Date	Check	Name of Drawer	Amount	Dividend Income
of Check	No.		Disallowed
				Hymen	Mervyn
1-25-62	7050	Partnership	$1,767.00
2- 9-62	7135	Partnership	1,222.90
4- 9-62	7482	Partnership	2,305.70
6- 1-62	7737	Partnership	1,615.70
6-30-62	7905	Partnership	100.00
			$7,011.30 ^{8- 6-62}	132	Mink Bag	$2,222.80	$1,111.40	$1,111.40
9- 6-62	283	Mink Bag	250.00	250.00
10-18-62	528	Mink Bag	635.00	317.50	317.50
10-30-62	608	Mink Bag	270.00	270.00
12-10-62	795	Mink Bag	220.00	220.00
12-21-62	883	Mink Bag	300.00	300.00
			$3,897.80 ^$2,468.90	$1,428.90
1- 2-63	928	Mink Bag	$ 655.00		$ 655.00
1-28-63	1047	Mink Bag	600.00	$300.00	300.00
1-28-63	1118	Mink Bag	640.00	640.00
3- 8-63	1293	Mink Bag	700.00	350.00	350.00
6-14-63	1850	Mink Bag	417.00	417.00
			$3,012.00 8	$1,707.00	$1,305.00
7-30-63	2075	Mink Bag	$ 333.75	$ 333.75
9-25-63	2311	Mink Bag	370.00	370.00
10-14-63	2454	Mink Bag	267.00	267.00
10-28-63	2542	Mink Bag	55.00	55.00
11-15-63	2643	Mink Bag	160.00	160.00
12- 6-63	2738	Mink Bag	280.00	280.00
12-27-63	2795	Mink Bag	156.42	156.42
			$1,622.17 ^$1,622.17

*193

During the years 1962 and 1963, Hymen did not personally own an automobile. However, he had available for both business and personal use a car owned either by the partnership or Mink Bag. Hymen Mink's doctor advised him to start using a car rather than a truck while making deliveries and pickups for petitioner-corporation. Thereafter, Hymen began to drive a Chevrolet station wagon which was owned by petitioner-corporation. During the work week, Hymen commuted to work in this car and used it primarily for business. On week nights and weekends the station wagon was used for Hymen's personal affairs, and it was this car which he drove to Miami Beach where he vacationed for several weeks in the early part of 1963. Mervyn Mink did not use the station wagon during the period involved.

No records as to maintenance costs or mileage were kept by petitioners*194 with 783 respect to the car that Hymen drove during the period involved herein.

During 1963, petitioner-corporation allegedly purchased liquor in Florida costing $75.19 for later distribution to customers. Sometime in February 1963, Hymen traveled to Miami Beach for a vacation and did not return until April 1963. Petitioner-corporation in its fiscal year ended June 30, 1963, reimbursed Hymen $329.53 for some of the expenses incurred on the Florida trip. Both the liquor purchases and the expenses of the Florida trip were disallowed by respondent as not being ordinary and necessary expenses of petitioner-corporation and were treated as taxable dividend income to Hymen.

Opinion

During the first six months of 1962, petitioners, Hymen and Mervyn Mink, were equal partners in the H. H. Mink & Son Bag Co. On its return for this period, the partnership reported a deduction in the amount of $7,011.30 for the cost of bags and cartons which were allegedly purchased for cash from the Bleichfeld Bag Co., Inc. A successor corporation, H. H. Mink & Son Bag Co., Inc., was formed on July 1, 1962, and it also claimed deductions for the cost of merchandise allegedly purchased for cash from Bleichfeld*195 Bag during its taxable year ended June 30, 1963, and June 30, 1964, in the amounts of $6,909.80 and $1,622.17, respectively. Respondent increased Hymen's and Mervyn's distributive share of the partnership income by the amount of the alleged cash purchases from Bleichfeld Bag and disallowed the deduction claimed by petitioner-corporation in each year with respect to the cost of the alleged cash purchases. This latter amount was treated as dividend income to Hymen and Mervyn.

Hymen did not own a car during the years 1962 and 1963. However, he had available for either business or personal use a car owned either by the partnership or by petitioner-corporation. The partnership reported a deduction *196 Bag during that period.

Hymen traveled on vacation to Florida sometime in February 1963 and did not return until April 1963. Petitioner-corporation deducted $329.53, a part of the cost of this Florida trip which it had reimbursed to Hymen, on its tax return for the taxable year ended June 30, 1963. Respondent disallowed this deduction as not being an ordinary and necessary expense and allocated the amount deducted to Hymen as the distribution of a dividend.

Respondent also included as a dividend to Hymen the cost ($75.19) of liquor purchased by petitioner-corporation allegedly for distribution as gifts to customers.

1. Cost of Goods Sold

Since most of the issues in this case are subsidiary to the issue of whether the Mink enterprise made cash purchases of merchandise from the Bleichfeld Bag Co., Inc., during the periods involved herein, we shall first direct our attention to that question.

We feel it appropriate to note at the outset that we find no merit in petitioners' contention that respondent's disallowance of these cash purchases was arbitrary and capricious. Respondent acted reasonably*197 in disallowing those purchases for cash which were substantial in amount and not carefully or adequately documented. This alone is not to say, however, that the statutory notices are, in fact, correct. With this in mind, we will proceed to our discussion of these disallowed cash purchases.

The partnership and petitioner-corporation reported the alleged cost of the merchandise purchased for cash from Bleichfeld Bag as part of the cost of goods sold and claimed deductions therefor. Respondent disallowed these claimed deductions on the ground that petitioners failed to substantiate that such purchases were in fact made. It is noted that cash purchases from sources other than Bleichfeld Bag were allowed by respondent.

Respondent contends that petitioners have not sustained their burden of proving that any merchandise was purchased for cash from Bleichfeld Bag during the period at issue. He asserts that the only evidence in support of petitioners, other than some self-serving memoranda and documents, is 784 the "vague, ambiguous, misleading and ofttimes contradictory" testimony of Hymen and Mervyn. Although Howard Weinstein, Hymen's son-in-law, and Robert Van Hall, both employees*198 of the partnership and petitioner-corporation during the years involved herein, also testified, respondent on brief attempted to discredit their testimony as also vague and, at times, contradictory. Since Hymen and Mervyn are interested witnesses, respondent would have us totally discredit their testimony as self-serving and utterly unworthy of belief.

We cannot agree with respondent. We have considered every detail of the record in this case and have exercised great care in evaluating the inconsistencies in some of the details of the testimony of petitioners and their witnesses. However, we are unable to conclude that their testimony is unworthy of belief. It is not within our province to disregard arbitrarily the uncontradicted, unimpeached, competent and relevant testimony of a taxpayer. Banks v. Commissioner, 322 F. 2d 530 (C.A. 8, 1963), reversing and remanding on another issue a Memorandum Opinion of this Court; Jay A. Williams, 28 T.C. 1000">28 T.C. 1000 (1957); Arthus N. Blum, 11 T.C. 101">11 T.C. 101 (1948), affd. 183 F. 2d 281 (C.A. 3, 1950).

Respondent contends, however, that the testimony of Jacob Bleichfeld denying the cash purchases is affirmative*199 proof casting doubt on the testimony of petitioners and their witnesses. Therefore, he argues, the taxpayers' testimony in this case stands contradicted. We do not accept this contention because we entertain very serious doubts as to the credibility of Jacob Bleichfeld, whose testimony was, to say the least, voluble and evasive. His demeanor in testifying created in us grave misgivings as to his sincerity, and we were left with the distinct impression that he was coloring the material facts to which he testified. See Quock Ting v. United States, 140 U.S. 417">140 U.S. 417 (1891). Having considered all this in determining the weight to be accorded his testimony, we conclude that it is Jacob Bleichfeld who is unworthy of belief.

There being no affirmative proof casting doubt on petitioners' testimony, we have carefully weighed the testimony of petitioners and their witnesses, together with the supporting evidence in the record, and we conclude that petitioners have overcome the presumptive correctness of respondent's deficiency notices with regard to cash purchases from Bleichfeld Bag. Arthur N. Blum, supra.

Having decided that the partnership and petitioner-corporation did purchase*200 for cash certain merchandise from Bleichfeld Bag, we must now determine the amount of said purchases. A personal file was maintained by the Mink enterprise on transactions in which Hymen used his own cash for purchases and was later reimbursed. Memoranda relating to these cash transactions and reflecting the type of merchandise acquired, the unit price, quantity, and total price were introduced into evidence. These memoranda consisted for the most part of slips of paper upon which the above-mentioned information was jotted down. These slips of paper accounted for only $4,892.07 of the total $15,543.27 in cash purchases which the Mink enterprise made from Bleichfeld Bag during the period beginning January 1, 1962, and ending June 30, 1964. Hymen and Mervyn Mink testified that memoranda reflecting the other cash purchases had been lost or misplaced prior to trial. However, the check stubs relating thereto showed that the payee was Bleichfeld Bag and that the payments were for cash purchases therefrom. We have no reason to doubt their testimony and, in view of the relatively informal manner in which Hymen and Mervyn conducted the affairs of the Mink enterprise, we do not find this explanation*201 so improbable as to warrant our rejecting it.

Accordingly, we hold that petitioner-corporation and the predecessor partnership were entitled to deduct the total $15,543.27 in cash purchases which the Mink enterprise made from Bleichfeld Bag during the period beginning January 1, 1962, and ending June 30, 1964.

2. Allocation of Income

In view of the fact that we have held above that the petitioners have sustained their burden of proof as to $15,543.27 in purchases which the partnership and petitioner-corporation made from Bleichfeld Bag, it follows that there is no additional income to be allocated to Hymen and Mervyn as a result of these purchases.

3. Miscellaneous Expenses

The remaining issues for consideration concern the Florida trip, the liquor purchases and the automobile expenses. 785

a. Florida Trip

Petitioner-corporation paid $329.53 during its taxable year ended June 30, 1963, inconnection with a trip which Hymen made to Florida around February 1963. It claimed this amount as an ordinary and necessary business expense under section 162.

Hymen testified that he traveled to Florida every year for a vacation and that during his 1963 sojourn he made some*202 business contacts in Florida. He did identify several companies that he contacted while there, but these companies were either already customers of the Mink enterprise or did not become so until several years after the years at issue herein. There was no indication given as to the amount of time involved in making these contacts. Because of the vague testimony on this point, we hold that petitioner-corporation failed to prove how much of the cost of Hymen's trip was attributable to its business, and, therefore, the deduction for this trip is denied. Accordingly, we hold that the cost of the trip ($329.53) represents a constructive dividend to Hymen. See 58 th Street Plaza Theatre, Inc., 16 T.C. 469">16 T.C. 469 (1951), affd. 195 F. 2d 724 (C.A. 2, 1952), certiorari denied 344 U.S. 820">344 U.S. 820 (1952).

b. Liquor Purchases

Hymen and Mervyn both testified, as did Howard Weinstein, that Hymen purchased liquor from time to time for distribution to customers, usually around holidays. A check stub for check number 936 was introduced into evidence and revealed that the check was payable to "Miller Liquor Store" for "Liquor Xmas Gifts." However, there was no testimony*203 as to this check stub and, except for the coincidence of the amount involved ($75.19), we do not know whether the check stub was for liquor gifts to customers of petitioner-corporation or to friends of Hymen and Mervyn. On the whole, the testimony with respect to the alleged liquor purchases was so general and vague that we are constrained to find that petitioner Hymen has not sustained his burden of proof as to this item, and, therefore, this amount is a constructive dividend to him in 1963.

c. Auto Expenses

Respondent increased the income of the partnership for the taxable year ended June 30, 1962, in the amount of $870 because of "the personal operation of an automobile by a partner." He then allocated the alleged increased partnership income equally between Hymen and Mervyn.

With respect to the last six months of 1962 and all of 1963, respondent increased Hymen's income in the amounts of $870 and $1,740, respectively, on the basis that petitioner-corporation was providing Hymen with an automobile solely for his personal use. Carl Telban, the revenue agent who examined petitioners' returns, testified that, in view of the fact that no records as to maintenance costs or mileage*204 were retained by petitioners, the amount of the additional income was the fair rental value of a car comparable to that used by Hymen and was determined as a result of an inquiry made of an automobile leasing company.

Petitioners contend that Hymen used the car owned by the partnership or petitioner-corporation during the period at issue primarily for business use. Upon carefully evaluating the testimony of Hymen and Mervyn with respect to the auto expenses, and bearing in mind that petitioners have the burden of proof with respect to this issue, we find that Hymen's business use of the car constituted 60 percent of the total use thereof during each of the years 1962 and 1963. Accordingly, the partnership income should be increased by $348 for the first six months of 1962, and half of this amount should be allocated to each of the equal partners - Hymen and Mervyn. With respect to the last six months of 1962, Hymen received additional income totaling $348, whereas he received $696 in additional compensation during 1963, which was attributable to his personal use of petitioner-corporation's car.

Petitioner Mervyn argues that only the income of Hymen should be increased with respect*205 to the latter's use of the partnership's car during the first six months of 1962 because it was he alone who used the car. We do not doubt that partners can arrange and change from time to time the partnership shares to which each will be entitled, and that the tax consequences then follow the new agreement. Leff v. Commissioner, 235 F. 2d 439 (C.A. 2, 1956), affirming a Memorandum Opinion of this Court. However, no evidence has been presented to us which indicates any rearrangement of the partners' interests in H. H. Mink & Son Bag Co., and, therefore, we cannot sustain Mervyn on this point. 786

4. Additions to Tax Under Section 6653(a)

Respondent conceded on Brief that if we determine that the monies withdrawn by Hymen and Mervyn were, in fact, used to purchase merchandise from Bleichfeld Bag, then none of the petitioners is liable for the five percent addition to tax under the provisions of section 6653(a).

Since we have held that cash purchases were in fact made from Bleichfeld Bag, we hold that none of the petitioners is liable for the addition to tax under section 6653(a).

In order to reflect the concessions of the parties and the conclusions reached*206 herein,

Decisions will be entered under Rule 50.

Footnotes

1. The following proceedings are consolidated herewith: Hymen H. Mink and Doris Mink, Docket No. 2931-67; and Mervyn and Shirley Mink, Docket No. 2932-67.↩
2. All statutory references are to the Internal Revenue Code of 1954, as amended, unless otherwise indicated.↩
3. In an attempt to clarify the confusion resulting from the record and respondent's brief as to the concession of one item in particular, we note that at the conclusion of the trial respondent conceded the disallowance of "socalled liquor purchases to the extent of $325.93" for 1962. In fact, this item involved expenses of a Florida trip made by Hymen Mink in early 1963. Respondent did disallow $329.53 in 1963 attributable to this trip. Therefore, respondent's concession for 1962 remedied the duplicate disallowance of the same item. On brief, respondent stated that the determination made with regard to the dividend income of petitioner Hymen Mink for the taxable year 1962 is erroneous to the extent of $325.93 because there was a disallowance of a similar item in 1963. However, we feel that there was a transpositional error made in the transcript because respondent requests a finding of a dividend to Hymen Mink in 1962 in the amount of $2,468.90, rather than $2,798.43 which is the amount set forth in the statutory notice. The difference is $329.53, not $325.93.↩
4. Respondent alleged cash withdrawals of $3,407.96 during 1963. However, a $3.60 error was made by respondent in computing the amount of cash withdrawals during 1963 which is attributable to the concession he made at trial. See footnote 3, supra.↩
5. Respondent conceded on brief $317.50 as not constituting dividends to Mervyn during the calendar year 1962.↩
6. Doris Mink and Shirley Mink are parties solely by virtue of their having signed the income tax returns for the years at issue.↩
7. Total adjustment to the purchases deduction of the partnership for the period January 1, 1962, through June 30, 1962. ↩
8. Total adjustments to the purchases deduction of Mink Bag for its taxable year ended June 30, 1963 - $6,909.80. ↩
9. Total adjustment to the purchases deduction of Mink Bag for its taxable year ended June 30, 1964.↩
10. The amount deducted was not ascertainable from the evidence presented.↩

Document Info

Docket Number： Docket Nos. 2930-67 - 2932-67.

Citation Numbers： 29 T.C.M. 778, 1970 Tax Ct. Memo LEXIS 181, 1970 T.C. Memo. 177

Filed Date： 6/25/1970

Precedential Status： Non-Precedential

Modified Date： 11/21/2020

Authorities (4)

Blum v. Commissioner of Internal Revenue , 183 F.2d 281 ( 1950 )

Victor Leff and Mary Leff, Husband and Wife v. Commissioner ... , 235 F.2d 439 ( 1956 )

Thomas W. Banks v. Commissioner of Internal Revenue , 322 F.2d 530 ( 1963 )

Quock Ting v. United States , 11 S. Ct. 733 ( 1891 )

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