DocketNumber： Docket No. 49262
Judges： Fisher
Filed Date： 3/24/1955
Status： Precedential
Modified Date： 10/19/2024
The notice of deficiency was issued to petitioner more than 3 but less than 5 years after the returns for 1947 and 1948 were filed. In determining whether petitioner omitted from gross income in each return an amount in excess of 25 per centum of that reported therein within the meaning of
1.
2.
23 T.C. 1058">*1058 Respondent asserted deficiencies in income tax in the notice of deficiency and by amendment to answer as follows:
| Year | Notice of | Amendment |
| deficiency | to answer | |
| 1947 | $ 10,993.93 | $ 8,967.18 |
| 1948 | 1,504.50 | 1,784.86 |
| 1949 | 330.00 | 454.62 |
The only issue involved is whether this proceeding with respect to 1947 and 1948 is barred by limitations. 1955 U.S. Tax Ct. LEXIS 219">*220 The basis for the computation of the deficiency for 1949 is stipulated and the amount may be determined under Rule 50. Our findings of fact and opinion will therefore be confined to the years 1947 and 1948.
FINDINGS OF FACT.
Most of the material facts were stipulated by the parties. As will appear from our Opinion,
Petitioner is a resident of Monona, Iowa, and during the years in question he was engaged in the business of manufacturing concrete products, ready-mixed concrete, and stokers. He was also a road surfacing contractor and the operator of a stone quarry. He filed income tax returns for the years 1947 and 1948 with the then collector of internal revenue for the district of Iowa. These returns reported in part the following items:
| Pertinent Items Reported in Petitioner's Returns | |||
| Item | 1947 return | 1948 return | |
| 1. Items included in Schedule C: | |||
| (a) Total receipts (line 1) | $ 139,676.63 | $ 138,916.06 | |
| (b) Net cost of goods sold | |||
| (line 9) | 1955 U.S. Tax Ct. LEXIS 219">*221 111,003.38 | 105,823.35 | |
| (c) Gross profit (line 10) | 33,092.71 | ||
| (d) Total other business deductions | |||
| (line 20) | 18,704.69 | 29,292.18 | |
| (e) Net profit (line 22) | 9,968.56 | 3,800.53 | |
| 2. Total amount of rents (Schedule B) | 336.00 | 336.00 | |
| 3. Interest | 49.36 | 31.29 | |
| 4. Gain from sale of capital assets | 1,090.00 | ||
| 5. Adjusted gross income | |||
| (page 1, line 6) | 9,554.80 | 4,361.64 | |
Petitioner's correct adjusted gross income for each of the years 1947 and 1948 was $ 29,105.77 and $ 14,028.83, respectively. Petitioner omitted from his reported adjusted gross income for each year $ 19,550.97 and $ 9,667.19, respectively.
The unreported adjusted gross income for 1947 reflects the cost of constructing a railroad siding in the amount of $ 4,748 which petioner reported as one of the items constituting cost of goods sold in the return for that year. See item 1 (b) of schedule above. Respondent disallowed the item as an expense and petitioner does not contest the adjustment with respect to the determination of his correct 1947 adjusted gross income.
The correct adjusted gross 1955 U.S. Tax Ct. LEXIS 219">*222 income for 1947 reflects an additional deduction for depreciation in the amount of $ 449.91. This amount was not claimed by petitioner in his 1947 return, but was allowed by respondent in the determination of the correct adjusted gross income for that year.
Petitioner correctly stated in his returns for 1947 and 1948 expenditures and depreciation allowances relating to the operations of 23 T.C. 1058">*1060 his rental property. He also incurred all expenditures which comprise the amounts claimed by him as cost of goods sold and as other business deductions in Schedule C of each such return. See item 1 (b) and 1 (d) above. His inventories at the beginning and end of each year were correctly stated in each Schedule C.
The notice of deficiency issued to petitioner is dated March 13, 1953. It was issued more than 3 but less than 5 years after the returns for the years 1947 and 1948 were filed. Petitioner omitted from gross income in each year an amount properly includible therein which is in excess of 25 per centum of the amount of gross income stated in the return for that year.
OPINION.
The parties have stipulated and agreed upon the correct amount of adjusted gross income realized by petitioner during 1955 U.S. Tax Ct. LEXIS 219">*223 1947 and 1948. We have found, accordingly, that petitioner omitted from his reported adjusted gross income for each of those years $ 19,550.97 and $ 9,667.19, respectively. The only issue involved herein is whether this proceeding is barred by the statute of limitations (
Respondent contends that proceedings in the instant case were properly commenced within 5 years after the returns were filed in view of the provisions of
To determine whether or not
Petitioner reported gross income during the years in question from four sources: his businesses, rentals, interest, and gain from sale of capital assets (in 1948 only). There is no dispute between the parties as to the amounts of reported gross income derived from the last three sources. The amount of reported gross income from business for each 23 T.C. 1058">*1061 year, however, requires some discussion. Regulations 111, section 29.22 (a)-5, provide in part as follows in this respect:
Gross Income From Business. -- In the case of a manufacturing, merchandising, or mining business, "gross income" means the total sales, less the cost of goods sold, plus any income from investments and from incidental or outside operations or sources. In determining the gross income subtractions should not be made for depreciation, depletion, selling expenses, or losses, or 1955 U.S. Tax Ct. LEXIS 219">*225 for items not ordinarily used in computing the cost of goods sold. * * *
In the instant case, the reported "gross income from business" is the reported gross profit, i. e., the total receipts less net cost of goods sold as set out in Schedule C of the return for each year. See items 1 (a), (b), and (c) of the schedule set out in our Findings of Fact. Petitioner, however, contends that the reported "net cost of goods sold" reflects many items which were not properly deductible from total receipts in determining the gross profit for each year. He argues that these amounts should have been deducted instead from gross profits as "other business expenses" in Schedule C in determining net profit for each year. The practical effect of petitioner's contention would be to increase the reported gross profit in each year (though leaving reported net profit and adjusted gross income unaffected), and thus to increase the total amount of reported gross income.
In this connection, the parties have stipulated and agreed, subject to respondent's objections with respect to relevancy and materiality, that the net cost of goods sold reported in the 1947 return contains items in a total amount of over 1955 U.S. Tax Ct. LEXIS 219">*226 $ 10,000 which petitioner now contends were improperly included as costs of goods sold. Moreover, petitioner submitted testimony of an experienced accountant to the effect that these and other items were improperly reported in the returns as costs of goods sold (instead of as other business deductions) for each year in question. (With respect to 1948 such evidence is contrary to paragraph 19 of the stipulation of facts.) Were the returns adjusted according to petitioner's contention, the reported gross profit for 1947 would be $ 66,443.32 instead of $ 28,673.25, and that for 1948 $ 67,599.38 instead of $ 33,092.71. If the reported gross income were so increased for each year, 25 per centum thereof would be increased to such an extent that petitioner's omissions from gross income would not be large enough in the instant case to extend the statute of limitations to 5 years pursuant to
It is clear from
Although tax report form 1040 used by the taxpayer does not contain the term "gross income," it is nevertheless clear that the statement in his return of a gross profit of $ 7,000.47 was actually his statement of his "gross income" within the meaning of that term as used in
The Court further stated (page 62):
To the same effect, see
We agree with the views expressed above, and we, therefore, hold that for purposes of applying
As stated above, petitioner reported gross income during the years in question from four sources. See items 1 (c), 2, 3, and 4 of the schedule in our Findings of Fact. The amount of petitioner's gross income "stated in the return" within the meaning of
| Reported Gross Income | |||
| Source | 1947 | 1948 | |
| Gross profit from businesses | $ 28,673.25 | $ 33,092.71 | |
| Rents | 336.00 | 336.00 | |
| Interest | 49.36 | 31.29 | |
| Gain from sale of capital assets | 1,090.00 | ||
| Total | $ 29,058.61 | $ 34,550.00 | |
| 25 per centum of total | 7,264.65 | 8,637.50 | |
We turn now to a consideration of the amounts petitioner omitted from gross income within the meaning of
With respect to business and rental deductions, the parties have stipulated, and we have found, that deductions attributable to rents were correctly stated in petitioner's return for each year in question, and that he incurred all expenditures which comprise his reported business deductions for those years. Accordingly, it is clear from the record that none of the unreported adjusted gross income for either of the years in question is attributable to overstated deductions, but all is attributable to understated gross income. It should be noted in this respect that respondent determined that petitioner was entitled to an additional business deduction for depreciation in 1947 in the amount of $ 449.91. Thus, in the 1947 return petitioner
An understatement of gross income, however, may be attributable either to an omission of gross receipts or to an overstatement of items which are allowable against such receipts in the determination of gross income (i. e., costs of goods sold), or to both. With respect to 1947, the above understated gross income figure includes $ 4,748 23 T.C. 1058">*1064 which petitioner reported in his return for that year as an item of cost of goods sold. This amount, which was expended by petitioner for the construction of a railroad siding, was disallowed as an expense by respondent and the adjustment is not contested by petitioner herein. Petitioner does contend, however, that the disallowance of this expense item is not an omission from gross income within the meaning of
In the instant case it is unnecessary for us to decide whether in a proper case we will follow the views expressed by the Court of Appeals for the Third Circuit in the above cases. But see
With respect to 1948, respondent did not disallow any expense claimed by petitioner. On the contrary, the parties stipulated and agreed that they were correctly stated by petitioner in his 1948 return. Accordingly, all of the understated gross income in that year ($ 9,667.19) consisted of omissions of gross receipts from the return within the meaning of
It should be noted that
1. Includes $ 4,748 for railroad siding construction expense discussed
2. Line 10 of Schedule C of the 1947 return was in fact left blank by petitioner and the above figure was calculated from other reported amounts. Respondent, however, does not contend that this was an omission from reported gross income, and in the brief he treats the above amount as though it had been reported by petitioner. Accordingly, we do not concern ourselves with any issue which might arise in this respect in a proper case.↩