Court Opinion

ID: 4634361
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:15:50.907931+00
Date Added: 2024-06-11T07:58:12.386116
License: Public Domain

Benjamin L. Selig and Lorene Selig v. Commissioner.Selig v. CommissionerDocket No. 7018-65.United States Tax CourtT.C. Memo 1968-106; 1968 Tax Ct. Memo LEXIS 192; 27 T.C.M. (CCH) 522; T.C.M. (RIA) 68106; June 5, 1968. Filed Benjamin L. Selig, pro se, 368 S. Meridian St., Indianapolis, Ind., George P. Adinamis, for the respondent.  DAWSONMemorandum Findings of Fact and Opinion DAWSON, Judge: Respondent determined that the petitioners are liable for the following income tax deficiencies and additions to tax: Taxable YearDeficiencyAddition to Tax Sec.6653(a), I.R.C. 19541961$4,252.95$225.2019622,946.58147.331963198.999.95There are two issues for decision: (1) Whether petitioners had unreported taxable income, as determined by the net worth method, for the years in question; and (2) whether petitioners are liable for the additions to tax under section 6653(a), Internal Revenue Code*193  of 1954. Findings of Fact Benjamin L. Selig and Lorene Selig (herein called petitioners) are husband and wife whose legal residence was in Indianapolis, Indiana, at the time they filed their petition in this proceeding. Petitioners filed joint Federal income tax returns for the years 1961, 1962, and 1963 with the district director of internal revenue at Indianapolis, Indiana. During the years in issue Benjamin L. Selig (herein called petitioner) was the owner and operator of Esse Radio Company, located at 368 South Meridian Street in Indianapolis. Schedule C (Profit or Loss From Business or Profession) attached to each income tax return of petitioners shows gross receipts and net profit or loss, as follows: 196119621963GrossReceipts$99,089.87$199,272.62$136,698.03Net Profit(Loss)5,468.89(11,654.40)(9,602.12)Petitioners reported the following taxable income and tax liability on their Federal income tax returns: 196119621963TaxableIncome$5,753.55TaxLiability1,185.78During the years in issue petitioners engaged in several transactions involving the sales of real estate on contracts. *194  They received income from such sales. Petitioners did not keep adequate books and records of their taxable income and expenditures. Consequently, respondent reconstructed their taxable income on the basis of increases and decreases in net worth during the years 1961 through 1963 with adjustments for personal and other nondeductible amounts paid. This determination of taxable income is as follows: 523ASSETS:12-31-6012-31-6112-31-6212-31-63Cash (Esse Radio Bank Account)$ (9,381.79)$ (8,446.29)$ (2,582.65)$ 3,360.54Cash (Personal Bank Account)97.17500.89410.101,406.78Cash on Hand3,680.003,100.002,400.002,600.00Petty Cash & Register Change310.00310.00310.00310.00Accounts Receivable(265.84)(10,028.23)2,186.074,474.82C.O.D. Receivables(603.65)(1,053.45)389.55893.85Layaways Receivable70.0070.0000Inventory35,783.2937,013.1841,213.0036,361.70Deposits on Personal Contracts703.862,020.94191.111,144.32Employees Accounts Receivables7.40(16.60)35.0055.00Furniture & Fixtures5,881.546,185.616,185.616,185.61Res. for Dep. of F & F(3,565.29)(4,094.28)(4,712.84)(5,331.40)Auto Equipment15,576.7219,238.1223,460.9227,560.92Res. for Dep. of Auto Equip.(4,093.70)(4,008.77)(6,098.47)(12,260.94)Airplane28,985.0028,985.0029,885.0029,885.00Res. for Dep. of Airplane(8,225.00)(12,925.00)(4,150.69)(9,131.52)Prepaid Insurance582.82000Farm Buildings (Madison)5,100.005,100.005,100.005,100.00Farm Improvement (Madison)1,131.001,131.001,131.001,131.00Res. for Dep. Farm Buildings & Im- provements(1,314.48)(1,563.72)(1,812.96)(2,062.20)Land (Madison)6,900.005,700.005,700.005,700.00Tools & Dies0825.00825.00825.00Cement Floor01,000.001,000.001,000.00Res. for Dep. of T. & D. and Cement Floor0(147.96)(472.96)(797.96)Utility Deposits121.74121.74121.74121.7442 W. South Street5,000.005,000.005,000.005,000.004701 E. Kessler19,000.0019,000.0019,000.0019,000.00Contract Rec. 3002 Arbor Ave.2,715.622,481.6900Contract Rec. R.R. 1, Camby8,264.767,840.747,424.297,424.29Contract Rec. 1206 S. Chester8,450.008,104.057,964.767,730.95Contract Rec. 6226 Coburn12,286.2812,139.2711,981.7811,833.08Contract Rec. R.R. 5, Columbus1,966.161,495.7000Contract Rec. 1126 S. Drexel (cost)4,165.004,500.004,458.594,193.13Contract Rec. 6515 E. 42nd4,780.904,388.823,967.520Contract Rec. 221 W. Hampton012,500.0011,775.0011,639.86Contract Rec. 8006 E. 47th (cost)4,928.874,396.364,159.973,915.74Contract Rec. 713 N. Harbison12,611.3012,227.4910,222.9710,093.42Contract Rec. 4840 Kenyon Dr.012,691.6212,375.0912,107.00Contract Rec. 324 S. Lasalle1,628.391,133.87604.1336.65Contract Rec. 225 S. McKim4,694.424,188.033,566.172,923.74Contract Rec. 4719 Munster Lane (cost)13,360.0013,740.9613,611.9613,611.96Contract Rec. 6405 N. Oxford12,979.1512,782.5912,574.0911,331.00(cost)Contract Rec. 1330 W. Pruitt (cost)2,330.563,139.00/2,330.560Contract Rec. 2034 S. Sherman (cost)2,615.483,645.653,416.913,172.27Contract Rec. 420 N. Vine02,381.922,289.923,943.63Contract Rec. 5432 E. 16th St.011,500.0011,278.9311,262.56Contract Rec. 6524 Sunset Cir.013,330.2900(cost)(cost)Contract Rec. 3311 N. Wallace (cost)8,444.758,444.75/13,620.0013,108.60Contract Rec. 326 S. Webster11,509.7211,140.6010,841.6010,533.13Contract Rec. 634 N. Pine005,977.503,700.00(cost)Union Federal S. & L.11,547.0211,340.989,600.875,997.60Contract Rec. 1302 S. Belmont007,319.026,969.56Gross Income Tax Refund Rec.312.47312.4700Unrealized Profit on Contract Sales(24,313.52)(31,041.05)(36,278.87)(33,946.08)Refund Rec. I.R.S. 3,554.070600.000Total Assets $210,312.19$241,822.98$260,396.29$244,114.35*195 LIABILITIES:12-31-6012-31-6112-31-6212-31-63Accounts Payable (Not trade)$ 24,706.22$ 24,706.22$ 24,706.22$ 24,706.22Notes Payable - Auto1,185.18000Loans Payable Individuals9,000.005,000.00014,000.00Account Payable Arpad Szuecs6,025.006,025.006,025.003,825.00LIABILITIES:12-31-6012-31-6112-31-6212-31-63Customer Refunds Payable(36.22)(73.48)00Outdated O/S Checks1,365.981,365.9800Accrued Fed. W.T.323.57222.35293.22231.54Fed. Unemployment Tax00111.1188.32F.I.C.A. Tax Payable280.80(25.67)045.89State Unemployment Tax003.1338.89Accrued W.T.142.96126.01158.640Accrued State Gross Inc. Tax00119.0342.38Accrued Sal. & Wages5.005.0000Mortgages Pay. Individual15,704.6115,704.6115,704.6115,704.61Mort. Payable 4701 E. Kessler7,546.563,967.85460.330Mort. Payable 42 W. South St.0038,031.8935,970.79Mort. Payable R.R. 1, Camby5,614.265,048.354,527.603,383.40Cont. Payable 1206 S. Chester2,967.392,534.462,074.531,587.00Mort. Payable 6226 Coburn10,663.4610,296.1410,057.646,409.66Mort. Payable 1126 S. Drexel2,836.812,574.702,124.561,779.46Mort. Payable 6515 E. 42nd2,852.802,384.051,954.260Mort. Payable 8006 E. 47th673.57000Mort. Payable 221 W. Hampton08,331.347,831.847,122.57Mort. Payable 713 N. Harbison2,194.171,713.627,111.466,660.42Mort. Payable 4840 Kenyon Dr.010,584.379,555.228,526.07Mort. Payable 1302 S. Belmont003,614.713,243.85Mort. Payable 225 S. McKim1,539.151,265.151,004.150Mort. Payable 4719 Munster Lane11,227.6610,960.0510,679.0910,407.33Mort. Payable 6405 N. Oxford2,112.341,232.04379.200Mort. Payable 1330 W. Pruitt1,335.691,106.64866.610Mort. Payable 5432 E. 16th09,869.009,554.219,224.08Mort. Payable 3311 N. Wallace7,379.727,072.486,748.716,407.52Mort. Payable 326 S. Webster6,540.746,200.625,846.655,478.26Mort. Payable 6524 Sunset Cir.011,488.1100Mort. Payable 634 N. Pine001,202.54659.92Mort. Payable Madison First Federal (Farm)6,971.52000Install. Loan Payable Am. Fletcher0561.60280.800Install. Loan Payable Am. Fletcher00432.000Install. Loan Payable Ind. National000604.52Mort. Payable Plainfield S. & L. (N. Vine) 0549.56361.32161.55Total Liabilities $131,158.94$150,796.15$171,820.28$166,309.25NET WORTH: $ 79,153.25$ 91,026.83$ 88,576.01$ 77,805.10Increase (Decrease)$ 11,873.58$ (2,450.82)[10,770.91)Living Expense Paid by Esse Radio1,700.111,867.49334.03Life Insurance by Personal Bank Acct.2,677.793,429.042,550.74Income Tax Paid by Esse Radio1,156.44600.00251.00Income Tax Paid by Personal Bank Acct.01,401.780Life Insurance Payments by Esse Radio1,292.4500Personal Travel02,740.773,045.16Personal Living Paid by Cash2,500.002,500.002,500.00Living Expense by Personal Bank Acct. 3,978.185,700.085,536.76Adjusted Gross Income$ 25,178.55$ 15,788.34$ 3,446.78Itemized Deductions:Interest724.64730.750Taxes975.68654.31715.80Medical Expense00444.61Personal Exemptions 2,400.002,400.001,800.00Taxable Income$ 21,078.23$ 12,003.28$ 486.37Taxable Income per Return or as Adjusted 6,894.47(7,968.16)(11,509.74)Taxable Income Understated $ 14,183.76$ 19,971.44$ 11,996.11*196  524 The properties located at 3311 North Wallace and 4719 Munster Lane were acquired by petitioners during the taxable year 1961. Petitioners had unreported taxable income in the amounts of $14,183.76 in 1961, $17,221.44 in 1962, and $11,996.11 in 1963.  525 Opinion In his notice of deficiency dated September 28, 1965, respondent determined deficiencies in the income taxes of petitioners for the years 1961, 1962, and 1963 by the net worth method. The use of this method is fully justified in determining the taxable net income of a taxpayer when adequate books and records are not maintained or when they are incomplete, inaccurate, or false. See section 446(b), Internal Revenue Code of 1954; Holland v. United States, 348 U.S. 121">348 U.S. 121 (1954); Cefalu v. Commissioner, 276 F. 2d 122 (C.A. 5, 1960), affirming a Memorandum Opinion of this Court; and Morris Lipsitz, 21 T.C. 917">21 T.C. 917, 931 (1954), affd.  220 F. 2d 871 (C.A. 4, 1955), certiorari denied, 350 U.S. 845">350 U.S. 845. That is the situation here. Since the petitioners had inadequate books and records, respondent used the net worth method to determine taxable*197  net income. At the trial, respondent conceded that petitioners' unreported taxable income for the year 1962 was $17,221.44 instead of $19,971.44 as originally determined. Respondent's determination carries a presumption of correctness unless clearly shown to be erroneous. The burden of proof is upon the petitioners to overcome the presumptive correctness of such deficiencies.  Anderson v. Commissioner, 250 F. 2d 242 (C.A. 5, 1957); and Lawrence Sunbrock, 48 T.C. 55">48 T.C. 55 (1967). Petitioner stated that he agreed with the net worth statement except for the amounts receivable on two real estate contracts and an additional $6,000 loan allegedly obtained from Arpad Szuecs. It is clear from the testimony of petitioner and his brother, Stanley, and from the deeds received in evidence, that the properties located at 3311 North Wallace and 4719 Munster Lane were not obtained until the year 1961. However, this does not help the petitioners because it increases rather than decreases their net worth. There is no credible evidence to support the claimed additional $6,000 loan payable to Arpad Szuecs. Accordingly, we hold on this record that the petitioners had unreported*198  taxable income in the amounts shown in our findings of fact. Petitioners have presented no evidence with respect to the additions to tax under section 6653(a). Therefore, we decide this issue for respondent. The correct amounts of the additions to tax can be determined in the Rule 50 computation. To reflect the concession made by respondent, Decision will be entered under Rule 50.