilt from the ayala search and that cattalo told ryan that he also received some money ryan believes the amounts were approximately dollar_figure each jumper and hilt deny taking any money there was neither testimony from ayala nor any testimony that either wilson or giongo received funds we find that the evidence presented does not support a finding that cattalo wilson or giongo received funds from the continued for the third circuit we consider whether respondent has presented predicate evidence to support the unreported income attributed to each petitioner 757_f2d_36 3d cir revg and remanding tcmemo_1983_538 in order to avoid repeating certain findings_of_fact concerning the various searches and other activities underlying respondent's assertion of unreported income against petitioners we have combined those findings_of_fact with our opinion in the instant case ayala search accordingly we attribute no unreported income to giongo wilson or cattalo from that search joseph and pamela rizzo search on or about date ryan obtained a search warrant for the home of joseph and pamela rizzo and ryan cattalo herbert scott scott and marie watson watson executed the search warrant ryan discovered that he knew mrs rizzo she had worked for his father the officers found a small quantity of marijuana and some cash mr rizzo was arrested but mrs rizzo was not because of some action on ryan's part the case against mr rizzo was discharged as ryan had promised mr rizzo respondent asserts that giongo wilson and cattalo each received one-sixth of dollar_figure or dollar_figure from the rizzo search ryan testified that he believes that scott made an arrangement with mr rizzo whereby the officers would accept money and mrs rizzo would not be arrested ryan does not remember whether the total amount was dollar_figure or dollar_figure ryan also testified that he believes that he received three shares16 from the search one each for himself giongo and wilson and that scott watson and cattalo each received shares scott denies negotiating with mr rizzo there was no testimony from the rizzos ryan used the phrase i believe to qualify many of his answers with respect to the rizzo search we find that the use of that phrase creates ryan testified that shares are equal portions a piece is half of a share and a bone about dollar_figure uncertainty that undermines the strength of his testimony also the facts that ryan knew mrs rizzo and promised to get mr rizzo's case discharged lead us to question the scenario ryan described apart from ryan's testimony in this regard which we have discounted respondent has presented no predicate evidence connecting giongo wilson or cattalo to the receipt of funds from the rizzo search accordingly we attribute no unreported income from the rizzo search to giongo wilson or cattalo james blow sr search on or about date watson obtained a search warrant for the home of james blow sr and cattalo ryan watson and scott executed the search warrant james blow jr had illegal drugs in a bank bag and was arrested respondent asserts that giongo wilson and cattalo each received dollar_figure from the blow search ryan testified that he and cattalo each received an amount he believes was about dollar_figure from scott scott denies appropriating any money there was no testimony from blow sr or blow jr although ryan was less than certain about the amount of money his testimony establishes that he and cattalo received some amount we sustain respondent's assertion as to the amount of unreported income from the blow search as to cattalo we find no unreported income for wilson or giongo from the blow search for respondent has presented no predicate evidence to support such a finding michael duonnolo search on or about date ryan obtained a search warrant for the home of michael duonnolo duonnolo giongo cattalo ryan and scott executed the search warrant the officers found illegal pills ryan appropriated dollar_figure from duonnolo telling duonnolo not to complain about it or they would arrest his wife as well as duonnolo himself ryan referred duonnolo to a specific attorney so ryan would receive a kickback that attorney called ryan who then falsified the location of drugs reported on the investigation report in order that duonnolo would not be convicted ryan received dollar_figure from the attorney respondent asserts that giongo wilson and cattalo each received dollar_figure of the dollar_figure appropriated from duonnolo and that cattalo received dollar_figure of the dollar_figure ryan received from duonnolo's attorney scott denies that any money was appropriated and there was no testimony from duonnolo ryan did not testify as to whether or how he shared the dollar_figure he appropriated from duonnolo accordingly absent sufficient predicate evidence we do not allocate any of such payment to the other petitioners ryan testified that he split the dollar_figure kickback from duonnolo's attorney with cattalo we do not believe that ryan would have shared such kickback and do not allocate any part of it to the other petitioners marvin periera search on or about date grove obtained a search warrant for the home of marvin periera periera grove wilson cattalo and ryan executed the search warrant the officers found marijuana and arrested periera respondent asserts that petitioners each received dollar_figure from the periera search ryan testified that he received dollar_figure from grove he did not testify as to any of the other petitioners ryan also testified that two days later periera offered him money and drugs so as not to be arrested on that occasion periera did not testify based on ryan's testimony we find it likely grove kept at least dollar_figure for himself accordingly we sustain respondent's assertion as to the dollar_figure received by grove as there is nothing in the record to indicate that giongo wilson or cattalo received any moneys from the periera search we do not sustain respondent's assertions as to them ernest durkin search on or about date grove cattalo and ryan assisted police officers from bensalem township pennsylvania in obtaining and executing a search warrant for the home of ernest durkin durkin in bensalem respondent asserts that petitioners each received dollar_figure from the durkin search durkin did not testify ryan testified that grove distributed money to him and cattalo and that the amount he ryan received was approximately dollar_figure we sustain respondent's assertions as to the amounts of income for cattalo and grove from the durkin search ryan also testified that grove said he had funds for wilson and giongo there is no evidence in the record that wilson or giongo actually received the fundsdollar_figure we find no unreported income was received by giongo or wilson from that search richard wolff search on date grove obtained a search warrant for the third floor apartment of richard wolff wolff and grove cattalo giongo ryan and hund conducted a search of the premises this was hund's first search on squad the officers found two trash bags of marijuana and a quantity of cocaine hund put the cocaine in his pocket ryan appropriated a radio inositol a cutting agent also was appropriated the officers arrested wolff and his girlfriend grove and hund took one bag of marijuana and the cocaine and gave it to karasinski for sale this was the first time grove met karasinski grove and ryan signed the property receipt for the search which falsely stated that only the following were seized one large green trash bag containing a green weed and seeds three large clear plastic bags in addition the record contains evidence of several instances where the officers failed to give ryan his full share or complete information as to their earnings with a green weed and one large clear plastic bag with a white powder respondent asserts that grove received dollar_figure dollar_figure from the sale of the cocaine plus installments of dollar_figure and dollar_figure from the sale of the marijuana and that cattalo received dollar_figure as a result of the wolff search hund testified that he received dollar_figure for the cocaine which he split with grove one payment for the marijuana of dollar_figure which he split with grove and then a second payment of dollar_figure which he split four ways with grove ryan and cattalo ryan testified that he received dollar_figure from cattalo that night and about dollar_figure later which he understood to be the proceeds of the sale of the drugs with respect to this search cattalo and grove were convicted on charges of robbery and possession of cocaine and marijuana with intent to distribute we sustain respondent's assertions as to the amounts of income cattalo and grove received from the proceeds of the drugs appropriated during the wolff search charles hitchens search on date cattalo obtained a search warrant for hitchens' premises and cattalo wilson giongo grove and hund conducted a search when hund and grove arrived on the scene hitchens had two containers each containing dollar_figure in cash after the officers introduced themselves hitchens recognized at least one of them by name or by face hitchens already owed the internal_revenue_service irs from a previous seizure of funds and was anxious to avoid another such incident so he offered hund and grove half the money to ignore the cashdollar_figure they accepted one container and asked hitchens not to mention this to the other officers who would be arriving later hitchens put the other container in his neighbor's trash can from which the neighbor later retrieved it for him thereafter cattalo arrived then wilson and later giongo hitchens had a box of casino chips in a kitchen cabinet and diamonds in the freezer approximately dollar_figure in a closet was left untouched hitchens had dollar_figure in currency on his person which was returned to him no drugs were found on the premises hitchens was not arrested after the search hitchens found that the majority of the casino chips and diamonds were missing when grove hund and cattalo left the unit at the end of their shift each of them appropriated a portion of the dollar_figure from the container karasinski visited hund after the hitchens search and saw a large sum of money a velvet sack of diamonds and casino chips in dollar_figure's on the kitchen table hund led karasinski to believe that the items were hund's share of what it was sometime after this date search that hitchens developed his relationship with grove and hund described supra p was appropriated on the hitchens search hund and karasinski then went to a casino and cashed in some of the chips ryan was away during the hitchens search when he returned ryan received several hundred dollars from cattalo who attributed the money to this search and ryan received one diamond cattalo completed the investigation report on date indicating that nothing was found and nothing was taken respondent asserts that grove and cattalo each received dollar_figure of the dollar_figure in cash from the hitchens search cattalo was convicted of bribery and grove of bribery and conspiracy with respect to the bribe the total amount of the bribe was dollar_figure we sustain respondent's assertions that grove and cattalo each received dollar_figure of the cash from the hitchens search respondent also ascribes one-sixth of dollar_figure in casino chips and of dollar_figure in diamonds to each petitioner the total_amounts are based on hitchens' testimony that he was missing dollar_figure in chips and three-quarters of approximately diamonds for which he paid dollar_figure to dollar_figure grove cattalo and wilson were convicted of robbery of the diamonds and or casino chips and conspiracy and giongo was convicted of conspiracy for the search karasinski understood the chips he saw at hund's house to be hund's share karasinski testified that he cashed in a handful of dollar_figure casino chips totaling about dollar_figure but that these chips were not all that hund had hund testified that karasinski cashed in dollar_figure to dollar_figure of chips which hund received from wilson and that hund divided the cash into seven shares one each for himself cattalo grove ryan wilson giongo and the captain and distributed the shares to the respective individuals at giongo's new year's eve party with wilson accepting the shares for cattalo and the captain neither of whom attended the party giongo and his wife testified about the party and denied that any distribution of money occurred during the party ryan did not testify about the new year's eve party at all but testified that he was away for the hitchens search and that he later received several hundred dollars from cattalo attributed to the hitchens search as for the diamonds karasinski saw a sack of diamonds at hund's house which he understood to be hund's share hund testified that wilson found the diamonds and that he hund later saw diamonds and received two diamonds from wilson ryan testified that after he returned from his vacation he cattalo grove and hund each picked out one diamond based on the record as a whole it is likely that hund kept more than his proportionate share and that ryan received less since he was not present on the search faced with conflicting testimony on the amounts of casino chips and how they or their proceeds were divided we attribute dollar_figure to hund and divide dollar_figure equally among petitioners dollar_figure each we allocate two diamonds or dollar_figure each to wilson cattalo and grove raymond brown search also on date cattalo obtained a search warrant for the home of raymond brown brown one of hitchens' customers and after the above-described hitchens search cattalo wilson grove and hund executed the brown search warrant the officers found a small amount of drugs and arrested brown respondent asserts that dollar_figure was appropriated and divided six ways including petitioners and hund each petitioner receiving dollar_figure from the brown search brown did not testify hund testified that grove found and held dollar_figure but that cattalo gave hund dollar_figure there was no testimony regarding the other petitioners we sustain respondent's assertion as to the amount of the deficiency resulting from the brown search for cattalo only there being no predicate evidence connecting the other petitioners to money appropriated from brown raymond lees search on date on the basis of information hund received from karasinski hund and grove set up raymond lees according to hitchens he paid approximately dollar_figure to dollar_figure for about diamonds thus on average each was worth about dollar_figure to dollar_figure lees karasinski paid lees dollar_figure for some cocaine but did not purchase the marijuana he had requested hund grove giongo and wilson stopped lees while he was driving away from the sale and seized two large clear plastic bags of marijuana the officers appropriated the dollar_figure from lees during the search and did not return it lees was arrested and charged for having the marijuana but not for the cocaine sale hund was the assigned officer and did not mention the cocaine sale or money in the investigation report respondent asserts dollar_figure was appropriated and divided six ways including petitioners and hund each petitioner receiving dollar_figure from the lees search hund testified that after the lees search and two subsequent searches that night he received dollar_figure to dollar_figure from wilson who also handed money to grove ryan cattalo and giongo grove and wilson were convicted of robbery of the money obtained from the lees search and conspiracy to steal the money and giongo was convicted of conspiracy petitioners argue that the lees search was a buy-bust and that the purchase money was not stolen but there is no evidence to that effect and the convictions estop those convicted from denying the robbery occurred cattalo and ryan did not the officers either gave karasinski the money used to purchase the cocaine from lees or more likely reimbursed him out of the sale proceeds hund did not mention the cocaine deal in his testimony or in the investigation report participate in the lees search ryan's testimony did not address the lees search we do not believe ryan or cattalo would have received money where neither one was on the search accordingly we attribute no income from the lees search to cattalo we allocate dollar_figure each to hund wilson and grove and dollar_figure to giongo from the lees search steven and alan garrett search on date grove and hund conducted an undercover purchase of cocaine from steven garrett at garrett's residence after purchasing two bags of cocaine for dollar_figure each grove and hund identified themselves as police officers grove hund wilson cattalo and ryan conducted a search of the premises and arrested steven and alan garrett grove completed the property receipts and the investigation report hund appropriated some cocaine during the search he used a vial's worth in his car and later took one bag to karasinski's where the two of them used a large amount of it respondent asserts grove and cattalo each received dollar_figure from the sale of the garrett drugs grove and cattalo were convicted of possession of cocaine with intent to distribute for the garrett drugs hund testified that he and karasinski used a large portion of the appropriated cocaine that karasinski paid him dollar_figure for it and that he in turn gave dollar_figure each to grove cattalo and ryan ryan testified that he received about dollar_figure weeks later we find that grove and cattalo each received dollar_figure from the sale of the garrett drugs alan myles search on date grove obtained a search warrant for the premises of alan myles myles and grove giongo hund cattalo and ryan conducted a search myles lived in a highrise building and giongo remained downstairs while the other four officers conducted the search of myles' residence the officers found four bags of cocaine and a quantity of cutting agent one of the officers added some cutting agent to the cocaine and made two more bags of cocaine hund and grove took two bags of cocaine and gave them to karasinski for resale respondent asserts that grove and cattalo each received dollar_figure from the sale of the myles drugs both were convicted of possession of cocaine with intent to distribute for the myles drugs ryan testified that he and cattalo received at least dollar_figure from either hund or grove for the myles drugs hund testified that karasinski gave him and grove about dollar_figure that they shared and then karasinski gave them some more money later which grove controlled we sustain respondent's assertions as to the income grove and cattalo received from the proceeds of the myles drugs ernest durkin search on or about date grove cattalo wilson hund and ryan assisted police officers from bensalem township in obtaining and executing a search warrant for durkin's home hund appropriated at least dollar_figure durkin filed a complaint that money was stolen the officers involved were interviewed by police investigators in relation to this complaint and per wilson's instructions denied knowledge of any missing money respondent asserts that wilson grove and cattalo along with hund and ryan each received a portion of the dollar_figure appropriated on the durkin search durkin did not testify and the complaint is not part of the record hund testified that he found dollar_figure of which he put dollar_figure in his sock and that at the unit he gave grove the remaining dollar_figure and received back approximately dollar_figure to dollar_figure ryan testified that he did not know about the money being appropriated at the scene but back at the unit he received at least dollar_figure from grove there is no evidence of wilson's or cattalo's receiving any cash from the durkin search accordingly we attribute no income to wilson or cattalo we find that grove received dollar_figure from the durkin search spennato payment bart spennato spennato was a massage parlor operator hund had been receiving bribes from spennato since hund was on squad spennato would call hund at work to say he had money for hund and they would talk in code in case anyone was listening in saying eg that spennato had information for hund sometime during spennato contacted hund and asked hund to come to his massage parlor when leaving the unit to go to spennato's he told grove and cattalo that he was going to meet with an informant spennato gave hund dollar_figure to help clear his brother who had been arrested by squad respondent asserts that of a total_payment of dollar_figure grove and cattalo each received dollar_figure hund testified that he went to spennato's with grove and cattalo and split the money with them and bill young from squad spennato did not testify nor did young grove's testimony involved answering a phone call from spennato and did not address going to spennato's cattalo did not testify about spennato hund had been receiving payoffs from spennato since hund was on squad we believe it unlikely that hund shared the spennato payment with the others and find that cattalo and grove derived no income from the spennato payment john kaminski robert rossi search on date hund observed by grove and wilson conducted an undercover purchase of ounces of cocaine at the price of dollar_figure from john kaminski kaminski in the parking lot of a friendly restaurant ryan and cattalo also were present kaminski was arrested robert rossi rossi who was observed delivering a brown paper bag to kaminski was arrested inside the adjacent ground round restaurant a search of rossi's apartment was conducted hund and grove found money and cocaine there they appropriated some of the cocaine and took it to karasinski to resell back at the unit grove or hund distributed portions of the appropriated money to ryan and cattalo when hund received the proceeds of the sale of the cocaine from karasinski he distributed them among himself grove ryan and cattalo respondent asserts that wilson grove and cattalo each received dollar_figure in appropriated cash and that grove received dollar_figure and cattalo dollar_figure of the proceeds of the drugs from the kaminski rossi search wilson grove and cattalo were convicted of robbery with respect to the appropriated cash grove was convicted of possession of cocaine with intent to distribute grove and cattalo were convicted of aiding_and_abetting with respect to the drug possession there was no testimony from kaminski or rossi hund testified that the cash was split but did not say how he testified the drug proceeds were split dollar_figure each to himself and grove and dollar_figure each to ryan and cattalo ryan stated the amounts he received from the cash and from the drug proceeds as each being several hundred dollars he also testified cattalo had received cash the night of the search we sustain respondent's assertions as to the kaminski rossi search walter roeder search on date ryan obtained a search warrant for roeder's house pincite shawmont avenue roeder was driving when two or three officers jumped into his car and returned with him to his house the other officers followed in their car ryan wilson cattalo and grove conducted a search of roeder's premises ryan stayed with roeder in the kitchen while the other officers searched the house ryan found dollar_figure in the oven the dollar_figure was returned to roeder no illegal drugs were found the officers made roeder open his safe which contained approximately dollar_figure from the sale of p2p ryan at first threatening to give all dollar_figure to the irs reached an agreement with roeder to split the money half for roeder half for the officers roeder was not arrested after the search the officers called hund and giongo and all of them met for dinner at the unit after dinner wilson distributed portions of the appropriated money on the daily complaint summary ryan typed an incorrect street number for roeder's address and omitted roeder's name ryan completed the investigation report on date using roeder's correct address and indicated that nothing was found and nothing was taken when ryan's wife discovered where ryan had hidden his share of the money he explained that it was stolen money and she deposited some of it into their checking account respondent asserts that wilson grove and cattalo each received dollar_figure and that giongo received dollar_figure from the roeder search wilson grove and cattalo were convicted of bribery and conspiracy and giongo of aiding_and_abetting with the officers had planned for grove to act as an irs agent should any money be found respect to such search wilson and cattalo also were convicted of perjury for their testimony at the trial in ryan's criminal case regarding the amounts of money found and for denying that money was taken hund testified that he received dollar_figure from wilson and that wilson said that he would give giongo and the captain dollar_figure each ryan testified that after returning to the unit after dinner he received about dollar_figure to dollar_figure from wilson and that wilson said that the two piles of money on his desk were for giongo and the boss ryan also testified that he saw cattalo receive money neither hund nor ryan saw wilson giving money to anyone else ryan testified that he confirmed with hund and grove the amounts they received and with giongo that the latter received something ryan did not testify as to what the amounts were on the basis of the evidence linking petitioners to the funds appropriated during the roeder search we sustain respondent's assertions john bruno nicholas pontarelli search on date cattalo obtained a search warrant for the premises of john bruno and cattalo ryan grove and hund conducted a search hund found a small and a large bag of cocaine in nicholas pontarelli's pontarelli's car the small bag was returned to pontarelli hund and grove took the large bag and gave it to karasinski who paid them for it the proceeds were shared among hund grove ryan and cattalo cattalo completed the investigation report stating one white tablet was confiscated from the premises he did not mention pontarelli in the report respondent asserts that grove received dollar_figure and cattalo dollar_figure from the sale of drugs taken during the bruno pontarelli search those amounts are based on hund's testimony that he received dollar_figure from karasinski of which he and grove each kept dollar_figure and gave ryan and cattalo each dollar_figure ryan testified that he and cattalo each received several hundred dollars a month later with respect to those drugs grove was convicted of possession of cocaine with intent to distribute and aiding_and_abetting and cattalo was convicted of aiding_and_abetting we sustain respondent's assertions as to the amounts of the proceeds of the drugs appropriated during the bruno pontarelli search that grove and cattalo received james carr search on date ryan obtained a search warrant for the residence of james carr carr using information supplied by hund the search was conducted on that date by ryan grove hund and cattalo carr operated a variety grocery store located about blocks from his residence carr kept the receipts from his store in a safe on the third floor of his residence at the time of the search the safe contained dollar_figure in cash food stamps and some personal items carr had the store receipts from the early part of the day about dollar_figure on his person that money was returned to him carr was arrested the officers left carr's house with the money bags from the safe refusing carr's request to count the money there at the unit they issued carr a property receipt for dollar_figure and appropriated dollar_figure for themselves a second property receipt not signed by carr indicates that the officers confiscated one glass vial with a white powder both property receipts contained the typed names of ryan and cattalo upon returning home carr found white talcum powder sprinkled all over the bureau in his bedroom according to the seizure analysis report the amber vial contained milligrams of a white powder which contained no detectable controlled substance the attached metal spoon contained an insufficient quantity of material to give a positive test for controlled substances carr did not have an amber vial with metal spoon in his house charges against carr were dropped respondent asserts that dollar_figure was appropriated and that each petitioner received dollar_figure from the carr search grove and cattalo were convicted of robbery of cash on the carr search aiding_and_abetting and conspiracy wilson and giongo were convicted of aiding_and_abetting wilson and cattalo also were convicted of perjury for their testimony denying knowledge that money was appropriated ryan testified that he divided the dollar_figure evenly among the six police officersdollar_figure hund testified ryan testified about a policy of dividing the cash equally among the officers and supervisors he would sometimes phrase continued that the four officers discussed giving wilson a share and giongo a piecedollar_figure hund also testified that he counted the money with cattalo and that cattalo gave him dollar_figure to dollar_figure and that he believes he saw grove receive a share taking into account that giongo was on police radio duty at the time of this search we allocate dollar_figure to giongo and dollar_figure each to wilson cattalo and grove hitchens summer payment in july of hund received a dunkin' donuts bag containing dollar_figure from hitchens at his house hund counted the money and removed dollar_figure from the bag when grove arrived hund removed another dollar_figure while they discussed the matter without disclosing to grove the first dollar_figure hund told wilson ryan and cattalo that he found the bag with dollar_figure under his car seat wilson advised hund to make an incident report and turn the bag in because it could be a setup or an attempted bribe on date hund turned in the remaining dollar_figure reporting the same continued his responses in terms of who would have received funds however his testimony and that of hund when properly based on actual knowledge contradicted such a policy both as to the supervisors' being included and the amounts' being equal therefore we give less weight to ryan's testimony see supra note according to hund hitchens gave him this money to pay for the repairs to his car which had been damaged in a shoot-out with someone that hitchens knew grove wilson cattalo and ryan had helped hund pay for the repairs and hund wanted to reimburse them however hund did not want to reveal to them the source of the money story and an investigation ensued the investigating inspector concluded that the proposition that the money was a set-up or a bribe could not be substantiated the money was returned to hund at a later point not within the years in issue respondent asserts grove received dollar_figure of the hitchens summer payment hund testified that he shared the second dollar_figure with grove during their conversation each taking half we sustain respondent's assertion clyde sims search on date cattalo obtained a search warrant for the premises of akeem a k a sam and cattalo wilson ryan and grove conducted a search they found marijuana and dollar_figure and they arrested clyde sims sims the officers did not issue sims a money receipt for the dollar_figure and they did not return the money to him respondent asserts that each petitioner received dollar_figure from the sims search the total amount appropriated from sims was dollar_figure wilson cattalo and grove were convicted of robbery and conspiracy with respect to the sims search both ryan and hund testified that they received about dollar_figure ryan receiving his from cattalo and hund who had been on vacation receiving his later from grove who attributed the money to the sims and at least one other search ryan testified that grove hund wilson and giongo received money but he also testified incorrectly that hund was on the search we need not accept ryan's testimony in its entirety as to who received money when he did not distribute the cash and did not testify as to any specific amounts distributed to the othersdollar_figure giongo was on police radio duty during the time of the sims search we do not believe giongo would have received any funds from this search wilson cattalo and grove were present on the search and convicted of robbery we sustain respondent's assertions as to wilson cattalo and grove fred megna search on or about date ryan obtained search warrants for two hotel rooms in the hilton hotel pinciteth and packer avenue registered to fred megna megna and james travers travers respectively the information for this search came from the new jersey state police cattalo grove wilson ryan and hund executed the search warrants cattalo and hund heard sports bets coming in over the telephones in the hotel rooms one of the officers found a bag containing cash respondent asserts that each petitioner received dollar_figure of a total of dollar_figure appropriated on the megna search ryan testified that dollar_figure was found and that he distributed the money giving equal amounts to the squad members present on the search and some amount to giongo hund testified that wilson found the bag and gave him about dollar_figure to dollar_figure from the megna search that wilson said he would take care of everyone including see supra note giongo and that ryan and cattalo inquired to see if hund had received his share giongo was still on police radio duty there was no testimony from either megna or travers in light of the conflicting testimony we allocate dollar_figure to giongo and dollar_figure each to wilson cattalo and grove sterling ferguson search on or about date cattalo obtained a search warrant for the home of sterling ferguson ferguson cattalo grove hund and ryan executed the search warrant the officers found money and cocaine hund appropriated a video camera when ferguson returned home after his arrest he discovered that dollar_figure cocaine cutting agent a triple beam scale a gun and a video camera were missing respondent asserts that dollar_figure was taken and divided six ways with dollar_figure distributed to each petitioner from the ferguson search ferguson testified that dollar_figure was missing along with a video camera and other items ryan testified that dollar_figure was appropriated and that he grove and hund received money from cattalo and that cattalo had portions for wilson and giongo hund testified that he found an unspecified amount of money that he gave to cattalo to hold and that he turned down the money offered to him by cattalo since he appropriated the video camera hund states that wilson was to receive a piece and giongo a bone but then amended his testimony to say that giongo see supra note did not receive money from the ferguson search neither ryan or hund testified that he saw wilson or giongo actually receive any cash wilson and giongo were not present on the search we find that dollar_figure was appropriated during the ferguson search and attribute dollar_figure each to grove and cattalo we allocate nothing to wilson or giongo howard and dolores douglas search on or about date hund obtained a search warrant for the home of howard and dolores douglas grove and hund executed the search warrant respondent asserts that grove received dollar_figure cattalo and wilson each dollar_figure and giongo dollar_figure from money appropriated during the douglas search respondent's assertion is based on hund's testimony that he and grove kept dollar_figure to dollar_figure each and he estimates he hund gave the others the amounts specified above there was no testimony from the douglases ryan and cattalo were not on the search nor was wilson or giongo based on the record as a whole we do not believe that ryan cattalo wilson or giongo received funds from the douglas search we sustain respondent's assertion as to grove jacob tesylar et al search karasinski provided hund with information on a pending methamphetamine cook involving jacob tesylar tesylar that cooking is the term used for manufacturing methamphetamine led to the tesylar searches gerace was in charge of the cook but was not present during the searches on date grove cattalo giongo hund and ryan along with police officers from abington township set up surveillance of frank martino's martino's home in abington pennsylvania on that date tesylar ronald bertino bertino and others were arrested and a search of martino's house was conducted after midnight on date hund obtained a search warrant for bertino's house and a search was conducted there grove obtained a search warrant for tesylar's premises which was executed ryan and grove found two grocery bags of methamphetamine in the trunk of one of the cars at martino's house and put one bag into grove's trunk at bertino's house the officers found money methamphetamine and lab equipment hund appropriated some of the money some money and methamphetamine were seized and turned in as evidence hund and grove appropriated a large quantity of the methamphetamine including that from martino's and from bertino's to karasinski karasinski sold some of the methamphetamine and later returned the remainder to hund respondent asserts that grove received dollar_figure dollar_figure dollar_figure dollar_figure and cattalo received dollar_figure dollar_figure dollar_figure from the proceeds of the sale of the drugs from the tesylar search those amounts are based on hund's testimony that he received dollar_figure from karasinski of which he and grove appropriated dollar_figure and gave ryan and cattalo dollar_figure each an additional dollar_figure from karasinski which he split evenly with grove ryan and cattalo and dollar_figure from neil horner through charles scanzella which he split with grove gerace testified about the amounts of drugs to be manufactured and those stored karasinski testified that he received pounds of drugs from these combined searches and that he sold some of the drugs but he did not testify as to the amounts of the proceeds neither scanzella nor horner testified ryan testified that he received several thousand dollars from the sale of the drugs grove and cattalo were convicted of possession of methamphetamine with intent to distribute and aiding_and_abetting we find cattalo received dollar_figure and grove dollar_figure from the tesylar search drug proceeds ie the proceeds coming from karasinski but not including those from scanzella daniel gonzales search on date daniel gonzales was arrested by hund grove and giongo at the bus terminal pinciteth and market streets two bags of white powder were seized the arrest was the result of a setup initiated when hund received information from neil horner hund or grove cut the cocaine submitted some as evidence and gave the remainder to horner horner gave hund dollar_figure for the cocaine he received respondent asserts on the basis of hund's testimony that grove received dollar_figure and cattalo dollar_figure of the total dollar_figure received for the drugs appropriated during the gonzales search grove was convicted of possession of cocaine with intent to distribute and aiding_and_abetting with respect to the gonzales drugs ryan and cattalo were not on the search ryan did not testify about receiving money from the search we do not believe that ryan or cattalo received money from the sale of the drugs we find that grove received dollar_figure from the sale of the gonzales drugs reid baker search on date reid baker baker was stopped while driving to karasinski's store to sell karasinski about ounces of cocaine karasinski had provided hund with the information to set up the stop in which hund grove ryan and cattalo participated baker had dollar_figure on his person which was returned to him then the officers searched baker's residence with baker's written consent prior to the search baker had dollar_figure in one pocket of a suit hanging in his closet and dollar_figure in another pocket during the search the officers placed dollar_figure on a table where baker could see it they arrested baker when baker returned to his residence from the police station he saw the dollar_figure still lying on the table however the other dollar_figure was missing from his suit pocket baker did not see anyone take the moneydollar_figure after the search hund and grove took during the time of the search baker was having his house painted and the painters had keys to the house the cocaine to karasinski who cut it and sold half of the resulting amount karasinski divided the proceeds with hund and grove respondent asserts that dollar_figure cash was appropriated during the baker search and divided up equally among hund and petitioners respondent also asserts that grove and cattalo each received dollar_figure from the proceeds of the sale of the drugs hund testified that the only money he recalled was that on baker's person which was returned but he also testified that he received dollar_figure to dollar_figure from grove on the way back to the unit from dropping off the cocaine at karasinski's and that grove said he had portions for ryan cattalo wilson and giongo hund's testimony conflicted with his earlier testimony that did not include giongo as receiving any money hund's testimony is also conflicting in that giongo and wilson did not know about or share in drug proceeds ryan testified that he later received several hundred dollars from the sale of the drugs but he does not recall receiving any money that night grove and cattalo were convicted of robbery conspiracy and possession of cocaine with intent to distribute wilson was convicted of aiding_and_abetting robbery and conspiracy based on the above we allocate dollar_figure each to wilson cattalo and grove of the cash appropriated from baker giongo was not present on the search given the questionable nature of hund's testimony the record does not support an allocation to giongo we sustain respondent's assertions as to the drug proceeds received by grove and cattalo dollar_figure each gerace payment sometime during hund and grove saw gary long long and gerace driving in long's car and pulled them over hund appropriated gerace's gun from under the seat and grove grabbed long and held a gun on him on the basis of what hund told him gerace feared grove would kill long and he would be blamed gerace offered them money to settle the matter grove and hund followed gerace and long to the house of gerace's mother gerace went into his mother's house and obtained a stack of money containing at least dollar_figure which he put in a brown bag and gave to hund respondent asserts that gerace gave grove and hund dollar_figure during this incident and that grove and cattalo each received dollar_figure and ryan dollar_figure of that amount grove and cattalo were convicted of bribery and conspiracy with respect to the gerace payment gerace testified that the stack of money contained either dollar_figure or dollar_figure hund testified that the amount was dollar_figure and that the distribution was as asserted by respondent we sustain respondent's assertions as to the amounts of the gerace payment that grove and cattalo received hitchens date payment sometime around christmas hitchens invited hund and grove to his house and gave each of them dollar_figure after this during late date or early hund notified hitchens of a search planned for his residence hund instructed hitchens to leave dollar_figure supposedly for wilson on his dresser and to be present at the house wilson did not know hitchens had been warned wilson ryan cattalo hund and grove searched the residence during the search hund appropriated the money from the dresser respondent asserts that grove received dollar_figure from hitchens in date grove was convicted of bribery and conspiracy for this payment we find that grove received the dollar_figure ii fraud for the years in issue sec_6653 imposes an addition_to_tax of percent of the underpayment_of_tax if any part of the underpayment is due to fraud plus an amount equal to percent of the interest on the portion of the underpayment attributable to fraud respondent has the burden of proving fraud by clear_and_convincing evidence sec_7454 rule b 451_f2d_197 3d cir affg tcmemo_1970_37 107_tc_18 absent a finding of fraud sec_6501 precludes the assessment and collection of the alleged deficiencies in and additions to tax for the years in issue for the addition_to_tax under sec_6653 to apply the commissioner must establish an underpayment of taxes for each year and that some part of the underpayment is due to fraud sec_6653 96_tc_858 affd 959_f2d_16 2d cir for the addition_to_tax under sec_6653 to apply the commissioner must establish the specific_portion of the underpayment which is attributable to fraud sec_6653 dileo v commissioner supra pincite to prove an underpayment_of_tax the commissioner cannot rely on the taxpayer's failure to satisfy his or her burden_of_proof as to the underlying deficiency 94_tc_654 where allegations of fraud are intertwined with unreported and indirectly reconstructed income the commissioner can prove an underpayment by proving a likely source of the unreported income or where the taxpayer alleges a nontaxable source by disproving the alleged nontaxable source dileo v commissioner supra pincite wilson grove and cattalo were convicted under sec_7206 of filing false returns for both and giongo was convicted of filing a false return for but not the convictions do not estop petitioners from denying that there was an underpayment_of_tax or that any such underpayment was due to fraud 645_f2d_925 84_tc_636 franklin v commissioner tcmemo_1993_184 the convictions however are evidence to be considered in deciding whether respondent has proved an underpayment_of_tax due to fraud petitioners have made no contentions or presented any evidence of omitted deductions or credits on the basis of the evidence presented in the instant cases we conclude that respondent has established by clear_and_convincing evidence an underpayment_of_tax for and for petitioners wilson cattalo and grove and for for petitioner giongo cf franklin v commissioner supra for giongo's taxable_year we conclude that respondent did not present clear_and_convincing evidence of an underpayment_of_tax although in our discussion above we attributed income from the hitchens search casino chips to giongo based on the preponderance_of_the_evidence we do not find the evidence as to his receipt of the income from the chips to rise to the level of clear_and_convincing there being no other search during for which we have attributed income to giongo we do not find clear_and_convincing evidence of an underpayment_of_tax by giongo for that year to establish fraud respondent must show that the taxpayer intended to evade a tax believed to be owing by conduct intended to conceal mislead or otherwise prevent the collection of such tax cochrane v commissioner supra pincite fraud is never presumed id because direct proof of a taxpayer's intent is rarely available fraud may be established by circumstantial additionally petitioners wilson cattalo and grove were convicted of at least one count of either bribery or robbery within each of the years in issue such crimes are likely sources of unreported income evidence and reasonable inferences drawn from such evidence estate of mazzoni v commissioner supra pincite citing 394_f2d_366 5th cir affg t c memo cochrane v commissioner supra pincite the taxpayer's entire course of conduct may establish the requisite fraudulent intent 102_tc_596 circumstances which this court and others have considered as indicative of fraud include understatement of income inadequate records implausible or inconsistent explanations of behavior concealment of assets failure to cooperate with the tax authorities dealing in cash engaging in illegal activity and attempting to conceal illegal activity estate of mazzoni v commissioner supra 99_tc_202 citing 796_f2d_303 9th cir affg t c memo wilson cattalo and grove understated their income for both and in addition to the convictions for filing false returns they were found guilty of robbery or bribery committed during both years in issue and wilson and cattalo of perjury for their testimony regarding the and roeder searches and the carr search cattalo and grove were convicted of possession of drugs with intent to distribute and and did receive the proceeds of the sale of drugs petitioners attempted to conceal such activities in various ways including filing or signing false investigation reports and property receipts cattalo--1983 grove--1982 and wilson--1983 cutting drugs grove--1983 not telling supervisors of drug theft and resale cattalo grove--1982 and not revealing protection arrangements grove--1983 and the perjury previously mentioned cattalo wilson grove in particular made several large cash payments during for the purchase of real_property and a boat the cash paid for the real_estate was under the table we hold that respondent has established by clear_and_convincing evidence that there is an underpayment_of_tax due to fraud for petitioners wilson cattalo and grove for the years and the entirety of each of their underpayments arises from their fraudulent schemes consequently for wilson cattalo and grove the period of limitations does not apply to or and we hold that they are liable for the additions to tax under sec_6653 and to the full extent of their underpayments for each year the badges_of_fraud present with respect to giongo are his convictions for racketeering and conspiracy and for filing a false return under sec_7206 underlying giongo's racketeering conviction were conspiracy aiding_and_abetting bribery and aiding_and_abetting robbery such crimes in contrast to bribery or robbery per se do not include the element of obtaining money or property a conviction under sec_7206 does not establish fraud but is one factor to be considered wright v commissioner supra pincite as we have held above that respondent has not established by clear_and_convincing evidence an underpayment by giongo for respondent has not proved fraud for that year and the expiration of the period of limitations bars assessment and collection of tax for that year for we hold that there is clear_and_convincing evidence of an underpayment which when combined with other evidence including giongo's convictions for racketeering and filing a false return establishes fraud for accordingly the period of limitations does not preclude assessment and collection of tax for that year and we hold that giongo is liable for the additions to tax under sec_6653 and as to his entire underpayment for iii additions to tax under sec_6661 sec_6661 imposes an addition_to_tax of percent of any underpayment attributable to a substantial_understatement_of_income_tax a substantial_understatement is any understatement which exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6661 if the taxpayer has substantial_authority for the tax treatment of the item in question or if the taxpayer adequately discloses the tax treatment of the item on the return then the amount of the understatement for purposes of this section will be reduced by that portion of the understatement which is attributable to that item sec_6661 none of petitioners made any disclosures with their returns petitioners' only argument is that there is no deficiency so there can be no addition under sec_6661 should any of their respective understatements of tax as recalculated in accordance with this opinion be substantial we hold that the respective petitioner is liable for the addition_to_tax under sec_6661 for that year in keeping with the foregoing decisions will be entered under rule


internal_revenue_service number release date index number ------------------------------- ----------------------------------- ---------------------- ------------------ ----------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------- id no ------------- telephone number --------------------- refer reply to cc psi b03 plr-149535-06 date date x ------------------------------- ------------------------------------------------------------ p members ---------------------------------------------- state d1 dear -------------- -------------------- ------------------ ----------- -------------------------------------------------------------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of x requesting a ruling under sec_301_9100-1 and sec_301_9100-3 of the procedure and administration regulations that x be granted an extension of time to file an election to be classified as an association_taxable_as_a_corporation under sec_301_7701-3 effective d1 facts according to the information submitted x was formed on d1 as a p under the laws of state the members of x intended that x be treated as an association taxable plr-149535-06 as a corporation for federal tax purposes effective d1 however due to inadvertence x failed to file timely a form_8832 entity classification election law and analysis sec_301_7701-3 provides that a business_entity that is not classified as a corporation under sec_301_7701-2 or an eligible_entity can elect its classification for federal tax purposes as provided in sec_301_7701-3 sec_301_7701-3 provides that except as provided in sec_301 b unless the entity elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided under sec_301_7701-3 or to change its classification by filing form_8832 with the service_center designated on form_8832 sec_301_7701-3 provides that an election made under sec_301 c i will be effective on the date specified by the entity on form_8832 or on the date filed if no such date is specified on the election form the effective date specified on form_8832 can not be more than days prior to the date on which the election is filed and can not be more than months after the date on which the election is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of sec_301_9100-2 sec_301_9100-3 provides that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government conclusion plr-149535-06 based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 with the appropriate service_center and to elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective d1 a copy of this letter should be attached to the form_8832 a copy is enclosed for that purpose except as expressly set forth above no opinion is expressed or implied concerning the federal tax consequences of the facts discussed above under any other provision of the code this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent in accordance with a power_of_attorney on file with this office we are sending a copy of this letter to your authorized representative sincerely s william p o'shea associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes