Court Opinion

ID: 4613466
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:53:28.0359+00
Date Added: 2024-06-11T07:54:37.307621
License: Public Domain

R. G. Wheeler v. Commissioner. R. G. Wheeler and Vennie V. Wheeler v. Commissioner.Wheeler v. CommissionerDocket Nos. 76625, 76626.United States Tax CourtT.C. Memo 1963-84; 1963 Tax Ct. Memo LEXIS 260; 22 T.C.M. (CCH) 371; T.C.M. (RIA) 63084; March 22, 1963*260  Held: (a) That respondent properly made use of the net worth and expenditures method of determining taxable net income for all the years in issue and petitioners have failed to show error in said determinations. (b) That some part of the deficiency in income tax for each of the years involved was due to fraud with intent to evade taxes. (c) That no income tax return was filed for the year 1946, and the returns of 1945 and 1947 to 1950, inclusive, were false and fraudulent with intent to evade taxes. (d) That petitioners have failed to prove error on the part of respondent in determining additions to tax provided by sec. 291(a) for the year 1946; additions to tax provided by sec. 294(d)(1)(A) for the years 1945, 1946, 1947 and 1949; additions to tax provided by sec. 294(d)(2) for the years 1948 and 1950. 1R. G. Wheeler, pro se, Miami, Fla. George W. Calvert, Esq., and Winfield A. Gartner, Esq., for the respondent.  FISHERMemorandum Findings of Fact and Opinion FISHER, Judge: Respondent determined deficiencies in income tax and additions to tax against petitioners for the years and in the *261 amounts as follows: Additions to Tax, I.R.C. 1939DocketSec.Sec.Sec. 294Sec.No.YearDeficiencies291(a)293(b)(d)(1)(A)294(d)(2)766251945$ 6,942.63$3,471.32$ 632.77$ 421.8519461,293.93$323.48646.97116.4677.64194717,740.808,870.401,700.131,133.4219484,962.152,481.08425.74283.8376626194914,400.957,200.481,401.23934.151950496.461,133.85147.80 The cases were consolidated for hearing pursuant to agreement of the parties. The issues to be considered by the Court are: (a) Whether respondent properly made use of the net worth and expenditures method in determining taxable net income for all the years in issue and whether petitioners have met their burden of proof of demonstrating error in said determinations: (b) Whether some part of the deficiency in any of the years involved was due to fraud with intent to evade taxes; (c) Whether a return was filed for the year 1946 and whether the returns filed for 1945 and 1947 to 1950, inclusive, were false and fraudulent with intent to evade taxes; and (d) Whether petitioners have demonstrated error on the part of respondent in determining additions to tax provided by section 291(a) for the year 1946; additions to tax provided by section 294(d)(1)(A) for *262 the years 1945, 1946, 1947 and 1949; and additions to tax provided by section 294(d)(2) for the years 1948 and 1950. Respondent concedes that R. G. Wheeler is not liable for the addition to tax provided by section 294(d)(2) for the years 1945, 1946 and 1947, and that R. G. and Vennie V. Wheeler are not liable for the section 294(d)(2) addition for the year 1949. Respondent also concedes that R. G. Wheeler is not liable for the addition to tax provided for by section 294(d)(1)(A) for the year 1948. Findings of Fact Some of the facts are stipulated and are included herein by this reference. Petitioners, R. G. Wheeler (sometimes hereinafter referred to as Wheeler or the petitioner) and Vennie V. Wheeler, his wife, filed joint Federal income tax returns with the collector of internal revenue for the district of Georgia for the taxable years 1949 and 1950. Petitioners filed an amended Federal income tax return for the taxable year 1950 on March 17, 1952, with the collector of internal revenue for the district of Georgia. For the taxable years 1945, 1947 and 1948, Wheeler filed separate Federal income tax returns with the collector of internal revenue for the district of Georgia. Petitioner *263 failed to file a Federal income tax return for the year 1946. He also did not file any returns for the years 1941 through 1944. In February 1952, a special agent joined a revenue agent in investigating the tax liability of the petitioners for the years 1945 through 1950. Wheeler was asked for all books and records that he had in connection with his business operations during the period under investigation, plus his personal checks. Wheeler furnished some personal bank statements and some partial business records in the form of a journal and bank statements. Having received no records at all for some years and considering the partial records which were received for the other years to be inadequate for determining income, the agents found it necessary to resort to the net worth plus personal expenditures method to compute income. In order to determine all of the petitioners' assets and liabilities, the agents discussed the different bank accounts and other holdings with the petitioners and their representatives. They visited banks, courthouses, and other sources of information in the area in which Wheeler operated during the period. As a result of their investigation, the agents compiled *264 a net worth statement covering the years 1944 to 1950, inclusive, which was used in the statutory notice of deficiency. During the years 1945 through 1950, petitioner was engaged in the operation of drug stores either as a sole proprietor or as an equal partner with his brother, C. B. Wheeler. He also operated one drug store as a corporation during part of these years. In addition, Wheeler received income from rental property, from the sale of property, and from interest income. About August 31, 1944, petitioner sold a drug store he had been operating at 1238 South Oxford Road, Atlanta, Georgia, to C. S. Horton for $13,000. At December 31, 1944, and 1945, C. S. Horton owed petitioner on notes receivable in connection with the sale the respective amounts of $7,100 and $3,275. The notes were paid in full during 1946. Thereafter in 1944, petitioner opened a new drug store with his brother, C. B., at 1236 Broadway, Columbus, Georgia. C. B. had closed a drug store in Opelika, Alabama, and moved that store's furniture and fixtures, having a cost basis of $7,300, to the new Columbus store. This drug store was an equal partnership between C. B. and R. G. and was known as Wheeler's Pharmacy *265 (hereinafter referred to as the Columbus store). In 1944, the Columbus store purchased equipment from The National Show Case Company at a cost of $2,208.66 and paid an additional $1,500 for remodeling. At the end of 1944, the partnership owed $750 to The National Show Case Company, the balance due on the equipment. This was paid in full during 1945. Fifty percent thereof, or $375, is includable as a note payable of R. G. Wheeler in petitioners' net worth at December 31, 1944. The Columbus store, a partnership, owned furniture and fixtures at the end of 1944 with a total cost basis of $11,008.66. Fifty percent of this amount, $5,504.33, is includable in petitioner's net worth at December 31, 1944. The petitioner had accounts payable at the end of 1944 in the amount of $1,825.96, which amount is includable in petitioner's net worth at December 31, 1944. The Columbus store, a partnership, maintained a business bank account at the Fourth National Bank, Columbus, Georgia. There was a balance of $2,755.42 in the account at the end of 1944. Fifty percent of this amount, $1,377.71, is includable in petitioner's net worth at December 31, 1944. The Columbus store, a partnership, owned merchandise *266 inventory at the end of 1944 with a cost basis of $9,764.50. Fifty percent thereof, $4,882.25, is includable in petitioner's net worth at December 31, 1944. In 1945, petitioner purchased the interest of C. B. in the Columbus store, a partnership, for $6,500. The Columbus store, a sole proprietorship,  on December 31, 1945, had cash in the business bank account with the Fourth National Bank in the amount of $5,542.58. The total balance, $5,542.58, is includable in R. G. Wheeler's net worth at December 31, 1946. The Columbus store, a sole proprietorship, owned furniture and fixtures with a total cost basis of $11,088.66 on December 31, 1945. This amount is includable in petitioner's net worth at December 31, 1945. Petitioner owed accounts payable on December 31, 1945, in the amount of $3,374.60. This amount is includable in petitioner's net worth at December 31, 1945. The Columbus store owned merchandise inventory at December 31, 1945, in the amount of $9,023. This amount is includable in petitioner's net worth at December 31, 1945. About August 16, 1946, C. B. repurchased a one-half interest in the Columbus store for exactly what he had sold it to petitioner for the previous year, $6,500. *267 They were again equal partners. The Columbus store, a partnership, had cash in the business bank account at the Fourth National Bank at the end of 1946 in the amount of $4,131.46. Fifty percent thereof, or $2,065.74, is includable in petitioner's net worth at December 31, 1946. The petitioner owed accounts payable at the end of 1946 in the amount of $1,737.92, which amount is includable in petitioner's net worth at December 31, 1946. The Columbus store, a partnership, owned merchandise inventory at the end of 1946 with a cost basis of $9,293.70. Fifty percent thereof, $4,646.85, is includable in petitioner's net worth at December 31, 1946. The Columbus store owned furniture and fixtures at the end of 1946 with a cost basis of $11,008.66. Fifty percent thereof, or $5,504.33, is includable in petitioner's net worth at December 31, 1946. The Columbus store was closed in 1947 and its furniture, fixtures, and merchandise were moved to Manchester, Georgia, where petitioner and C. B. opened another drug store as equal partners. Petitioner and C. B. sold the Manchester drug store about September 24, 1947, to George E. Wolfe for $25,000. At the end of 1947, petitioner owed C. B. $7,000 in connection *268 with the sale, which amount was paid to C. B. about January 20, 1948. At the end of the years 1947, 1948, 1949 and 1950, George E. Wolfe owed petitioner the following amounts: DateAmountDecember 31, 1947$14,750December 31, 194811,750December 31, 19498,750December 31, 19506,000 About August 1, 1946, petitioner purchased the capital stock of Peachtree Pharmacy, Inc., 557 Peachtree Street, N.E., Atlanta. Georgia, from Paul D. Selman at a cost of $28,875. About September 19, 1946, petitioner sold his brother, C. B., a one-half interest in the pharmacy (which was then known as Wheeler's Peachtree Pharmacy, Inc.) for $14,000. Thus, at December 31, 1946, petitioner had one-half interest in the corporation, or an investment of $14,437.50. In September 1947, petitioner and his brother, C. B., opened a new Wheeler's Pharmacy located at Twelfth Street, Columbus, Georgia, in which they were again equal partners. During 1947, petitioner traded his interest in the drug store located at Twelfth Street, Columbus, to C. B. for C. B.'s one-half interest in Wheeler's Peachtree Pharmacy, Inc. About July 30, 1949, C. B. paid petitioner $18,000 for a one-half interest in Wheeler's Peachtree Pharmacy, Inc. *269 Thus, from sometime in 1947 until about July 30, 1949, petitioner was the sole owner of Wheeler's Peachtree Pharmacy, Inc., and had an investment therein at December 31, 1947, and December 31, 1948, in the amount of $28,875. Petitioner owned a one-half interest in the corporation at December 31, 1949, and at December 31, 1950. Thus, at December 31, 1949 and 1950, petitioner had an investment in this corporation of $14,437.50. Petitioner had a long-term capital gain of $3,562.50 on the sale of a one-half interest in Wheeler's Peachtree Pharmacy, Inc., to his brother, C. B., about July 30, 1949, of which fifty percent, or $1,781.25, is taxable to him in 1949. The computation is as follows: Sales Price$18,000.00Less: Cost14,437.50Net Gain$ 3,562.50Amount Taxable - 50%$ 1,781.25 Wheeler did not report this sale on his income tax return. About December 2, 1946, petitioner paid $18,000 for a one-half interest in a drug store being operated at 490 Ponce de Leon Avenue, Atlanta, Georgia. During 1947, petitioner purchased the other one-half interest in this drug store at a cost of $17,500. Petitioner was then sole owner of the drug store and operated it as a sole proprietorship until it was *270 sold in 1949. Petitioner owned cash in the business bank account, at the Citizens and Southern National Bank, Atlanta, Georgia, of Wheeler's Pharmacy, 490 Ponce de Leon Avenue, Atlanta, Georgia, at December 31, 1947 and 1948, in the respective amounts of $6,959.09 and $4,891.74. About June 10, 1948, petitioner purchased the drug store being operated at 122 Ponce de Leon Avenue from the Liggett Drug Company at a cost of $14,511.42. This store was sold in 1949 for $15,836.49. Petitioner owned merchandise inventory at the stores located at 122 and 490 Ponce de Leon Avenue, Atlanta, at the end of the years 1947 and 1948 in the total amounts of $19,088.84 and $28,499.12, respectively. Petitioner owned furniture, fixtures, and equipment located at 490 Ponce de Leon Avenue with a cost basis of $8,336.80 at the end of the year 1947. At the end of the year 1948, petitioner owned furniture, fixtures, and equipment located at 490 Ponce de Leon Avenue in the total amount of $9,797.74. This figure includes the cost of items owned at the end of 1947, $8,336.80, plus additions of $1,460.94. At the end of the year 1948, petitioner owned furniture, fixtures and equipment located at 122 Ponce de Leon *271 Avenue with a cost basis of $5,000. At the end of the year 1947, the petitioner owed accounts payable in the amount of $3,520.80. At the end of the year 1948, petitioner owed accounts payable in the total amount of $5,637.12.  About April 21, 1949, petitioner sold the drug store being operated at 490 Ponce de Leon Avenue, Atlanta, Georgia, to G. M. and H. H. Hoffman for $35,000. He received $25,000 at the date of sale and notes payable totalling $10,000. There were balances due to him on these notes at December 31, 1949 and 1950 in the amounts of $6,000 and $500, respectively. Petitioner, about September 14, 1949, sold the drug store being operated at 122 Ponce de Leon Avenue, Atlanta, to Paul D. Selman for $15,836.49. In the year 1949, petitioner opened up a new drug store at 1061 Ponce de Leon Avenue which he thereafter operated as a sole proprietorship. Petitioner owned furniture and fixtures located at the 1061 Ponce de Leon Avenue store with a cost basis of $31,227.65 at the end of the year 1949. Petitioner owned furniture and fixtures located at the 1061 Ponce de Leon Avenue store with a cost basis of $40,330.64 at the end of the year 1950, which consisted of $31,227.65, the *272 cost basis of furniture and fixtures at the end of the year 1949, and $9,102.99, additions made during the year 1950. Petitioner owned cash in the business bank account of the 1061 Ponce de Leon Avenue store at the Citizens and Southern National Bank, Atlanta, at the end of the years 1949 and 1950 in the amounts of $22,780.14 and $15,121.22, respectively. Petitioner owned merchandise inventory at the 1061 Ponce de Leon Avenue store at the end of the years 1949 and 1950 in the respective amounts of $33,765.17 and $30,951.40. At the end of the year 1949, the petitioner owed accounts payable in the amount of $20,923.70. About October 31, 1950, petitioner purchased a drug store known as Palm Beach Pharmacy, West Palm Beach, Florida (hereinafter referred to as the West Palm Beach Store) at a cost of $36,800. In connection with the purchase, petitioner assumed a first mortgage payable to S. L. Mercer on which $18,500 was due and assumed a chattel mortgage payable to The Atlantic National Bank on which $6,800 was due. At December 31, 1950, the unpaid balance on the mortgage to S. L. Mercer was $18,200 and the unpaid balance on the mortgage to The Atlantic National Bank was $6,026.40. On December *273 31, 1950, petitioner owed the George Daro Fixture Company $663.32 for fixtures purchased for his West Palm Beach Store during 1950. At the end of the year 1950, petitioner owed accounts payable in the amount of $23,921.34. Petitioner owned cash in the business bank account of the West Palm Beach Store at The Atlantic National Bank, West Palm Beach, at December 31, 1950, in the amount of $1,336.95. After adjustment for outstanding checks, the account was overdrawn at December 31, 1950, in the amount of $601.91. At the end of 1950, the petitioner owned furniture and fixtures located at the West Palm Beach Store with a cost basis of $19,950. Petitioner owned merchandise inventory at the West Palm Beach Store at the end of the year 1950 with a cost basis of $18,465.20. At the dates shown below, petitioner had balances in a personal account at the Fulton National Bank of Atlanta, Atlanta, Georgia, as follows: DateAmountDecember 31, 1944$ 8,018.89December 31, 194514,265.42December 31, 19464,368.29December 31, 19474,436.94December 31, 19484,248.30December 31, 194919.94December 31, 195019.94Petitioner opened a personal bank account at the First National Bank, Peachtree and North Avenue Branch, *274 Atlanta, Georgia, in 1947. The account had balances at the end of the years 1947, 1948, 1949, and 1950 in the amounts of $12,785.23, $9,938.21,  $3,667.49 and $16,116.08, respectively. Petitioner opened a personal savings account entitled "Mr. or Mrs. R. G. Wheeler" at the Fulton County Federal Savings and Loan, Atlanta, Georgia, in 1948. The account had balances (per bank records) at the end of the years 1948, 1949 and 1950 in the respective amounts of $1,012.50, $1,000 and $1,030.23. Petitioner had cash in trust with the Clerk of the United States District Court, Atlanta, Georgia, in the amount of $3,000 on December 31, 1949. About September 25, 1943, R. G. purchased a two-story residence and land known as 1310 Emory Road, Atlanta, at a cost of $12,000, allocable $1,500 to land and $10,500 to buildings. In connection with the purchase, he borrowed $8,250 from the Acacia Mutual Life Insurance Company. The unpaid balances on this loan at the end of the years 1944 to 1950, inclusive, were as follows: DateAmountDecember 31, 1944$7,783.43December 31, 19457,408.44December 31, 19466,975.64December 31, 19476,445.53December 31, 19486,049.51December 31, 19495,554.29December 31, 1950None In *275 the years 1947 and 1948, the petitioner spent $596 and $850, respectively, for capital improvements to the property. About September 22, 1950, petitioner sold the 1310 Emory Road property to A. R. Tyson for $27,500. Tyson gave a mortgage and notes payable to petitioner in the amount of $2,500. The unpaid balance on these notes at December 31, 1950, was $2,200. Petitioner had a long-term capital gain of $15,410.61 on the sale of the property at 1310 Emory Road, Atlanta, of which fifty percent, or $7,705.31, is taxable to him in 1950. The computation is as follows: Sales Price$27,500.00Cost: Original Cost$12,000.00Improvements1,446.00Furnishings1,750.00Total Cost$15,196.00Less: Depreciation on BuildingsLess:$2,056.61Furnishings worth $1,750.001,050.003,106.6112,089.39Net Gain15,410.61Amount Taxable - 50%$ 7,705.31 Wheeler did not report this sale on his original 1950 income tax return. After the internal revenue agents began their examination, Wheeler filed an amended 1950 income tax return on which this sale was reported. About March 15, 1948, petitioner purchased a frame apartment building and lot known as 617 North Highland Avenue, 1076 North Avenue or 1076 Highland Avenue, Atlanta, *276 from W.  C. Dean at a cost of $18,700, allocable $2,000 to land and $16,700 to building. In connection with this purchase, petitioner borrowed $10,000 from the Life Insurance Company of Virginia.  The unpaid balances on this loan at the end of the years 1948, 1949 and 1950 were as follows: DateAmountDecember 31, 1948$9,395.72December 31, 19498,557.69December 31, 1950None Petitioner traded the property on the purchase of The Essex House, West Palm Beach, Florida, on December 18, 1950. About April 25, 1949, petitioner purchased a stucco apartment building and lot known as 1084 North Avenue, Atlanta, from John H. Hartley for $13,501.42, allocable $1,555 to land and $11,946.42 to building. In payment for the property, petitioner assumed an unpaid balance of $5,219.31 on a mortgage payable to Life Insurance Company of Virginia, gave a check in the amount of $4,979.01, and transferred to Hartley the 1947 Cadillac automobile having a value of $3,250. The mortgage had an unpaid balance of $4,873.61 on December 31, 1949. This property was traded on the purchase of The Essex House, West Palm Beach, on December 18, 1950. About December 18, 1950, petitioner purchased land and a building known *277 as The Essex House, West Palm Beach, from Arthur E. Stern. In connection with the purchase, he gave a mortgage and notes payable to Stern in the amount of $40,000 (which amount he still owed at December 31, 1950) and deeded to Stern the property known as 617 North Highland Avenue and 1084 North Avenue. Stern assumed mortgages on the two pieces of property held by Life Insurance Company of Virginia in the total amount of $12,079.20 (including principal and interest). However, petitioner paid Stern the $12,079.20 for the assumption of the mortgage. Insofar as petitioner was concerned, the transaction was nontaxable in 1950. Petitioner still owned the Essex House property at December 31, 1950. The petitioner had a cost basis of $70,477.32 in The Essex House at December 31, 1950. The computation is as follows: Mortgage Assumed$40,000.00Basis of AtlantaProperty TradedCost: Frame Property$18,700.00Stucco Property13,501.42Total$32,201.42Less: Depreciation Re-serve2,983.4529,217.97Commission R. F. May Co.Check outstandingDecember 31, 19501,259.35Basis of The Essex House$70,477.32About May 23, 1949, R.  G. and Vennie V. Wheeler purchased land and a house thereon known as 8441 Collins Avenue, *278 Miami Beach, Florida, from N. H. Darsky at a cost of $45,500 and the transfer to Darsky of Wheeler's 1948 Cadillac automobile having a value of $4,734.30, or a total consideration of $50,234.30. Wheeler gave Darsky a mortgage and notes in the amount of $25,000. There were unpaid balances on these notes at December 31, 1949 and 1950 in the amounts of $22,500 and $17,500, respectively. Wheeler still owned this property at December 31, 1950. About August 12, 1950, petitioner purchased a lot on Collins Drive, Miami Beach, Florida, from A. J. McDonald at a cost of $10,000. Wheeler gave McDonald a mortgage and notes in the amount of $5,000. The unpaid balance at December 31, 1950, was $5,000. Wheeler still owned this property at December 31, 1950. About November 14, 1944, petitioner purchased property known as 1159 Tate Drive, Columbus, Georgia, from Mrs. Tom N. Blowers at a cost of $10,500. In connection with this purchase, petitioner borrowed $6,000 from Cooperative Federal Savings and Loan Association - Loan Account No. 788. The unpaid balances on this loan at December 31, 1944, and 1945, were $5,972 and $5,600.25, respectively. Petitioner sold the property to John B. McCollum on or about *279 April 23, 1946, for $11,000. McCollum paid R. G. $5,392.05 and paid the $5,558.95 balance due on the mortgage to Cooperative Federal Savings and Loan Association. Petitioner purchased a house and lot known as 1440 Emory Road, Atlanta, from Samuel R. Unger about February 24, 1948, at a cost of $21,500. Petitioner assumed a mortgage due to Decatur Building and Loan Association on which there was due $10,500. The unpaid balances on this mortgage at December 31, 1948, 1949 and 1950 were $10,191.96, $9,649.31 and $9,245.74, respectively. The petitioner still owned this property at December 31, 1950. On January 1, 1945, petitioner owned a 1941 Oldsmobile automobile that he had purchased on September 2, 1943, for $1,495. In 1945, petitioner traded the Oldsmobile, plus $2,000 in cash, on a 1941 Cadillac. The basis of the 1941 Oldsmobile, $1,495, reduced by depreciation in the amount of $186.88, plus the cash of $2,000, gave the petitioner a $3,308.12 cost basis in the 1941 Cadillac. The petitioner held the Cadillac until April of 1948, at which time it was traded in on another automobile.  About April 8, 1948, petitioner purchased a 1947 Cadillac sedan for $3,650. He paid $2,500 by check and *280 was allowed $1,150 as a trade-in on the 1941 Cadillac. This 1947 Cadillac was transferred to John H. Hartley in connection with petitioner's purchase of the stucco property known as 1084 North Avenue, Atlanta, on April 25, 1949. About November 6, 1948, petitioner purchased a 1948 Cadillac at a cost of $4,734.30. He transferred this car to N. H. Darsky about May 23, 1949, in connection with the purchase of the property known as 8441 Collins Avenue, Miami Beach, Florida.  About July 3, 1947, petitioner purchased a 1946 Mercury convertible coupe at a cost of $2,395. He paid $1,900 on the date of purchase and was allowed $495 on a trade-in of a 1941 No. 61 motorcycle. This automobile was traded in by petitioner in 1948 on a 1947 Packard. About August 28, 1948, petitioner purchased a 1948 Packard for $3,914.50. Petitioner paid $500 in cash, financed $1,950 through the Automobile Finance Department of the First National Bank, Atlanta, and received a trade-in allowance of $1,464.50 on the 1946 Mercury. The petitioner still owned this automobile at December 31, 1950. There were unpaid balances due on the loan from the First National Bank, Atlanta, at December 31, 1948, and 1949, in the respective *281 amounts of $1,803.80 and $811,81. This note was paid in full during 1950. In 1948 petitioner purchased a 1947 Ford panel truck for $1,600. This truck was traded in on a 1948 Pontiac sedan coupe in June 1949. About June 9, 1949, petitioner purchased a 1948 Pontiac sedan coupe at a cost of $2,195. He paid $145 in cash at the time of the purchase and was allowed $800 as a trade-in on the 1947 Ford truck. The remainder of the cost was financed with Automobile Financing Company, Atlanta. The account had an unpaid balance at December 31, 1949, of $1,054.20 and was paid in full during 1950. This automobile was traded in on a 1947 Cadillac in August 1950. About August 3, 1950, petitioner purchased a 1947 Cadillac at a cost of $1,795. He paid $450 in cash at the time of purchase and was allowed $1,345 as a trade-in on the 1948 Pontiac. This automobile was traded in on a 1950 Pontiac in October 1950. About October 21, 1950, petitioner purchased a 1950 Pontiac at a cost of $2,500. He paid $1,000 by check and was allowed $1,500 as a trade-in on the 1947 Cadillac. He still owned this automobile at December 31, 1950. About February 16, 1948, R. G. borrowed $6,000 from the Fulton National Bank of *282 Atlanta, Decatur Branch. The entire amount of the loan was repaid during 1948. About December 13, 1948, R. B. borrowed $6,000 from the Fulton National Bank of Atlanta, Decatur Branch. The entire $6,000 was repaid during the year 1949. About June 7, 1948, R. G. borrowed $15,750 from the Citizens and Southern National Bank, Atlanta. There was an unpaid balance due on the loan at December 31, 1948, in the amount of $7,875. The loan was paid in full during 1949. About October 9, 1950, R. G. borrowed $12,000 from the Citizens and Southern National Bank, Tenth Street Branch, Atlanta. There was an unpaid balance due on the loan at December 31, 1950, in the amount of $10,000. Petitioner owed the First National Bank, North Avenue Branch, Atlanta, $10,206.91, $11,923.61, and $1,812.40 at the end of the years 1948, 1949 and 1950, respectively. At December 31, 1949, and 1950, R. G. owed the National Cash Register Company $2,412.57 and $907.07 on equipment which he purchased for his drug store at 1061 Ponce de Leon Avenue, Atlanta, during 1949 and 1950. At December 31, 1950, R. G. owed the National Cash Register Company $2,548.18 on equipment which he had purchased during 1950 for his store at *283 West Palm Beach. At December 31, 1949, and 1950, R. G. owed the Bastian Blessing Company $6,336.12 and $2,715.48, respectively, on equipment that he had purchased during 1949 for his store at 1061 Ponce de Leon Avenue, Atlanta. In addition to amounts spent for certain contributions, interest and taxes, as well as life insurance premiums and a Federal court fine, the following amounts were expended for living expenses by R. G. in the years 1945 to 1948, inclusive, and by R. G. and Vennie V. Wheeler in the years 1949 and 1950: YearAmount Spent1945$ 4,820.0019466,435.97194710,598.0719483,912.9419494,521.8419504,034.54Petitioner paid life insurance premiums to the Maryland Life Insurance Company of Baltimore and the New York Life Insurance Company in the years 1948, 1949 and 1950 in the total amounts of $1,330.50, $1,816.90 and $1,816.90, respectively. Petitioners made contributions in the amounts of $150, $222 and $404 in the years 1948, 1949 and 1950, respectively.  Petitioners paid nonbusiness interest expenses in the years 1948, 1949 and 1950 in the respective amounts of $1,002.88, $1,505.93 and $1,160.93. Petitioners paid nonbusiness taxes during the years 1948, 1949 and 1950 in the *284 respective amounts of $531.01, $1,473.11 and $1,405.18. During 1950 petitioner paid a Federal court fine (Docket No. 18449) in the amount of $2,000. The following schedule shows the cash in bank accounts of R.G. Wheeler at the end of the years 1944 to 1948, inclusive, and R. G. and Vennie V. Wheeler at the end of the years 1949 and 1950: SCHEDULE OF BANK BALANCES12-31-4412-31-4512-31-4612-31-47R. G. Wheeler PersonalAccounts: First National Bank$12,785.23Fulton National Bank$8,018.89$14,265.42$4,368.294,436.94Fulton City Fed. Sav-ings & LoanBusiness Accounts: C & S National Bank490 Ponce de Leon Ave.6,959.091061 Ponce de Leon Ave.Atlantic National BankWest Palm Beach, Fla.Fourth National BankColumbus, Ga. 50%1,377.715,542.582,065.74Total Cash in Banks$9,396.60$19,808.00$6,434.03$24,181.26SCHEDULE OF BANK BALANCES12-31-4812-31-4912-31-50R. G. Wheeler PersonalAccounts: First National Bank$ 9,938.21$ 3,667.49$16,116.08Fulton National Bank4,248.3019.9419.94Fulton City Fed. Sav-ings & Loan1,012.501,000.001,030.23Business Accounts: C & S National Bank490 Ponce de Leon Ave.4,891.741061 Ponce de Leon Ave.22,780.1415,121.22Atlantic National BankWest Palm Beach, Fla.(601.91)Fourth National BankColumbus, Ga. 50%Total Cash in Banks$20,090.75$27,467.57$31,685.56*285 The following schedule shows the notes receivable which are includable in the net worth of R. G. Wheeler at the end of the years 1944 to 1950, inclusive. SCHEDULE OF NOTES RECEIVABLE12-31-4412-31-4512-31-4612-31-47Geo. E. Wolfe - Sale of Man-chester StoreNone$14,750.00G. M. and H. H. Hoffman -Saleof 490 Ponce de LeonNoneC. S. Horton - Sale ofPharmacyon Oxford Rd.$7,100.00$3,275.00NoneA. R. Tyson - 1310 Emory Rd.Total Notes Receivable$7,100.00$3,275.00None$14,750.00SCHEDULE OF NOTES RECEIVABLE12-31-4812-31-4912-31-50Geo. E. Wolfe - Sale of Man-chester Store$11,750.00$ 8,750.00$6,000.00G. M. and H. H. Hoffman -Saleof 490 Ponce de Leon6,000.00500.00C. S. Horton - Sale ofPharmacyon Oxford Rd.A. R. Tyson - 1310 Emory Rd.2,200.00Total Notes Receivable$11,750.00$14,750.00$8,700.00The following schedule shows the inventories which are includable in R. G. Wheeler's net worth at the end of the years 1944 to 1950, inclusive: SCHEDULE OF INVENTORIES12-31-4412-31-4512-31-4612-31-471236 Broadway, * Columbus,Ga.$4,882.25$9,023.00$4,646.85122 and 490 Ponce de LeonAve., Atlanta, Ga.$19,088.841061 Ponce de Leon Ave.,Atlanta, Ga.West Palm Beach Store, WestPalm Beach, Fla.$4,882.25$9,023.00$4,646.85$19,088.84*286 SCHEDULE OF INVENTORIES12-31-4812-31-4912-31-501236 Broadway, * Columbus,Ga.122 and 490 Ponce de LeonAve., Atlanta, Ga.$28,499.121061 Ponce de Leon Ave.,Atlanta, Ga.$33,765.17$30,951.40West Palm Beach Store, WestPalm Beach, Fla.18,465.20$28,499.12$33,765.17$49,416.60The following schedule shows the real estate of R. G. at the end of the years 1944 to 1948, inclusive, and R. G. and Vennie V. Wheeler at the end of the years 1949 and 1950: SCHEDULE OF REAL ESTATE12-31-4412-31-4512-31-4612-31-47310 Emory Road$12,000.00$12,000.00$12,000.00$12,596.00Frame ApartmentStucco ApartmentEssex House, West PalmBeach, Fla.8441 Collins Ave., MiamiBeach, Fla.Lot - Miami Beach, Fla.1159 Tate Drive, Colum-bus, Ga.10,500.0010,500.001440 Emory RoadTotal Real Estate$22,500.00$22,500.00$12,000.00$12,596.00Less: Land (Rental &Vacant)1,500.001,500.001,500.001,500.00Buildings$21,000.00$21,000.00$10,500.00$11,096.00SCHEDULE OF REAL ESTATE12-31-4812-31-4912-31-50310 Emory Road$13,446.00$ 13,446.00Frame Apartment18,700.0018,700.00Stucco Apartment13,501.42Essex House, West PalmBeach, Fla.$ 70,477.328441 Collins Ave., MiamiBeach, Fla.50,234.3050,234.30Lot - Miami Beach, Fla.10,000.001159 Tate Drive, Colum-bus, Ga.1440 Emory Road21,500.0021,500.0021,500.00Total Real Estate$53,646.00$117,381.72$152,211.62Less: Land (Rental &Vacant)3,500.005,250.0010,000.00Buildings$50,146.00$112,131.72$142,211.62R. *287 G. for the years 1944 to 1948, inclusive, and R. G. and Vennie V. for the year 1949 owned furniture and fixtures in rental property having the following cost basis: Rental Furnitureand FixturesYear EndedCost Basis *December 31, 1944$3,500December 31, 19453,500December 31, 19461,750December 31, 19471,750December 31, 19481,750December 31, 19491,750December 31, 1950None The following schedule shows the drug store furniture and fixtures which are includible in R. G. Wheeler's net worth at the end of the years 1944 to 1950, inclusive. FURNITURE AND FIXTURES - DRUG STORESDateAcq.12-31-4412-31-4512-31-46Columbus store1944$5,504.33$11,008.66$5,504.33490 Ponce de Leon Ave.1946490 Additions1948122 Ponce de Leon Ave.19481061 Ponce de Leon Ave.19491061 Additions1950West Palm Beach, Fla.1950Total Furniture and Fixtures$5,504.33$11,008.66$5,504.33FURNITURE AND FIXTURES - DRUG STORES12-31-4712-31-4812-31-4912-31-50Columbus store490 Ponce de Leon Ave.$8,336.80$ 8,336.80490 Additions1,460.94122 Ponce de Leon Ave.5,000.001061 Ponce de Leon Ave.$31,227.65$31,227.651061 Additions9,102.99West Palm Beach, Fla.19,950.00Total Furniture and Fixtures$8,336.80$14,797.74$31,227.65$60,280.64The *288 following schedule shows the automobiles of R. G. at the end of the years 1944 to 1948, inclusive, and of R. G. and Vennie V. at the end of the years 1949 and 1950: SCHEDULE OF AUTOMOBILESDateAcq.12-31-4412-31-4512-31-4612-31-471941 Oldsmobile1943$1,495.00Trade 1945 on 1941 Cadillac1941 Cadillac *1945$3,308.12$3,308.12$3,308.121947 Cadillac19481948 Cadillac19481946 Mercury19472,395.001948 Packard -1948Traded 1951 on1951 Packard1947 Panel Ford19481948 Pontiac **19491950 Pontiac ***1950$1,495.00$3,308.12$3,308.12$5,703.12* Price$3,495.00Less: Depr. on autoLess traded186.88Basis$3,308.12** Total Invoice$2,526.30** Less: Int. &331.30ChargesBasis$2,195.00SCHEDULE OF AUTOMOBILES12-31-4812-31-4912-31-501941 Oldsmobile1941 Cadillac *Traded 1948 on 1947 Cadillac1947 Cadillac$3,650.00Traded 1949 on RealEstate1948 Cadillac4,734.30Traded 1949 MiamiReal Estate1946 MercuryTraded 1948 on 1947 Packard1948 Packard -3,914.50$3,914.50$3,914.50Traded 1951 on1951 Packard1947 Panel Ford1,600.00Traded 1949 on Pon-1948 Pontiac **tiac2,195.00Traded1950 on1947Cadillac1950 Pontiac ***2,500.00$13,898.80$6,109.50$6,414.50The following *289 schedule shows the investments includable in petitioner's net worth at the end of the years 1944 to 1950, inclusive: SCHEDULE OF INVESTMENTS12-31-4412-31-4512-31-4612-31-47Wheeler's PeachtreePharmacyNoneNone$14,437.50$28,875.00490 Ponce de LeonNoneNone18,000.00Total InvestmentsNoneNone$32,437.50$28,875.00SCHEDULE OF INVESTMENTS12-31-4812-31-4912-31-50Wheeler's PeachtreePharmacy$28,875.00$14,437.50$14,437.50490 Ponce de LeonTotal Investments$28,875.00$14,437.50$14,437.50 R. G., for the years 1946, 1947 and 1948, and R. G. and Vennie V., for the years 1949 and 1950, owned personal household furniture having the following cost basis: Personal House-hold FurnitureYear EndedCost BasisDecember 31, 1946$1,750December 31, 19471,750December 31, 19483,850December 31, 19493,850December 31, 19503,850The following schedule shows the notes payable of R. G. at the end of the years 1944 to 1948, inclusive, and of R. G. and Vennie V. at the end of the years 1949 and 1950: SCHEDULE OF NOTES PAYABLE12-31-4412-31-4512-31-4612-31-47Cooperative Fed. Sav. &Loan - House - Tate Dr.,Columbus$ 5,972.00$ 5,600.25Acacia Mutual Life Ins. Co.,1310 Emory Rd., Atlanta7,783.437,408.44$6,975.64$ 6,445.53Decatur Bldg. & Loan Assn.,1440 Emory Rd., AtlantaFulton Natl. Bk. - DecaturBr.First Natl. Bk. - North Ave.Br.Citizens & Southern Natl.Bk.Life Ins. Co. of Va., 1076N. Highland Ave.Natl. Cash Register Co.,Eqpt., 1061 Ponce de LeonNatl. Cash Register Co.,Eqpt., West Palm BeachLife Ins. Co. of Va., 1084North AveN. H. Darsky, 8441 CollinsAve., Miami BeachBostion Blessing Co., Eqpt.,1061 Ponce de LeonFirst Natl. Bk., Auto LoanAtlantic Natl. Bk. W.P.B.,Eqpt. - W.P.B.Auto Financing, Inc.Arthur E. Stern, The EssexHouse, West Palm BeachAlfred J. McDonald, Lot,Miami BeachS. L. Mercer, West PalmBeach StoreGeo. Daro Fixture Co.Natl. Showcase Co., Colum-bus (1/2)375.00C. B. Wheeler7,000.00$14,130.43$13,008.69$6,975.64$13,445.53*290 SCHEDULE OF NOTES PAYABLE12-31-4812-31-4912-31-50Cooperative Fed. Sav. &Loan - House - Tate Dr.,ColumbusAcacia Mutual Life Ins. Co.,1310 Emory Rd., Atlanta$ 6,049.51$ 5,554.29Decatur Bldg. & Loan Assn.,1440 Emory Rd., Atlanta10,191.969,649.31$ 9,245.74Fulton Natl. Bk. - DecaturBr.6,000.00First Natl. Bk. - North Ave.Br.10,206.9111,923.611,812.40Citizens & Southern Natl.Bk.7,875.0010,000.00Life Ins. Co. of Va., 1076N. Highland Ave.9,395.728,557.69Natl. Cash Register Co.,Eqpt., 1061 Ponce de Leon2,412.57907.07Natl. Cash Register Co.,Eqpt., West Palm Beach2,548.18Life Ins. Co. of Va., 1084North Ave4,873.61N. H. Darsky, 8441 CollinsAve., Miami Beach22,500.0017,500.00Bostion Blessing Co., Eqpt.,1061 Ponce de Leon6,336.122,715.48First Natl. Bk., Auto Loan1,803.80811.81Atlantic Natl. Bk. W.P.B.,Eqpt. - W.P.B.6,026.40Auto Financing, Inc.1,054.20Arthur E. Stern, The EssexHouse, West Palm Beach40,000.00Alfred J. McDonald, Lot,Miami Beach5,000.00S. L. Mercer, West PalmBeach Store18,200.00Geo. Daro Fixture Co.663.32Natl. Showcase Co., Colum-bus (1/2)C. B. Wheeler$51,522.90$73,673.21$114,618.59 Petitioner had no checks outstanding in the years 1944, 1945 and 1946. For the years 1947 and 1948, petitioner *291 had checks outstanding in the respective total amounts of $1,200.83 and $8,931.58. For the years 1949 and 1950, R. G. and Vennie V. had checks outstanding in the total amounts of $6,420.35 and $17,247.67, respectively. At the end of each of the taxable years indicated, petitioner owed accounts payable - trade - in the following amounts: Taxable YearAmount1944$ 1,825.9619453,374.6019461,737.9219473,520.8019485,637.12194920,923.70195023,921.34Petitioner at the end of the years 1947, 1948, 1949 and 1950 owed accounts payable - business insurance - in the amounts of $370.29, $474.22, $1,745.81 and $1,850.25, respectively. Petitioner at the end of the years 1947, 1948, 1949 and 1950 owed accrued business expenses in the respective amounts of $566.11, $1,973.93, $1,928.54 and $3,503.92. At the end of the years 1947 and 1948 the petitioner owed Wheeler's Peachtree Pharmacy, Inc., the respective amounts of $5,964.33 and $3,972.59. These amounts are shown as accounts receivable due from officers on the corporation's returns for those years.  At the end of the years indicated, petitioner had a reserve account for depreciation on buildings, furniture, equipment, and automobiles in amounts as *292 follows: YearAmount1944$ 765.3819451,979.1319462,986.1119473,286.6419484,957.2119496,406.4419506,359.02At the end of the years indicated, R. G. for the years 1945 to 1948, inclusive, and R. G. and Vennie V. for the years 1949 and 1950, made personal expenditures in the following amounts: YearAmount1945$ 4,820.0019466,435.97194710,598.0719486,927.3319499,539.78195010,821.55The petitioners had capital gains in the years 1949 and 1950 in the respective amounts of $3,562.50 and $15,410.61. Fifty percent of these capital gains, or $1,781.25 and $7,705.31, was taxable to them in the years 1949 and 1950, respectively. Petitioner sustained nonrecognized losses on the trade-in of personal automobiles in the years 1948, 1949 and 1950 in the respective amounts of $2,468.24, $700 and $1,007.82, computed as follows: 19481941 Oldsmobile$1,495.00Depreciation Allowed186.88Basis of 1941 Oldsmobile$1,308.12Plus Cash - for 1941 Cadillac2,000.00Cost of Cadillac$3,308.12Less: Depreciation620.38Basis of Cadillac$2,687.74Allowed on Trade 19481,150.00$1,537.74Cost of Mercury$2,395.00Allowed on Trade 19481,464.50930.50Total loss on Automobiles - 1948$2,468.241949Cost of Panel Ford$1,600.00Less: Depreciation100.00Basis$1,500.00Allowed on trade800.00Total loss on automobile - 1949$ 700.001950Cost of 1948 Pontiac$2,195.00Less: Depreciation137.18Basis$2,057.82Allowed on trade 1947 Cadil-lac1,345.00Loss on Automobile - 1950$ 712.82Cost of 1947 Cadillac$1,795.00Allowed on Trade1,500.00Loss on Automobile - 1950295.00Total losses on automobiles - 1950$1,007.82*293 The following schedule shows the statutory deductions allowable to R. G. for the years 1945 to 1948, inclusive, and to R. G. and Vennie V. for the years 1949 and 1950: Item194519461947194819491950Contributions$260.78$ 150.00$ 222.00$ 404.00Interest314.221,002.881,505.931,160.93Taxes210.00531.011,473.111,405.18Bad Debt83.00Standard Deduction$500.00$500.00Totals$785.00$500.00$500.00$1,683.89$3,201.04$3,053.11The following schedule shows the assets, liabilities, and net worth of R. G. at the end of the years 1944 to 1948, inclusive, and the assets, liabilities, and net worth of R. G. and Vennie V. at the end of each of the years 1949 and 1950: COMPUTATION OF NET WORTH12-31-4412-31-4512-31-4612-31-47ASSETSCash in Banks$ 9,396.60$19,808.00$ 6,434.03$ 24,181.26Cash in Trust (Clerk ofDistrict Court, Atl.)Notes Receivable7,100.003,275.0014,750.00Inventory4,882.259,023.004,646.8519,088.84Real Estate - Land1,500.001,500.001,500.001,500.00Buildings21,000.0021,000.0010,500.0011,096.00Furniture & Fixtures,Rental3,500.003,500.001,750.001,750.00Furniture & Fixtures -Drug Store (Per Re-turn)5,504.3311,008.665,504.338,336.80Automobiles1,495.003,308.123,308.125,703.12Investments32,437.5028,875.00Personal Household Fur-niture1,750.001,750.00TOTAL ASSETS$54,378.18$72,422.78$67,830.83$117,031.02LIABILITIESNotes Payable$14,130.43$13,008.69$ 6,975.64$ 13,445.53Outstanding Checks1,200.83Accounts Payable -Trade1,825.963,374.601,737.923,520.80Accounts Payable -Other Business Insur-ance370.29Accrued Expenses (PerPetitioner's Account-ant)566.11Wheeler's PeachtreePharmacy, Inc. (PerReturn)5,964.33Reserve for Depreciation765.381,979.132,986.113,286.64TOTAL LIABILITIES$16,721.77$18,362.42$11,699.67$ 28,354.53NET WORTH$37,656.41$54,060.36$56,131.16$ 88,676.49*294 COMPUTATION OF NET WORTH12-31-4812-31-4912-31-50ASSETSCash in Banks$ 20,090.75$ 27,467.57$ 31,685.56Cash in Trust (Clerk ofDistrict Court, Atl.)3,000.00Notes Receivable11,750.0014,750.008,700.00Inventory28,499.1233,765.1749,416.60Real Estate - Land3,500.005,250.0010,000.00Buildings50,146.00112,131.72142,211.62Furniture & Fixtures,Rental1,750.001,750.00Furniture & Fixtures -Drug Store (Per Re-turn)14,797.7431,227.6560,280.64Automobiles13,898.806,109.506,414.50Investments28,875.0014,437.5014,437.50Personal Household Fur-niture3,850.003,850.003,850.00TOTAL ASSETS$117,157.41$253,739.11$326,996.42LIABILITIESNotes Payable$ 51,522.90$ 73,673.21$114,618.59Outstanding Checks8,931.586,420.3517,247.67Accounts Payable -Trade5,637.1220,923.7023,921.34Accounts Payable -Other Business Insur-ance474.221,745.811,850.25Accrued Expenses (PerPetitioner's Account-ant)1,973.931,928.543,503.92Wheeler's PeachtreePharmacy, Inc. (PerReturn)3,972.59Reserve for Depreciation4,957.216,406.446,359.02TOTAL LIABILITIES$ 77,469.55$111,098.05$167,500.79NET WORTH$ 99,687.86$142,641.06$159,495.63 The following schedule shows the computation of the net income of R. G. for the taxable years 1944 to 1948, inclusive, and *295 the net income of R. G. and Vennie V. for the taxable years 1949 and 1950: COMPUTATION OF CORRECT NET INCOME12-31-4412-31-4512-31-4612-31-47Net Worth$37,656.41$54,060.36$56,131.16$88,676.49Less: Prior Year's Net Worth37,656.4154,060.3656,131.16Increase in Net Worth$16,403.95$ 2,070.80$32,545.33Add: Personal Expenditures4,820.006,435.9710,598.07Unrecognized Loss on Sale ofAutomobilesTotals$21,223.95$ 8,506.77$43,143.40Less: One-Half of Long-TermCapital GainAdjusted Gross Income$21,223.95$ 8,506.77$43,143.40Less: Statutory Deductions785.00500.00500.00Net Taxable Income$20,438.95$ 8,006.77$42,643.40COMPUTATION OF CORRECT NET INCOME12-31-4812-31-4912-31-50Net Worth$99,687.86$142,641.06$159,495.63Less: Prior Year's Net Worth88,676.4999,687.86142,641.06Increase in Net Worth$11,011.37$ 42,953.20$ 16,854.57Add: Personal Expenditures6,927.339,539.7810,821.55Unrecognized Loss on Sale ofAutomobiles2,468.24700.001,007.82Totals$20,406.94$ 53,192.98$ 28,683.94Less: One-Half of Long-TermCapital Gain1,781.257,705.31Adjusted Gross Income$20,406.94$ 51,411.73$ 20,978.63Less: Statutory Deductions1,683.893,201.043,053.11Net Taxable Income$18,723.05$ 48,210.69$ 17,925.52 The petitioner's deposits to his *296 business bank accounts, less those items which would not constitute business receipts, such as loan proceeds, sales of property, and the like, exceed the business receipts, sales, reported on his income tax returns for the years 1945 to 1950, inclusive, as follows: Business ReceiptsDeposited Over (Under)YearBusiness Receipts Reported1945$ 466.94)1946( 7,212.78)1947649.111948( 531.22)194910,608.62195028,401.08Total$31,447.87The deposits to the personal bank accounts of R. G. and Vennie V. exceeded the loans and returns of capital that were available and could have been deposited to these accounts during the years 1945 to 1950, inclusive, by the following amounts: Excess ofDeposits Over LoansYearand Returns of Capital1945$ 12,157.7619467,978.85194753,266.81194834,289.54194917,985.49195030,682.69Total$156,316.14The following schedule sets forth the deposits to business and personal bank accounts and the eliminations from those deposits to arrive at the net business receipts and net personal deposits for the years in question: BusinessBUSINESS DEPOSITSBank Accounts1945194619471948Columbus Bk. & Tr. Co.$ 4,888.50Fourth Natl. Bk., Columbus81,348.94$ 76,373.65Citizens & Southern Natl.45,902.06$50,368.22$156,521.04Bk., Tenth St.Atlantic Natl. Bk., WestPalm Beach$86,237.44$122,275.71$50,368.22$156,521.04Less: Nonbusiness Deposits36,000.0014,000.0015,000.00Net Business Deposits$86,237.44$ 86,275.71$36,368.22$141,521.04Sales per Return85,770.5079,062.93 *37,017.33140,989.82Net Sales over Net Deposits$ (466.94)$ (7,212.78)$ 649.11$ (531.22)PERSONAL DEPOSITSMerchants & Mechanics Bank$ 11,609.76Fulton Natl. Bk., Decatur$14,752.4741,395.44$45,863.80$ 20,346.71First Natl. Bk., North Ave17,653.0160,090.51$14,752.47$ 53,005.20$63,516.81$ 80,437.22Less: Sale of House. Tate12,000.00St.Transfers & Redeposits8,751.9631,387.68Notes - Loans20,500.0011,760.00Sale - 1310 Emory Rd.Payments Rec'd on Notes2,594.713,774.39250.003,000.00Sale, Store, Manchester10,000.00Total$ 2,594.71$ 45,026.35$10,250.00$ 46,147.68Net Personal Deposits$12,157.76$ 7,978.85$53,266.81$ 34,289.54*297 BusinessBUSINESS DEPOSITSBank Accounts19491950TotalColumbus Bk. & Tr. Co.$ 4,888.50Fourth Natl. Bk., Columbus157,722.59Citizens & Southern Natl.$205,679.32$272,846.54731,317.18Bk., Tenth St.Atlantic Natl. Bk., West10,199.4610,199.46Palm Beach$205,679.32$283,046.00$904,127.73Less: Nonbusiness Deposits43,000.0012,000.00120,000.00Net Business Deposits$162,679.32$271,046.00$784,127.72Sales per Return173,287.94299,447.08815,575.60Net Sales over Net Deposits$ 10,608.62$ 28,401.08$ 31,447.87PERSONAL DEPOSITSMerchants & Mechanics Bank$ 11,609.76Fulton Natl. Bk., Decatur$ 8,085.39130,443.81First Natl. Bk., North Ave51,731.77$ 71,074.89200,550.18$ 59,817.16$ 71,074.89$342,603.75Less: Sale of House. Tate12,000.00St.Transfers & Redeposits25,000.0065,139.64Notes - Loans9,831.674,943.7547,035.42Sale - 1310 Emory Rd.23,898.4523,898.45Payments Rec'd on Notes7,000.0011,550.0028,169.10Sale, Store, Manchester10,000.00Total$ 41,831.67$ 40,392.20$186,242.61Net Personal Deposits$ 17,985.49$ 30,682.69$156,361.14Identified deposits of cash to the petitioners' bank accounts during the years 1945, 1946, 1947, 1948, 1949 and 1950 amounted to $8,960, $1,032, $16,323, $13,640, $5,160, and $24,265, *298 respectively, or a total of $69,380 in cash deposits. Petitioner paid the following Federal income taxes for the years 1945 to 1948, inclusive: YearAmount Paid1945$ 88.181946None19471,433.951948100.00R. G. and Vennie V. paid the following Federal income taxes for the years 1949 and 1950: YearAmount Paid1949$1,213.7619502,966.88 (Amended Return)On his Federal income tax return filed for 1945, petitioner disclosed income, and tax due thereon, as follows: Rent$ 2,394.00Less: Depr., Repairs, Etc.1,342.00Net Rental Income$1,052.00Total Receipts - Drug Store$85,770.50Less: Cost of goods sold$70,627.94Other Business deductions12,817.2083,445.14Net Profit - Drug Store2,325.36Adjusted Gross Income$3,377.36Less: DeductionsContributions260.78Interest314.22Taxes488.63Rental Agent's Commission126.00Total Deductions1,189.63Net Income$2,187.73Normal Tax Exemption500.00Normal Tax Net Income$1,687.73Normal Tax Liability$ 50.63Net Income$2,187.73Less: Surtax Exemptions2,000.00Surtax Net Income$ 187.73Surtax Liability$ 37.55Total Tax Liability$ 88.18 Petitioner filed a state income tax return for the year 1946 with the State of Georgia showing his address as Columbus, Georgia. This return disclosed income *299 as follows: Salarles, wages, commissions, etc.$1,625.00Income from business or profession1,300.52Total Income$2,925.52Less: DeductionsNoneNet Income$2,925.52Less: Personal exemption and creditfor dependents (wife & 2 children)3,300.00Net Taxable Income$ NonePetitioner's Federal income tax return filed for the year 1947 disclosed income, and tax due thereon, as follows: Salaries$7,126.62Gross Rents$ 2,269.76Less: Depr., Repairs, Etc.1,369.67Net Rents$ 900.09Sales - Drug Store$37,017.33Less: Cost of goods sold$26,814.18Other expenses9,207.2436,021.42Net Profit - Drug Store995.91Discounts earned$ 361.97Adjusted Gross Income$9,384.59Less Deductions: Contributions$ 75.00Interest353.43Taxes58.43Miscellaneous400.00Total Deductions886.86Net Income$8,497.73Less: Exemptions (4)2,000.00Income subject to tax$6,497.73Tax Liability$1,433.95 Petitioner's Federal income tax return filed for the year 1948 disclosed income, and tax due thereon, as follows: Salary$ 3,525.00Gross Rents$ 4,545.19Less: Depr., Repairs, etc.2,211.75Net Rental Income2,333.44Sales - Drug Store$140,989.82Less: Cost of goods sold$109,481.19Other expenses34,314.04143,795.23Net Loss - Drug Store(2,805.41)Loss on sale of business assets( 450.00)Adjusted Gross Income$ 2,603.03Less Deductions: Contributions$ 150.00Interest1,002.88Taxes531.01Total Deductions1,683.89Net Income$ 919.14Less: Exemptions (3)1,800.00Income subject to tax$ NoneTax Liability$ NoneOn *300 their Federal income tax return filed for the year 1949, R. G. and Vennie V. Wheeler disclosed income, and tax due thereon, as follows: Salary$ 5,181.00Gross Rents$ 6,606.27Less: Depr., repairs, etc.5,632.96Net Rental Income973.31Drug Store Income: 490 Ponce de Leon Ave: Sales$50,743.81Less: Cost of goods sold$39,642.12Other expenses9,466.9149,109.03Net Income - 490 Ponce de Leon1,634.78122 Ponce de Leon Ave.: Sales$54,774.01Less: Cost of goods sold$41,919.29Other expenses8,341.9350,261.22Net Income - 122 Ponce de Leon4,512.791061 Ponce de Leon Ave.: Sales$67,770.12Less: Cost of goods sold$44,657.64Other expenses22,295.2066,952.84Net Income - 1061 Ponce de Leon$ 817.28Loss on sale of business assets(678.44)Adjusted Gross Income$12,440.72Less Deductions: Contributions$ 222.00Interest1,505.93Taxes1,473.11Total Deductions3,201.04Net Income$ 9,239.68Less: Exemptions (4)2,400.00Income subject to tax$ 6,839.68Tax Liability$ 1,213.76 On their original Federal income tax return filed for the year 1950, the petitioners disclosed income, and tax due thereon, as follows: Salary$ 4,000.00Gross Rents$ 7,837.22Less: Depr., repairs, etc.6,353.87Net Rental Income1,483.35Drug Store Income: 1061 Ponce de Leon Ave.: Sales$288,657.63Less: Cost of goods sold$207,986.00Other expenses70,733.52278,719.52Net Income - 1061 Ponce de Leon9,938.11West Palm Beach, Fla.: Sales10,789.45Less: Cost of goods sold8,305.58Other expenses5,302.6013,608.18Net Income - West Palm Beach(2,818.73)Adjusted Gross Income$12,602.73Less Deductions: Contributions404.00Interest1,160.93Taxes1,405.18Losses737.00Total Deductions3,707.11Net Income$ 8,895.62Less: Exemptions (4)2,400.00Income subject to tax$ 6,495.62Tax Liability$ 1,195.64On *301 their amended Federal income tax return filed for the year 1950, the petitioners disclosed income, and tax due thereon, as follows: Salary$ 4,000.00Gross Rents$ 7,837.22Less: Depr., repairs, etc.6,247.41Net Rental Income1,589.81Drug Store Income: 1061 Ponce de Leon Ave.: Sales$288,657.63Less: Cost of goods sold$207,936.00Other expenses70,733.52278,719.52Net Income - 1061 Ponce de Leon$ 9,938.11Gain on sale of assets8,995.00$24,522.92Less: 50% of capital gain4,497.50Adjusted Gross Income$20,025.42Less Deductions: Contributions$ 404.00Interest1,160.93Taxes1,405.18Losses737.00Total Deductions3,707.11Net Income$16,318.31Less: Exemptions (4)2,400.00Income subject to tax$13,918.31Tax Liability$ 2,966.88 The net worth computation discloses all of the petitioners' assets and liabilities. The petitioners had no undiscovered assets, such as money, in safe-deposit boxes or elsewhere. R. G. did not have any undeposited cash on hand at the end of the years 1944 to 1948, inclusive, with the exception of the $3,000 which was held in trust by the Clerk of the United States District Court, Atlanta, Georgia, at the end of 1949. R. G. and Vennie V. did not have any undeposited cash on hand at the end *302 of the years 1948, 1949 and 1950. The petitioners did not receive any money or property from gifts, inheritances, or other nontaxable sources in any of the years 1945 to 1950, inclusive. On or about November 15, 1941, Wheeler filled out and filed a financial statement with the Fulton National Bank, Atlanta. This financial statement disclosed, in part, the following information: R. G. Wheeler Financial Condition at November 15, 1941 AssetsCash in Bank$ 500.00Accounts Receivable300.00Merchandise4,000.00Fixtures and Equipment6,300.00Real Estate15,750.00Automobile800.00Rents Receivable - $45 permonth540.00Total Assets$28,190.00LiabilitiesNotes Payable$ 2,110.48Balance on Fixtures700.00For Merchandise2,000.00On Car120.00Real Estate Mortgage8,339.52Total Liabilities$13,270.00Net Worth$14,920.00 On or about January 17, 1947, Wheeler filled out and filed a financial statement with the loan department of the Fulton National Bank, Atlanta, showing his financial condition at December 31, 1946. This financial statement disclosed the following: R. G. Wheeler Financial Condition at December 31, 1946 AssetsCash on hand and in banks$ 15,032.67U.S. Bonds2,000.00Real Estate - 1310 Emory Road25,000.00Automobiles3,500.00Personal Property5,000.00Peachtree Pharmacy, 557 PeachtreeSt.35,000.00Wheeler's Pharmacy, 490 Ponce deLeon Ave.35,000.00Wheeler's Pharmacy, 1236 Broad-way, Columbus, Ga.30,000.00Total Assets$145,532.67 **303 LiabilitiesMortgages Payable - Real Estate$ 5,000.00Net Worth$140,532.67 *On October 1, 1948, Wheeler filled out and filed a financial statement with the loan department at the Fulton National Bank, Atlanta. This financial statement disclosed, in part, the following: R. G. Wheeler Financial Condition at October 1, 1948 AssetsCash on hand and in banks$ 25,000.00Loans Receivable500.00Accounts Receivable - Merchandise1,040.00U.S. Bonds5,000.00Real Estate75,000.00Other Assets120,000.001948 Packard$3,900.001947 Cadillac3,700.001947 Ford1,445.009,045.00Total Assets$235,585.00LiabilitiesNotes Payable - Banks$ 10,000.00Accounts Payable - Merchandise7,500.00Accounts Payable - Other1,900.00Real Estate Mortgages24,200.00Total Liabilities$ 43,600.00Net Worth$191,985.00Life Insurance Payable - Estate$ 40,000.00Other Financial InformationMonthly Income - Salary$ 900.00Monthly Income - Rents800.00Annual Sales275,000.00Net Profit for Year27,500.00 Thomas Bartlett worked as a bookkeeper for Wheeler during the years 1949, 1950 and 1951. He kept single entry books for Wheeler's Peachtree Pharmacy, Inc., 557 Peachtree Street, and the 1061 Ponce de Leon Avenue store on a part-time basis. Bartlett made entries to a journal book from information *304 supplied to him by Wheeler in the form of a daily report sheet. Bartlett never checked the cash register, saw the cash register tapes, made deposits, nor handled any checks or cash. Wheeler made all deposits and, on occasion, the cash deposits for a day exceeded the sales figure for that day as supplied to Bartlett. On occasion, Wheeler paid personal bills with store funds. Vennie V. was paid a salary of $35 per week for each of the years 1945 to 1950, inclusive, from which no social security or withholding taxes were deducted. R. G. Wheeler was convicted, upon his plea of not guilty, on an indictment for criminally evading Federal income taxes for the year 1948. R. G. was convicted, upon his plea of nolo contendere, on an indictment for criminally evading Federal income taxes for the year 1949. In January 1950, the United States District Court for the Northern District of Georgia convicted R. G. Wheeler of violating the Harrison Narcotics Act. On March 4, 1946, the United States District Court for the Middle District of Georgia found R. G. Wheeler guilty of violating the Federal Food, Drug and Cosmetic Act. On March 3, 1956, Wheeler was found guilty by the United States District Court *305 for the Southern District of Florida on an indictment charging that he, while owner of a drug store, refilled prescriptions without having an authorization from the prescriber. R. G. and Vennie V. Wheeler failed to file a declaration of estimated tax for 1949. R. G. failed to file a declaration of estimated tax for the years 1945, 1946 and 1947. R. G. filed a declaration of estimated tax for the year 1948 showing an estimated tax liability in the amount of $400. R. G. and Vennie filed a declaration of estimated tax for the year 1950 showing an estimated tax liability in the amount of $1,000. The notice of deficiency applicable to the taxable years 1945, 1946, 1947, and 1948 was issued to R. G. Wheeler on June 27, 1958. The notice of deficiency applicable to the taxable years 1949 and 1950 was mailed to the petitioners on June 27, 1958. The petitioners did not maintain records that properly and accurately reflected taxable income from all sources from which income was received during each of the years 1945 to 1950, inclusive. R. G. Wheeler's correct net income for the years 1945 to 1948, inclusive, and the understatement of his income on his Federal income tax returns are as follows: *306 Net IncomeNet IncomeUnderstate-YearReportedCorrectedment1945$2,187.73$20,438.95$18,251.221946No Return8,006.778,006.7719478,497.7342,643.4034,145.671948919.1418,723.0517,803.91R. G. and Vennie V. Wheeler's correct net income for the years 1949 and 1950 and the understatement of their income on their Federal income tax returns are as follows: Net IncomeNet IncomeUnderYearReportedCorrectedstatement1949$9,239.68$48,210.69$38,971.0119508,895.62 (orig.)17,925.529,029.90Each of the Federal income tax returns filed by R. G. Wheeler for the years 1945, 1947 and 1948 and by R. G. and Vennie V. Wheeler for the years 1949 and 1950 were false and fraudulent and were filed with willful intent to evade taxes. R. G. Wheeler fraudulently failed to file a Federal income tax return for the year 1946 with willful intent to evade taxes. Some part of the deficiency for each of the years 1945 to 1950, inclusive, is due to fraud with intent to evade the payment of Federal income taxes. Petitioner failed to file an income tax return for 1946 within the time prescribed by law. Opinion 1. Use of Net Worth and Expenditures Method  We have considered so frequently the circumstances under which application of *307 the net worth and expenditures method is appropriate that an extended discussion here would serve no useful purpose. We think that an examination of our Findings demonstrates that the method should be approved here, both as a test of the accuracy of petitioner's returns and as valuable evidence of his correct net income.  . Moreover, the occasion for its use here arose out of petitioner's own failure to keep adequate records which would have clearly reflected income. We might add that this appears to be a typical case calling for the net worth method. Moreover, no better or more appropriate method is suggested upon the facts of this case. We approve respondent's use of the method in the case before us. II. Fraud (Additions to Tax)  In considering the issue of fraud, there are a few basic principles which we must keep in the forefront of our minds. The burden of proof on this issue rests upon respondent to prove by clear and convincing evidence that there is a deficiency in the year or years in question and that some part of each such deficiency is due to fraud with intent to evade taxes. Respondent is not permitted to rely upon his own determination *308 as a basis for sustaining his burden. On the other hand, neither he nor we are limited to or circumscribed by his own evidence. In deciding the issue, we may consider the entire record properly before us. Respondent may (and usually must) rely upon circumstantial evidence at least to some extent. Respondent need prove only that some part of each deficiency in issue is due to fraud.    In his effort to meet his burden of proof of fraud, respondent relies largely upon the following as indicia: Failure to keep books and records of many income-producing activities; substantial increases in net worth over a long period of years greatly in excess of amounts of income reported;  failure to report capital gains for 1949 and 1950. Respondent also urges and we agree that Wheeler was an intelligent businessman, fully familiar with his own affairs; and that it could not have been possible for him to have reported such substantial and repeated understatements of income without full knowledge of what he was doing. We have summarized quite briefly the contentions of respondent, because to do otherwise would be to repeat, in substance, all of the detailed facts in our Findings. *309 We are satisfied, however, by our own examination of the record that respondent has established for each of the years in question, by clear and convincing evidence, that there was a deficiency for each of said years; and that some part of each deficiency was due to fraud on the part of Wheeler with intent to evade his taxes. Respondent also points to the conviction of Wheeler by a jury of violation of the income tax law for 1948, a plea of nolo contendere and conviction for 1949, also for a tax violation (an acquittal for 1950) and several other convictions, one in 1946 for violation of the Federal Food Drug and Cosmetic Act; another in 1950 for violation of the Harrison Narcotic Act, and in 1956 for refilling prescriptions without authorization. Respondent urges that these convictions are affirmative evidence of fraud, and that as to the 1948 conviction, Wheeler is estopped to deny fraud. We find no occasion to pass on these issues because we have found fraud independent thereof as far as this case is concerned. We might well have considered said convictions in connection with Wheeler's credibility, but we are satisfied that we would have reached the same conclusion on the merits *310 whether the convictions were before us or not. We add that petitioner has offered no acceptable evidence or explanation of the actions from which fraud may readily be inferred. Under the circumstances, we sustain respondent on the issues in relation to additions to tax for fraud for each of the years in question. See section 293(b) of the 1939 Code. III. Limitations  We hold that the statute of limitations for assessment and collection of deficiencies has not expired as to any of the years involved. Petitioner filed no return for 1946, and the provisions of section 276(a) apply. As to 1945 and 1947 to 1950, inclusive, we find that the returns in questions were false and fraudulent with intent to evade taxes. Our holding of fraud here is based upon the same circumstances from which we found here is based upon the same circumstances from which we found fraud in determining additions to tax, supra, and we need not repeat our views here. Section 276(a) again applies. We therefore sustain respondent on the issue of limitations as to all years in issue. IV. Deficiencies - Income Tax  As to deficiencies in income taxes the burden of proof is on petitioner to demonstrate error in respondent's *311 determination which is presumed to be correct. We think it clear that petitioner has failed to meet his burden. We therefore sustain respondent's determination of deficiencies in income taxes for each of the years in issue. V. Additions to Tax (Other Than for Fraud)  Petitioners have failed to prove error on the part of respondent in determining additions to tax provided by section 291(a) for the year 1946; additions to tax provided by section 294(d)(1)(A) for the years 1945, 1946, 1947 and 1949, and additions to tax provided by section 294(d)(2) for the years 1948 and 1950. Since the burden of proof of error in these respects rests with petitioner, his failure to prove error requires us to sustain respondent as to such determinations. Issues and items disposed of by stipulation, concession or agreement of the parties will be reflected in the computation under Rule 50. Decisions will be entered under Rule 50.  Footnotes1. All Code section references are to the Internal Revenue Code of 1939, unless otherwise stated.↩*. R. G. Wheeler owned one-half of the Columbus Store at December 31, 1944, all of it at December 31, 1945, and one-half at December 31, 1946. The store was sold in 1947.↩*. This furniture was purchased in 1944 at a cost of $3,500 for the property located at 1310 Emory Road. The petitioners used one-half of the house and furnishings in 1946 and 1947 and in 1948 removed one-half of the furnishings. This property was sold in 1950.↩***. 1947 Cadillac purchased 1950 for daughter, traded on 1950 Pontiac 10-31-50.↩*. State Return↩*. $5,000 error in addition in statement as filed.