Court Opinion

ID: 4631837
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:10:28.563675+00
Date Added: 2024-06-11T07:57:47.310977
License: Public Domain

Dennis Halkias and Julia Halkias, His Wife, Petitioners, v. Commissioner of Internal Revenue, RespondentHalkias v. CommissionerDocket No. 17444United States Tax Court12 T.C. 1091; 1949 U.S. Tax Ct. LEXIS 155; June 21, 1949, Promulgated *155 Decision will be entered for the respondent.  Income -- Joint Venture -- Evidence of Participation.  -- One who willingly or through indifference allows others to use his funds and then acknowledges that he was a joint venturer with them, entitled to a share of the remaining assets of the joint venture, must be recognized as a joint venturer despite his protestations of ignorance of the whole situation.  Gregory G. Lagakos, Esq., for the petitioners.Karl W. Windhorst, Esq., for the respondent.  Murdock, Judge.  MURDOCK *1091  The Commissioner determined for the calendar year 1943 a deficiency in income tax of $ 701.29 and a 5 per cent addition thereto in the amount of $ 71.18 for negligence.  The petitioners assign as error the action of the Commissioner in adding $ 1,875.21 to income as reported for 1942 and $ 1,282.97 to income as reported for 1943 to represent the petitioner's share of the income of a joint venture.FINDINGS OF FACT.The petitioners are Dennis and Julia Halkias, husband and wife.  The husband is referred to herein as the petitioner.  They signed and filed a joint income and victory tax return for 1943 with the collector of internal revenue for *156 the first district of Pennsylvania on March 15, 1944.  They signed and filed similar returns for 1942 and 1944.  Their returns for 1942 and 1943 were prepared by Louis J. De Olden.  The 1944 return was prepared by Leon B. Bernstein.  The returns were filed on a cash receipts and disbursements basis.Salaries were reported on those returns as follows:194219431944Liberty Laundry Co$ 6,625$ 6,500$ 5,192Central Victory Coat & Apron Supply Co6,1486,0325,449Total12,77312,53210,641Tax in the amount of $ 2,904.32 shown on the petitioner's joint return for 1942 was paid by Liberty, Central, or the joint venture, and charged to the petitioner.  Tax in the amount of $ 696.12 was shown on the petitioner's return for 1943.  Central withheld income tax on wages of the petitioner for the calendar year 1943 in the amount of $ 605.80 and paid that amount to the Treasury Department.  The additional tax for 1943 shown on the return was paid by Liberty, Central, or the joint venture and was charged to the petitioner.*1092  The record does not show how much salary the petitioner received in 1942 or 1943, but the total salary which he received in each of*157  those years was substantially less than the total salaries shown on his returns.  He did not actually receive any salary from Liberty during 1942 or 1943.Liberty, on its returns for fiscal years ended June 30, claimed deductions for salary of the petitioner in the amounts of $ 5,200 for 1942, $ 6,625 for 1943, and $ 6,000 for 1944.The petitioner was secretary of each of the two companies mentioned above during the taxable year and prior thereto.  The record does not show what services he performed, if any, for either corporation or what salary, if any, either had agreed to pay him.  He also owned a few shares of stock in each company.  His brother, Theodore Halkias, was president of Liberty and manager and dominating person in each of the companies until his death in July 1944.  George Ambel was president of Central during 1943 and prior thereto.  Louis J. De Olden was an officer of each of the companies, in charge of the books during 1943 and prior thereto, and office manager of Liberty during that period.  James Kathiotes was treasurer of each of the companies during 1943 and prior thereto.Two attorneys at law wrote to the internal revenue agent in charge of the Philadelphia *158  division on April 16, 1945, stating that they represented James Kathiotes, George Ambel, Louis J. De Olden, Liberty, Central, Alpha Coat & Apron Supply Co., and Mercury Rug Cleansing Co. and were authorized by their clients to disclose to the Bureau of Internal Revenue various transactions "which may not have been properly reflected or treated in their respective individual or corporate income tax returns." The attorneys further stated that the transactions also involved "a joint venture to which the individuals above named, Theodore Halkias, now deceased, and Dennis Halkias were participants"; "It appears that the corporations on their books and in their income tax returns have, for a number of years, overstated various expenses and understated their income in various particulars.  Further, no tax returns were filed for the joint venture"; and it is difficult to determine the correct tax liabilities due to the involved nature of the transactions and to the confused relationship of the taxpayers; therefore, the voluntary disclosure is being made so that the Bureau can determine the correct tax liabilities. There was attached to the letter a summary analysis of receipts of the joint*159  venture for the years 1936 through 1944, a copy of an agreement dated June 21, 1944, and a supplemental agreement dated June 23, 1944.The summary analysis of receipts set forth annual contributions from each of the participants for each of the years 1936 through 1944, except that no contribution was shown for Ambel for 1943 or 1944, *1093  and none for Kathiotes for 1944.  It was stated that these contributions were principally from salaries. The total of the contributions shown was as follows:Theodore Halkias$ 15,759.73James Kathiotes13,511.15George Ambel10,856.05Dennis Halkias37,837.83Louis J. De Olden46,192.45It also showed funds derived from overstatement of expenses and costs of fixed assets, from understatement of income, and income of the joint venture from "Interest, Commissions, Etc.," and "Stock Dividends Received." The total income shown for 1942 was $ 4,318 and for 1943 $ 399.87.The petitioner did not report for 1943, or for any prior year, any portion of the income from any joint venture. He believed prior to 1944 that his income taxes were being paid out of money due him from Central and that about $ 20 of his weekly wages was being *160  withheld by Central for that purpose.The parties to the agreement of June 21, 1944, and the supplemental agreement dated June 23, 1944, were Kathiotes, Ambel, De Olden, and Dennis Halkias.  The agreement recited that those persons, together with Theodore Halkias, had been participants in a joint venture since 1937 or prior thereto, as a result of which they were the owners of certain assets subject to certain liabilities and they were desirous of paying the liabilities and distributing the balance of the assets.  The agreement provided how that should be accomplished so as to distribute cash and shares of stock of Liberty and Central among the participants.  The agreement also contained mutual releases.  Attached to the agreement was a statement showing the status of the joint venture account as of June 21, 1944.  The agreement indicated that Dennis Halkias was to receive $ 3,998.08 in cash and $ 6,010 represented by shares of stock.The petitioner, at some time after 1943 not shown by the record, received as a distribution from the joint venture cash in the amount of about $ 4,000 and an undisclosed number of shares of stock of Liberty and Central.Returns for the joint venture for*161  1942 and 1943 were filed on May 15, 1946, with the collector of internal revenue for the first district of Pennsylvania.  The return for 1942 showed distributable income of $ 27,882.27, of which the petitioner's share was $ 1,835.21, and the return for 1943 showed distributable income of $ 19,492.17, of which the petitioner's share was $ 1,282.97.  The Commissioner, in determining the deficiency against the petitioner for 1943, included those amounts as income of the petitioner for those years.A part of the deficiency is due to negligence.*1094  OPINION.The Commissioner has determined that the petitioner's distributable shares of the income of the joint venture for 1942 and 1943 were certain amounts.  The petitioner has not argued or offered evidence to show that the income of the joint venture for those years was less than the amounts determined by the Commissioner.  The statute provides that a joint venture shall file an information return as if it were a partnership and each participant shall report his distributive share of the income, whether distributed or not.  Secs. 182 and 3797 (a) (2).  Thus, a joint venturer does not escape tax on his distributive share merely because*162  it did not actually come into his hands or even because he did not determine what his share was.  Nor can he escape tax on his share of the income for some intervening year merely because in some prior year he may have put more into the joint venture than he finally got out of it in a later year.  In other words, the annual net income of the joint venture is taxable to the joint venturers in that year.  Here the joint venture had income during 1942 and 1943 which was taxable to someone.  The question is whether this petitioner was a member of the joint venture during those years so that a part of the income was taxable to him.The petitioner contends that he had no knowledge during 1943 or prior thereto that any funds of his were being used in a joint venture, that he was a member of a group operating as a joint venture, or that there was any joint venture in operation in which he had an interest.  The disclosure, which was made just before his brother's death in 1944, that a large fund was in existence and that it belonged to a joint venture in which he was recognized as a participant because portions of his salary had been contributed to and used in the joint venture, came, he says, *163  as a complete surprise to him.  He concludes that he could not be taxed upon income of the joint venture for 1942 and 1943 under such circumstances.  There is some evidence to support his contention that he did not know what was going on, but there is other evidence to show that he knew something about the joint venture all along.The case is rather unusual, and it is difficult to determine, from observing the witnesses and from the record as a whole, just how ignorant or how informed the petitioner was, prior to 1944, of the improper, dishonest, and illegal accounting and financial transactions which were taking place.  However, several important facts are clear enough.  The petitioner was secretary of each of the two corporations.  He insists that he received all of his salary from one corporation.  The amount of the salary admittedly received by him would indicate that he was not a dummy officer or employee.  He does not contend herein *1095  that he was not entitled to or taxable on the much larger amounts of salaries which he reported for 1942 and 1943, although he failed to receive large portions of those salaries. The inference, that he voluntarily and consciously permitted*164  the active joint venturers to use those funds, naturally arises from these circumstances.  De Olden testified that the petitioner was aware of what was going on.  The petitioner offers inadequate excuses for signing his returns and the June 1944 agreements and for receiving a distribution from the joint venture. He wanted to have and he obtained his share of the joint venture funds.  He ratified the acts of those who had conducted the joint venture in his behalf by signing the settlement agreements in June 1944 and by taking his share of the remaining assets of the joint venture. One who willingly or through indifference allows others to use his funds and then acknowledges that he was a joint venturer with them, entitled to a share of the remaining assets of the joint venture, must be recognized as a joint venturer despite his protestations of ignorance of the whole situation.No separate argument was made on the negligence issue.  Apparently the petitioner's thought is that it will depend upon the main issue.  The determination of the Commissioner will not be disturbed.Decision will be entered for the respondent.