Belowsky v. Commissioner

OPINION.

Murdock:

This case presents two questions of fact in relation to each of the three years involved. The first is, Was a return filed for the year by the petitioner ?; the second, What was the petitioner’s taxable income for the year?

Without any hesitation we decide the first question in the affirmative. The petitioner and an accountant both testified that a return for 1922 was filed before March 15, 1923. The petitioner alone testified that he filed a return for 1920 and offered the work sheet in evidence to corroborate his statement. If the evidence in regard to these two years stood alone we might have some doubt about it. But it does not stand alone. The proof'in regard to the filing of a return for 1919 is so convincing that it lends credence to the evidence relating to the other two years. The petitioner testified that he filed a return for 1919, and again he produced the corroborating work sheet, but as to this year he also produced a tax receipt stamped “ paid ” with the stamp of the collector. The respondent offered no evidence in the case, but has made the same determination in regard to each year. Clearly he was in error as to the failure to file a return for 1919 and under all of the evidence we hold that each of the penalties was erroneously assessed.

The evidence is not so satisfactory in regard to the correct taxable income for these three years. The petitioner had no books of account or records, except his bank account. The latter was no criterion of his income. Yet the deficiency letter states that an examination of his books of account and records disclosed income of $20,500 for 1919, $10,500 for 1920, and of $8,500 for 1922. We are satisfied that the Commissioner’s determination of the petitioner’s income-tax liability for each of these years was incorrect, but before we can cast aside that determination we must be shown something better to tie to.

The only other available figures in this case are the taxable incomes for 1919 and 1920, as disclosed by the work sheets, and for 1922 as shown on the accountant’s copy of the 1922 return. The work sheets were made while the matters recorded thereon were fresh in the petitioner’s mind. They were made by an agent of the respondent as the petitioner replied to his questions. We think that he then knew about what his true expense and income items were and that he correctly stated them. Considering the circumstances surrounding the origin of these figures and testing them in connection with all of the testimony and the reasonableness or unreasonableness of the entire situation we are inclined to believe that the income as disclosed by these sheets represented approximately this petitioner’s taxable income for the respective years.

We are mindiul of the fact that in 1919 there were fewer ships and barges to give this petitioner their trade, that consequently he allowed his stock to be depleted and in the latter half of 1920 he closed his store. He testifies that his average weekly sales from this store during his good years did not run over $700, which would make yearly gross sales of $36,400. The 1919 sheet shows gross sales of $48,000. Applying the respondent’s average percentage table to the latter amount of gross sales, merely as a text, we get a probable net income from the grocery business of $1,900.80, whereas the work sheet shows a net profit from this source of $3,940.

The apartment on Montrose Avenue brought in gross yearly rentals of about $12,000. During 1919 the petitioner owned a one-half interest only. The purchase price was $75,000. There were mortgages against this property drawing interest on $58,000. Taxes were $1,700 a year. There were many other expenses to be paid before a net income was realized from the gross rents. Depreciation at a minimum rate would reach a substantial amount.

During 1920, this building was the chief source of the petitioner’s income. He then owned the entire equity in it. In addition to the taxes, interest and expenses .of this building he had to pay other taxes and interest as indicated in our findings of fact. His personal exemption and credits amounted to at least $3,400 in each of these years and in 1922, they amounted to at least $4,400. His wife received about $1,200 rent from her Third Avenue property which does not appear on either the 1919 or 1920 sheets and there are certain other inconsistencies between the sheets and the testimony. Nevertheless, if we use the proven expenditures and minimum amounts where we have no proof of the proper expenditures or deductions, we find that our results are within the amount of net taxable income as shown by the sheets. Therefore, we hold that this petitioner has no unpaid income tax liability for the three years here in question.

Judgment will be entered for the fetitioner.