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

Heading: Disparity Between Income Declared and Income Found

Text: 82 The following comparative table shows the great disparity between the reported income and the income determined by the Tax Court: 83 Income determined under Income Rule 50 of the Reported Tax Court 1942 $ 2,630.76 $ 5,821.02 1944 3,505.07 7,179.08 1945 2,372.75 6,037.82 1947 2,955.91 4,679.19 1948 7,721.02 19,952.17 1949 10,436.47 11,865.13 1950 4,996.29 27,062.23 1951 6,132.95 12,071.07 84 In addition to this we have failure to keep books, admitted failure to report interest received in every taxable year on review with the exception of 1942, amounting to a total of $5,672.84, and dividend income from 1943 to 1948, inclusive, and 1951, amounting to a total of $170, failure to include the profit from partnership interest in the card club for 1951, failure to include earned rentals in 1949, amounting to $1,550. If to this we add capital gains realized on sale of real estate in the year 1944, amounting to $8,207.96 with an amount reported of $1,210, a gain of $5,359.05 realized in 1945 with only $2,257 reported, and the failure to make full or detailed report on alleged commissions received for private investigation in the taxable years 1947, 1948 and 1949, or to disclose the names of persons from whom he received them, and the total omission of such commissions in the taxable years 1950 and 1951, we have an accumulation of facts (all, except the dividend item, relating to substantial yearly transactions) justifying the finding of fraud. The agent testified that the taxpayer would not give details as to the commissions, for verification, 85 because if it became known he would lose his job and he said that although he trusted me, he was sure that there was a leak in the Internal Revenue service since his income tax matters were introduced by his opposition during litigation. 86 The taxpayer admitted that he refused to disclose to the agent the names of the persons from whom the commissions were received (not in the form attributed to him by the agent) because it might cause him trouble. He explained: 87 The City of Hawthorne states that no employee shall receive wages or moneys other than their wages unless you have permission of the Civil Service Commission and the Council of the City of Hawthorne. 88 He did not disclose to his own accountant who prepared some of the returns the source of the commissions. He asked that they be listed as other income. The accountant designated them as commissions. Nor did he tell him what the figures were composed of or produce any document to support them. He tried to minimize the logical inferences to be drawn from receipt of such commissions from undisclosed persons by a Police Chief for what he admitted to be unauthorized private investigations by stating that he included in his return 89 More than enough, yes, sir. I thought I was being very fair, 90 and that the commissions were 91 Any moneys I might receive during the year for interest, for gratuities or anything that might come along, other than my salary. 92 From this and other admitted facts, and the manner in which he and his witnesses testified, the Tax Court was justified in drawing its own inferences. For they had evidence of (1) the deliberate understatement of income, (2) failure to disclose over a course of years income known to have been received, (3) refusal to disclose sources of admitted income, for verification, (4) deliberate underestimate of gains and (5) evasiveness and contradiction in attempting to explain sources of income and discrepancies both to the agent and the court, — all the indicia of fraud which courts have recognized as adequate in imposing penalties. 93 Except as to the matters herein discussed and in dispute before the Tax Court, the net worth statements prepared by the Government's agents were concededly correct. And the Tax Court so found them to be, except that it increased the opening net worth figure at the beginning of the net worth period from $100 as found by the agent to $5,000. 94 When to these facts we add the thorough but, in most instances, fruitless search by Government agents for nontaxable sources to account for the substantial net worth increases, we have in this record substantial evidence to satisfy the most rigid requirements as to proof of fraud cases of this character. 28 95 The Tax Court was right in its decision. It is affirmed.