Opinion ID: 243983
Heading Depth: 2
Heading Rank: 3

Heading: The Tax Court's Determination of Deficiencies

Text: 41 The Commissioner determined the tax liability of the taxpayer for all taxable years in question by the net worth method with the exception of the taxable years 1944 and 1949 in which the deficiency determination was based upon specific items of unreported income. 42 By taking into account the disparity between the amounts shown on the income tax returns and the actual amounts received, the Tax Court determined the following deficiencies and penalties for the taxable years mentioned: 43 Milford R. Baumgardner Penalties Tax Deficiency § 293(b) § 294(d) (2) 1945 $856.96 $428.48 $ 55.98 1947 158.08 19.35 Milford R. Baumgardner and Pearl E. Baumgardner Penalties Tax Deficiency § 293(b) § 294(d) (2) § 294(d) (1) (A) 1942 $ 647.54 $ 323.77 1944 886.93 443.47 1948 2,954.28 1,477.14 $215.86 $323.78 1949 326.88 163.44 78.22 1950 5,426.42 2,713.21 334.68 577.80 1951 1,434.62 717.31 104.62 174.36 44 In arriving at the conclusion just stated the Court had before it, in addition to oral testimony, a schedule of assets and liabilities prepared by the Government agent who investigated the matter and which showed the following figures between December 31, 1940 and December 31, 1951: 45 Total Total Net Assets Liabilities Worth 1940 $ 11,137.15 $ 1,778.48 $ 9,358.67 1941 12,988.81 2,620.96 10,367.85 1942 14,519.91 246.15 14,273.76 1943 15,219.48 15,219.48 1944 21,679.44 21,679.44 1945 34,434.66 34,434.66 1946 43,129.80 43,129.80 1947 51,283.18 51,283.18 1948 74,875.44 7,500.00 67,375.44 1949 77,817.99 7,220.87 70,597.12 1950 101,345.31 10,000.00 91,345.31 1951 108,977.16 10,853.89 98,123.27 46 This analysis was based upon a thorough examination of bank accounts, bank loan records, records of income tax returns filed, bank escrow files, payroll records of the City of Hawthorne, City of Hawthorne bond records, record of tax lien sales, grantor-grantee indices for Los Angeles County and trust deeds and mortgages thereon. On the basis of his conclusion the Commissioner allowed only $100 as cash on hand at the beginning of the net worth period, December 31, 1940, which was carried over through 1951. The Tax Court increased this amount to $5,000. The taxpayer's chief complaint seems to be that if the Tax Court believed that he had more cash than the agent allowed him, they should have given him credit for the total sum of $14,000 or $16,000 which he claimed to have accumulated from dealing in depreciated improvement bonds of the City of Hawthorne. The argument is a non sequitur. The Tax Court may believe a portion of a witness' testimony and not believe another. As there is no hard and fast rule requiring that the cash on hand at the beginning of the net worth period be proved with mathematical certainty, the Tax Court may reject an estimate made by an agent in a net worth case in favor of one of its own. 13 47 This happened in the case just referred to. The Commissioner had determined that the cash at the beginning of the net worth period was $15.03. However, the Tax Court raised the amount to $100,000. Not satisfied, the taxpayer contended before the Court of Appeals, as it is contended here, that the figure was arbitrary and that the Tax Court should have accepted his testimony that he had cash in the sum of $259,000, because it had not been rebutted by the Commissioner. Rejecting the contention, the Court said: 48 We think the Tax Court was generous to taxpayer in fixing $100,000 as the amount of cash on hand at the beginning of the net worth period, but under the Cohan rule such determination was proper. It is the function of the trier of the fact to weigh all the elements properly considered in the valuation and to translate them into dollars and cents.    Nor is it essential that there be testimony of the specific figure fixed by the Tax Court. 14 49 Such situations are not uncommon. The Tax Court has, on other occasions, reduced deficiencies while retaining the penalties for fraud. 15 50