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

Heading: The Taxpayer's Business Activities

Text: 24 Before considering the other two items, certain facts culled from the record should be referred to. 25 The taxpayer has resided in the City of Hawthorne, California, since 1924. He came from Oklahoma where he was born in 1903. While he claimed that he had saved two or three thousand dollars while working in Oklahoma, there was no positive evidence produced to show how he accumulated the money on the small salary he received. After working as a fireman he began to work for the Police Department of Hawthorne in 1930. He became Chief of Police in 1937, — a position he occupied until retirement in June, 1953. Joint returns were filed for all years except 1945 and 1947 for which years separate returns were filed. His work for the City of Hawthorne began in 1925. At that time he evidently worked for a brief period only, for his income from the City was $45. In 1926, his income was $1,770. He received no income from the City of Hawthorne in 1933, his services having been terminated on October 24, 1932. But he was rehired May 14, 1934. In 1944, his salary was $2,820.07. From then it rose until in 1951 when it was $6,061.70. Prior to 1942, the taxpayer had paid no income tax. Indeed, he did not file income tax returns for the years 1930 to 1939 inclusive. For the years 1940 and 1941, he filed returns showing no tax. 26 Other facts which have special significance should also be referred to. They are given with slight modification in the form in which they appear in the Findings of the Tax Court. For, in the main, they are not disputed. 27 In June of 1937, the taxpayer applied to the Bank of America for a loan of $200 to pay off another obligation with the bank which then had a balance of $65.98 and to take care of funeral expenses of $140. This loan was rejected. On the loan application, which was signed by the taxpayer, appears the information that there was at this time $250 owing by the taxpayer to Acme Loan which was being paid off in monthly installments of $32.08, $105 owing to Inglewood Furniture which was being paid off in monthly installments of $5 and $70 owing to Federal Outfitting Company which was being paid off in monthly installments of $4. On this application, the taxpayer listed no other income or no source of income other than from the Police Department, although the application specifically asked for this information, under the typed headings other income and source of other income. The application was filled out in handwriting (print). Through the two items a line was drawn indicating that it was a deliberate omission. The same pattern is found in other applications. 28 In April of 1938, the taxpayer applied to the Bank of America for a personal loan of $200 for the purpose of taking a vacation trip to Oklahoma. On the loan application, which was signed by the taxpayer, appears the information that petitioner owed $40 to the Marbro Department Store which was being paid off in $5 monthly installments and also owed $40 to the Inglewood Furniture Company which was being paid off in monthly installments of $5. On this application the taxpayer listed no income or source of income other than from the Police Department, although the loan application specifically asked for such information. 29 In January of 1939, the taxpayer negotiated a loan of $480.30 from the Bank of America to refinance a used 1938 Chevrolet and contracted to make payments of $32.02 per month. On the purchase statement signed by the taxpayer he listed as income only a salary of $185 per month and listed nothing under other income or source of other income. 30 In an application for a loan on property in July, 1941, signed by the taxpayer and his wife, their total annual income was stated to be $2,400. 31 An analysis of the records of the Bank of America, where the taxpayer carried accounts, made by a special agent engaged in the investigation leading up to the deficiencies herein, showed little activity, no large balances and no large deposits or withdrawals during the years 1940 to 1944, inclusive. 32 The taxpayer kept no records of real estate transactions, the poker club income, rentals, interest, dividends or commissions, the latter being reported on returns for 1947, 1948 and 1949 in amounts of $2,000, $3,000 and $6,000 respectively. 33 The taxpayer received interest income during the taxable years from savings accounts, trust deeds and a note in the following amounts: 34 1944 ..... $ 115.03 1948 ..... $ 904.09 1945 ..... 768.77 1949 ..... 705.11 1946 ..... 1093.39 1950 ..... 626.18 1947 ..... 929.74 1951 ..... 530.53 35 Most of this interest was collected by a bank and credited to the taxpayer's account. It was not reported on the tax returns. 36 During 1949 taxpayer received $1,550 in rentals. Of this sum $1,250 was paid by the tenant to a bank and credited on taxpayer's account. The remainder was paid to the taxpayer by check. These amounts were not reported on the tax return for 1949. 37 The taxpayer received dividend income in the years 1943 to 1948, inclusive, and in 1951 amounting to a total of $170, which were unreported on the tax returns for those years. 38 The taxpayer was entitled to a distributable share in the amount of $1,116.54 in 1951 from the profits of the card club in which he was a limited partner. He did not report this amount on his tax return. 39 The taxpayer sold two properties in 1944 reporting a gain on his income tax return of $430 on one piece and $780 on the other. These sales actually resulted in gains of $4,527.28 and $2,136.26, respectively. In 1945 another piece of property was sold on which there was a reported gain of $2,257. The actual gain was $5,359.05. 40