Estate of Clarke v. Commissioner

Estate of Ernest Clarke, Deceased, Hilda Clarke, Administratrix, and Hilda Clarke, Petitioners v. Commissioner of Internal Revenue, Respondent

Estate of Clarke v. Commissioner

Docket No. 4888-66

United States Tax Court

54 T.C. 1149; 1970 U.S. Tax Ct. LEXIS 129;

May 27, 1970, Filed

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Decision will be entered under Rule 50.

Held, the Clarkes received substantial amounts of taxable income, which they did not report, from diversion to them of funds collected but not reported as income by a corporation in which they owned one-half of the stock and from payment by the corporation of the cost of construction of, and improvements to, various properties. They also received taxable income from payment by the corporation of personal expenses, from an increase in their distributive share of the income of a partnership, and from the sale of a lot. Held, further, fraud has been established for each of the years in issue. Held, further, petitioner Hilda Clarke is jointly and severally liable for the deficiencies and additions to the tax for fraud, her signatures on the joint returns having been voluntarily made. Held, further, the Estate of Ernest Clarke is a proper party to this proceeding. Secs. 6212(b)(1), 6903, I.R.C. 1954.

Frederick Wm. Heath, Dale C. Campbell, and Edwin G. O'Brien, for the petitioners.

John H. Menzel and Patrick R. McKenzie, for the respondent.

Featherston, Judge.

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FEATHERSTON

Respondent determined deficiencies in petitioners' income tax and additions to the tax for fraud under section 293(b), I.R.C. 1939, and section 6653(b)^*1150

		Additions	Additions
Year	Deficiencies	to tax sec.	to tax sec.
		293(b), I.R.C.	6653(b)
		1939
1950	$ 1,692.16	$ 846.08
1951	14,014.20	7,007.10
1952	30,546.02	15,273.01
1953	32,579.58	16,289.79
1954	18,016.04		$ 9,008.02
1955	12,637.64		6,318.82

Certain issues have been settled by the parties. The issues remaining for decision are:

(1) Whether the Clarkes received unreported taxable income in each of the years 1950 through 1955 from the diversion to them of funds collected but not reported as income by a corporation in which they owned one-half of the stock.

(2) Whether the Clarkes received unreported taxable income from the payment by the corporation of the following:

(a) The cost of constructing a house for them in 1952,

(b) The cost of constructing two houses for them in 1953,

(c) The cost of improvements to their personal residence in 1952, and

(d) The cost of improvements in 1953 to a house sold by them on a land contract.

(3) Whether the Clarkes received taxable income in each of the years 1951 through 1955 from an increase in their distributive share of the income of a partnership.

(4) Whether the Clarkes received ordinary income in 1955 from the sale of a lot.

(5) Whether any or all of the Clarkes' joint income tax returns for 1950 through 1955 was a "false or fraudulent return with the intent to evade tax" within the meaning of sections 276(a), I.R.C. 1939, and 6501(c)(1), so as to remove the bar of the statute of limitations.

(6) Whether any part of any underpayment of the Clarkes' income tax for each of the years 1950 through 1955, was due to fraud within the meaning of sections 293(b), I.R.C. 1939, and 6653(b).

FINDINGS OF FACT

Hilda Clarke was a legal resident of Garden City, Mich., at the time the petition was filed. She and her husband, Ernest Clarke, deceased (hereinafter Clarke), filed joint Federal income tax returns for 1950 through 1955 with the district director of internal revenue, Detroit, Mich. Clarke died on November 2, 1961, and Hilda was appointed administratrix of his estate on or about February 12, 1965.

Clarke received a second-grade education in Ireland before emigrating to the United States in 1920. He and Hilda were married in 1931, and for the next 10 years he was employed as a bricklayer and superintendent for Rohn Fireproofing Co. In 1941 the Clarkes settled in Detroit, where Clarke continued working as a bricklayer until 1947.

Desiring to enter business on his own, Clarke contacted Lester Ellerhorst, who was already established in construction contract work. The result was that Gypsum Constructors, Inc. (hereinafter Gypsum), was incorporated in the State of Michigan on April 3, 1947, with paid-in capital of $ 21,000, contributed equally by Clarke, Ellerhorst, and James B. Ryan. Gypsum was engaged primarily in the fabrication, construction, and installation of poured gypsum roof decks, and, in addition, was authorized to sell gypsum products, carry on business as builders and contractors, and develop, manage, and sell all types of real estate. Clarke supervised the general construction work, while Ellerhorst was in charge of the construction of gypsum roof decks.

In October 1948 Gypsum purchased Ryan's stock therein. On October 27, 1948, 35 shares of the capital stock of Gypsum were issued to the Clarkes and 35 shares to Lester and Minerva Ellerhorst for a total consideration of $ 15,000 ($ 7,500 by each couple). The consideration consisted of the vendees' assumption of Gypsum's liability on eight $ 1,000 notes payable by it to Ryan, and of Gypsum's debiting its note payable account of Clarke in the amount of $ 3,500, and its note payable account of Ellerhorst in a like amount.

The Clarkes, individually or jointly, owned 50 percent of the outstanding shares of Gypsum during 1950 through 1955. The Ellerhorsts, individually or jointly, owned the remaining outstanding shares of Gypsum during those years.

The officers and members of the board of directors of Gypsum, from October 1948 until May 23, 1957, were:

President	Lester Ellerhorst
Vice president	Clarke
Treasurer	Hilda
Secretary	Minerva Ellerhorst

Hilda and Minerva Ellerhorst were officers of Gypsum in name only. Hilda did not attend stockholders or directors meetings, and did not participate in the management or other business affairs of the corporation, except to sign blank checks of Gypsum a book at a time. Minerva Ellerhorst likewise signed blank checks of Gypsum.

Clarke and Ellerhorst were engaged in numerous other business enterprises during the years in issue. On April 1, 1949, they had formed an equal partnership, Middlebelt Lumber & Supply Co. (hereinafter Middlebelt), the principal business activity of which was the selling of building supplies, largely to Gypsum, and the holding of real property in its name. On October 1, 1951, Garden City Construction & Realty Co., Inc. (hereinafter Garden City), was incorporated, with Clarke paying in $ 24,500 and Ellerhorst contributing $ 24,000. Garden City acted as a general contractor in the building of homes, and subcontracted most of its construction work to Gypsum, for which it paid Gypsum in full; on August 31, 1955, Garden City was dissolved. Finally, during 1954 and 1955 Clarke and Ellerhorst expanded the gypsum roof deck business through the formation of new corporations in New England, Ohio, and Canada; organized a corporation, Middlebelt Gulf Service, Inc., to carry on the operation of a gas station; and formed a partnership, Voelcker's Fuel & Builder's Supply Co., owned equally by them, to engage in the retail sale of coal and building supplies.

The hub of Clarke's and Ellerhorst's business structure was Gypsum. During the years in issue Gypsum kept its books on the accrual method of accounting. The books and records maintained by Gypsum included a general ledger, a cash receipts journal, a petty cash journal, an accounts receivable journal, a job cost journal, and job folders, together with other necessary miscellaneous records. Gypsum maintained checking accounts during the tax years as follows: From January 1, 1950, through June 21, 1951, with the Wayne State Bank, Wayne, Mich.; from May 14, 1951, through November 20, 1952, with the First National Bank, Plymouth, Mich.; and from November 21, 1952, through December 31, 1955, with the National Bank of Detroit, Detroit, Mich.

Beginning in January 1954 overall control and supervision of Gypsum's books was given to its general manager, Donald Sundberg, who had first been employed by Gypsum on February 2, 1953, as an expeditor. Evelyn Stewart, who was employed by Gypsum throughout all of the years in issue, was in charge of maintaining the various journals and preparing the deposit slips.

Gypsum obtained jobs either from bids made to general contractors or through solicitations by its salesmen. In the normal course of business a number was immediately assigned to a job and a manila folder was prepared, noting the job number, the name of the job, its location, and the contractor. A copy of the contract was placed in the folder, and thereafter all of the documents relating to the job -- the purchase order for materials used in the job, a recap sheet of labor performed on the job, and any correspondence -- were deposited in it.

When a job was completed by Gypsum it was billed to the customer by an invoice. On the larger jobs billings were made on the portion of the work which had been completed or materials delivered. It was Gypsum's practice to prepare an invoice for every job, sale of material, and job extra it performed. Four copies were made of each invoice: two white copies were sent to the contractor, a blue copy was placed in the job folder, and a yellow copy was used in connection with the collection of accounts receivable.

Not all of the jobs, extras, and material sales *137 given by Ellerhorst; instructions regarding unnumbered general construction jobs were given by either Clarke or Ellerhorst.

Invoices for the unnumbered jobs were prepared in the same manner as those for the regular jobs, except that they sometimes bore the legend "LE & EC," which stood for "Lester Ellerhorst and Ernest Clarke." Evelyn Stewart had primary responsibility for taking care of these invoices; after the invoice had been typed, the yellow copy was given to her and kept in her desk drawer. An accounts receivable list, also kept in her desk drawer, was prepared from the invoices for all of the unnumbered jobs except those which were paid for simultaneously with the preparation of the invoices. This list consisted of typed and handwritten notations recording the customer and the amount of the receivable, together with references as to whether it was paid and, in some instances, the date of payment. New sheets were prepared periodically so that the list provided a running contemporaneous account of the status of the receivables. Adding-machine tapes were attached to some of the sheets, showing the total amount of the outstanding accounts receivable as of a specific date; the amounts due from new accounts were added to the total when invoices were sent, while payments on existing accounts were subtracted.

During its construction of a house Gypsum would have to obtain a water hydrant permit and insurance on the house. Upon completion of the house refunds sometimes would be due Gypsum on both the insurance and the water permits. Gypsum did not report the receipt of these and certain other refunds during the years in issue.

Gypsum sold small amounts of scrap metal to Weiser Iron & Metal Co. in each of the years 1951 through 1955, but the income from these sales was not recorded in Gypsum's books.

Gypsum also sold tires, batteries, and other miscellaneous materials to its employees during some of the years involved. In many instances the receipts from such sales were not reflected in Gypsum's cash receipts journal, nor reported as income by Gypsum. Payments by the employees either were in the form of cash or were deducted from their pay checks. In the latter case the deduction resulted in a credit to Gypsum's payroll account. To balance the payroll account, checks were issued to Clarke or Ellerhorst for the amounts charged the employee. The amounts of these checks were not included in the total salary reported as paid to Clarke or Ellerhorst.

The total amounts of receipts not reported by Gypsum during the years in issue were as follows:

	Source of receipts
	Unnumbered	Refunds	Scrap metal	Sales to	Total
	jobs		sales	employees
1950	$ 9,245.67	$ 810.23			$ 10,055.90
1951	46,561.10	1,353.04	$ 175.15	$ 106.85	48,196.14
1952	49,399.64	262.24	466.17	317.54	50,445.59
1953	51,960.13	182.70	599.90	87.15	52,829.88
1954	51,744.26	225.16	646.11	353.05	52,968.58
1955	23,744.41	2,512.54	1,273.62	665.31	28,195.88

Gypsum received payment for its jobs in various ways. The salesmen often picked up the payment at the customer's office; payment was sometimes made by the customer personally at Gypsum's office; and payment was frequently received by mail. Payments for unnumbered jobs, and other receipts which were not run through Gypsum's books and reported by it as income, were received in much the same manner.

For those receipts which were recorded in Gypsum's books, the office procedure was to enter the payment in the cash receipts journal, with appropriate entries in the accounts receivable journal and other records. Also, the yellow copy of the invoice was usually marked paid. The cash and checks were prepared for deposit and normally were deposited on the day received.

Checks received by Gypsum as payment for unnumbered jobs were handled on Gypsum's books in one of the following manners:

(a) They were deposited in Gypsum's bank account, but the posting in the cash receipts journal was a credit to an account of Clarke or Ellerhorst, or both. Clarke received such credits to his various personal accounts with Gypsum in at least the following amounts:

No. of	Description of account or job	Year	Amount
account
51-3	Notes payable account to Clarke	1951	$ 3,000.00
2050	Construction of an oil station, owned equally
	by Clarke and Ellerhorst	1953	n1 1,500.00
1835	Construction of a house, 31309 Hennepin Ave.,
	Garden City, Mich., for the Clarkes	1953	3,200.00
		1954	3,812.25
2505	Construction of two houses on two lots, one
	owned by Clarke and the other owned
	by Ellerhorst	1954			1955	1 474.43

(b) A check which apparently represented a single payment of both a numbered and unnumbered job was listed on the deposit ticket as part of the total deposit, but the deposit ticket showed "less" an amount representing the cash being withdrawn and not reported as income in the cash receipts journal. The money withdrawn in this manner did not come back into the office fund, but went to Clarke and Ellerhorst. This method was used from 1950 through April 1953; or

(c) Pursuant to a resolution of Gypsum's directors authorizing either Clarke or Ellerhorst to cash checks made payable to Gypsum, checks were endorsed by them and cashed at the bank by various employees of Gypsum. The cash was then divided between Clarke and Ellerhorst. This practice existed as early as 1950, but the bank discontinued cashing checks payable to Gypsum apparently sometime during 1954.

The unreported corporate funds were also withdrawn by a method, used with great frequency during each of the years in issue, involving advances to employees of Gypsum. The employee would receive an advance for expenses, the amount of which would be credited to "petty cash" and charged (debited) to the employee. The employee would later turn in vouchers, totaling his expenses (in an amount less than the advance), and the remaining cash, and his account would be credited with the full amount of the advance. This credit would be balanced, to the extent of the expenses, by debits in an equal amount to the expense accounts of the various jobs. As to the cash which was turned in, the normal bookkeeping procedure would have been to debit the "petty cash" or some other "cash" account; however, this was not done. Instead, when checks were received from unnumbered jobs and were deposited, the total deposits were debited to the "cash" account. An amount from the checks equal to the cash returned by the employee was thus ignored as income. The above accomplished a balancing of the debits and credits on the books and permitted all of the checks received to be reflected in the cash receipts journal (although identified as a return of cash by the employee).

One further method of withdrawing unreported funds from Gypsum was used in 1955. Checks in amounts of $ 500, $ 1,000, or $ 2,000 were made payable to various employees of Gypsum, including Clarke, Ellerhorst, and Sundberg, were charged against them as advances, and were cashed at the bank. The money was kept in the office. When a check from an unreported job came in, cash in an amount equal to the check was withdrawn, and a credit was entered on the books to the account of the person to whom the advance had been made, instead of crediting the receipt to an income account.

The cash diverted by these methods was placed in an envelope in a cash box, which was kept either in the drawer of Evelyn's desk or in the safe. The cash would be kept there until Evelyn turned it over to either Clarke, Ellerhorst, or Sundberg. In those instances in which Evelyn gave the envelope to Sundberg, he gave it to either Clarke or Ellerhorst. Clarke and Ellerhorst split the money equally.

A house was built by Gypsum on a lot which Clarke had purchased from Garden City for $ 687.41. Clarke sold the house to one Anthony Alioto in 1952 for $ 15,500, of which $ 2,000 was paid down and the balance was taken on a land contract. Clarke did not report this sale on his 1952 income tax return, although the interest received from this land contract was reported in that and subsequent years. Gypsum charged the cost of constructing the house to various other jobs, mostly to job No. 686, which consisted of 24 houses it built for Garden City. Thus, the house was constructed at no expense to Clarke. Gypsum simultaneously built a house for Ellerhorst on an adjoining lot; the cost of constructing this house was also generally charged to job No. 686.

Prior to 1953 the Clarkes resided at 14849 Stansbury, Garden City, Mich. Gypsum made improvements to this residence during 1952 at a cost of $ 1,299.40, all of which was charged on Gypsum's books to other jobs. Thus, Clarke did not pay for the improvements. At or about the same time Gypsum performed some work on Ellerhorst's residence; the expenditures for this work were similarly charged off to other jobs performed by Gypsum. The work performed for Ellerhorst was much more expensive than that performed for Clarke, and Gypsum's records indicate that Ellerhorst paid Clarke one-half of the net difference.

During 1952 and 1953 Gypsum constructed a personal residence for the Clarkes at 31327 Hennepin Avenue, Garden City, Mich. This job was carried on Gypsum's books as number 1350. Many of the expenses for material (usually half of the particular invoice amount) and some of the payroll expenses incurred on this job and on job No. 1835, a house constructed for the Clarkes during 1953 at 31309 Hennepin, were charged on Gypsum's books to other jobs -- some of which were for Garden City -- which could absorb them. The instructions to charge material expenses to other jobs were given by Clarke or Ellerhorst, while such instructions for payroll expenses were usually given by Ellerhorst or Sundberg. The expenses of job Nos. 1350 and 1835 charged to other jobs, and the benefit received by the Clarkes in 1953, amounted to $ 9,963.52 and $ 6,022.62, respectively.

Gypsum built a house for Garden City and sold it to one Francis Felts on a land contract. During 1953, after Clarke had acquired the land contract, Gypsum made improvements to this property. These improvements cost $ 3,167, and Gypsum charged these expenses to other jobs. The land contract between Clarke and Felts was increased by the $ 3,167 of improvements made to the property.

During the years 1951 through 1955 Middlebelt received reimbursements of expenses from Gypsum, which the Clarkes did not report as income from the partnership. The amounts by which the Clarkes understated their distributive share of the income of Middlebelt were $ 224.90 for 1951, $ 113.22 for 1952, $ 382.41 for 1953, $ 673.42 for 1954, and $ 820.03 for 1955.

In 1955 Clarke sold lot 1030 of Folker's Garden City Acres, subdivision No. 6, upon which he realized a gain of $ 1,499.69. The Clarkes erroneously reported this gain on their return for 1956.

The following table summarizes the amounts and sources of the Clarkes' unreported income for the years in issue:

Source	1950	1951	1952
Funds diverted from Gypsum	$ 5,027.95	$ 24,098.07	$ 25,222.80
Expenses paid by Gypsum:
(a) Unreimbursed personal expenses
(telephone, groceries,
gas, dues, etc.)			624.98
(b) Construction of houses			14,812.59
(c) Improvements			1,299.40
Partnership income		224.90	113.22
Gain from sale of property
Total unreported income	5,027.95	24,322.97	42,072.99

Source	1953	1954	1955
Funds diverted from Gypsum	$ 26,414.94	$ 26,484.29	$ 14,097.94
Expenses paid by Gypsum:
(a) Unreimbursed personal expenses
(telephone, groceries,
gas, dues, etc.)	293.32	713.08	882.16
(b) Construction of houses	15,986.14
(c) Improvements	3,167.00
Partnership income	382.41	673.42	820.03
Gain from sale of property			1,499.69
Total unreported income	46,243.81	27,870.79	17,299.82

Arthur Haar prepared the Clarkes' income tax returns for the years 1950 through 1954, as follows: Information concerning land contract income was taken from the books of, or furnished by employees working at, Garden City; wage information was taken from W-2 Forms; all other information was obtained directly from Clarke. After the information was gathered, penciled copies of the returns were prepared and reviewed by Clarke as to the completeness of the items contained thereon. Haar asked Clarke if he had any taxable income other than that shown on the returns, and Clarke replied in the negative. Each return was then typed and presented for the Clarkes' signatures.

Richard L. Fairchild, C.P.A., prepared the 1955 income tax return for the Clarkes. He prepared the return from Forms W-2 and 1099, for wages and dividends of other corporations, respectively; information on land contract interest was obtained from records kept in the corporations' offices; and further records were gathered by Sundberg. All of the information on the return was reviewed with Clarke. When asked if there was taxable income for 1955 other than that shown on the return, Clarke replied in the negative.

The original joint returns filed by the Clarkes for 1950 and 1952 were destroyed. However, it was Haar's practice to retain copies of returns he prepared, and he saved the unsigned penciled copies of the lost returns. Haar's copy of the Clarkes' 1950 return indicates a tax balance due of $ 2,303.60. A Certificate of Assessments and Payments shows that $ 2,303.60 was paid by the Clarkes on March 22, 1951, with their original return for 1950, and that the tax due for that year was fully paid. Haar's copy of the Clarkes' return for 1952 shows a tax balance due of $ 4,710.50; the certificate shows a payment on March 18, 1953, accompanying the Clarkes' original 1952 return, of $ 4,710.50. This amount likewise is designated as full payment for the taxes due for that year.

OPINION

The first four issues presented for decision -- whether the Clarkes received taxable income (1) from the diversion of corporate receipts, (2) from the payment by Gypsum of the cost of construction of and improvements to houses owned or sold by them, (3) from an increase in their income from a partnership, and (4) from the sale of certain real estate in 1955 *149 salient of the facts as they bear upon the issues to be decided.

Issue 1. Diversion of Omitted Corporate Receipts

The Clarkes owned 50 percent of the stock of Gypsum, a construction company specializing in the installation of gypsum roof decks; the remaining Gypsum stock was owned by Ellerhorst and his wife. Throughout all of the years in issue substantial amounts of corporate receipts were diverted from Gypsum. The record paints a picture of diversion of the receipts from hundreds of separate individual items, some large and some small, falling into one of the following four categories: (1) Receipts from "unnumbered" general construction and roof deck jobs, (2) refunds of insurance premiums, water permit fees, and certain other corporate payments, (3) sales of scrap metal to one customer, and (4) sales of miscellaneous supplies to various corporate employees. These receipts were neither recorded on Gypsum's books and records nor reported on its income tax returns, although the related costs were entered on the corporate books and deductions therefor were claimed on the returns. In order to keep track of the amounts due and amounts paid on the unnumbered jobs, a separate accounts receivable list -- wholly distinct from the corporate books -- was maintained by one of the secretaries in Gypsum's office. Respondent attributed one-half of the total amount of omitted receipts to the Clarkes.

At the trial petitioners did not seriously contest the fact that substantial amounts of corporate receipts had been omitted from Gypsum's books, and on brief they admitted that "The corporate income was understated due to devious methods." Rather, petitioners' attack is directed against respondent's determination that one-half of these receipts are traceable to the Clarkes. Petitioners contend that the existence of many errors in the revenue agent's report upon which the deficiencies are based relieves them of the burden of disproving the deficiencies and shifts the burden of proof to respondent. Asserting that Clarke, with his limited education, did not understand the bookkeeping entries by which the omissions were concealed on the corporate books, and that the omitted receipts were diverted to others -- mainly Ellerhorst -- they maintain that respondent failed to satisfy his burden of proof. We disagree.

Petitioners' argument founders on the incorrectness of their major premise. Subject to certain exceptions not present here, see, e.g., Rule 32, Tax Court Rules of Practice (new matter pleaded in the answer), and secs. 6902(a) (transferee liability) and 7454 (fraud), the burden of proof is upon a petitioner. And petitioners have failed to show that they should be relieved of this burden. The errors in the revenue agent's report concerned only a few out of a total of more than 950 items, and many of these were due to inclusion of an item in the wrong year or to inaccuracies in transcribing figures, rather than to errors in identifying omissions from Gypsum's income. But even so, it is well settled that where, as here, the deficiencies are keyed to specific items -- as distinguished from a determination based upon use of circumstantial evidence, as in the "net worth" or "bank deposits" methods -- a petitioner's burden of proof must be satisfied as to each item before the burden of proof on that and related items is shifted to respondent. Foster v. Commissioner, 391 F. 2d 727, 735 (C.A. 4, 1968), remanding on another issue a Memorandum Opinion of this Court. We have taken account of the errors made by the revenue agent in making our findings; but we cannot say that the burden of proof has shifted to respondent. Cf. Helvering v. Taylor, 293 U.S. 507">293 U.S. 507, 514-515 (1935).

Not only is petitioners' major premise faulty, but their minor premise -- that Clarke did not understand bookkeeping and that the omitted receipts were diverted to persons other than Clarke ^{*153 The testimony of employees of Gypsum, as well as notations on receipts that the proceeds were given to Clarke and Ellerhorst (noting, in some instances, that cash was paid from one to the other to effectuate an equal split of their diversions), clearly establish that Clarke knowingly received some of the diverted funds.}

Although the record leaves some doubt as to the exact percentage or portion of these funds actually received by Clarke, petitioners have failed to prove that that portion was different from the one-half determined by respondent. While it can be argued that Ellerhorst -- a domineering, aggressive individual, who at the time of trial was in prison for attempted murder -- did not divide the moneys equally with Clarke or that Sundberg -- a key figure in the fraudulent scheme, who at the time of trial was serving a prison sentence for armed robbery -- shared to some extent in them, petitioners have not shown that this was the case. We hold that one-half of the receipts were diverted to Clarke and are taxable income to him. See Jack M. Chesbro, 21 T.C. 123">21 T.C. 123, 129 (1953), affirmed per curiam 225 F. 2d 674 (C.A. 2, 1955), certiorari denied 350 U.S. 995">350 U.S. 995 (1956).

Issue 2. Payment by Gypsum of Cost of Construction and Improvements

Again, this issue is purely factual. The job folders for the two houses constructed for the Clarkes by Gypsum on Hennepin Avenue -- job Nos. 1350 and 1835 -- were admitted into evidence. The payroll records and invoices contained therein show a practice of charging to other jobs a sizable portion, usually one-half, of the expenses incurred on these two jobs. *1161 the beneficiaries thereof were the Clarkes, whose expenses for these two houses were, in effect, paid by Gypsum to the extent they were charged to other jobs. And it is well settled that expenses incurred and paid by a corporation for construction work on property belonging to a shareholder is taxable income to the shareholder. Elmer J. Benes, 42 T.C. 358">42 T.C. 358, 379 (1964), affd. 355 F. 2d 929 (C.A. 6, 1966), certiorari denied 384 U.S. 961">384 U.S. 961 (1966). We reject petitioners' argument that these chargeoffs were legitimate adjustments caused by laborers working on more than one job and material being delivered for more than one job, because the record contains absolutely no evidence that this was true as to any of the amounts we found to have been charged to other jobs.

The expenses incurred in building the house sold by Clarke to Alioto, and in making the improvements to the Clarkes' residence on Stansbury and to the house sold to Felts, were likewise charged on Gypsum's books to other jobs. All of these expenses were properly chargeable to Clarke. They were not so charged and hence represent taxable income. Id. at 380.

Issues 3 and 4. Income From Partnership and Gain From Sale of Real Estate

Implicit in respondent's determination that the gain from the sale of the lot is taxable as ordinary income is a subsidiary determination that the lot was primarily held for sale to customers in the ordinary course of business. Sec. 1221(1). Petitioners have not shown that this subsidiary determination is incorrect. In fact, petitioners presented no evidence on this issue, or on the partnership issue. Therefore, since they had the burden of proof, we sustain respondent on both of these issues.

Issues 5 and 6. Fraud

Since the years in issue ended more than 3 years prior to the date of mailing the notice of deficiency, sections 275(a), I.R.C. 1939, and 6501(a)*157 bar the deficiencies unless respondent can show that each of the Clarkes' returns was a "false or fraudulent return with the intent to evade tax" within the meaning of sections 276(a), I.R.C. 1939, and 6501(c)(1). *1162 tax under sections 293(b), I.R.C. 1939, and 6653(b), Sec. 1112, I.R.C. 1939; sec. 7454(a). Drieborg v. Commissioner, 225 F. 2d 216, 218 (C.A. 6, 1955), reversing on another issue a Memorandum Opinion of this Court. In addition, fraud must be proven for each year for which respondent seeks to avoid the statute of limitations and sustain an addition to the tax for fraud. W. A. Shaw, 27 T.C. 561">27 T.C. 561, 570 (1956), affd. 252 F. 2d 681 (C.A. 6, 1958).

As reflected in our Findings, the Clarkes failed to report substantial amounts of taxable income for each of the years in issue. Although substantial understatement of income is some evidence of fraud, Schwarzkopf v. Commissioner, 246 F. 2d 731, 734 (C.A. 3, 1957) (effective evidence), and Kurnick v. Commissioner, 232 F. 2d 678, 681 (C.A. 6, 1956) (highly persuasive evidence), both affirming Memorandum Opinions of this Court; Tsuneo Otsuki, 53 T.C. 96">53 T.C. 96, 107 (1969) (strong evidence), this fact alone in given situations may not be sufficient to establish fraud. John Marinzulich, 31 T.C. 487">31 T.C. 487, 490 (1958); Foster v. Commissioner, supra at 733 fn. 10; Merritt v. Commissioner, 301 F.2d 484">301 F. 2d 484, 487 (C.A. 5, 1962), affirming a Memorandum Opinion of this Court. However, repeated understatements of income in successive years, coupled with other circumstances -- so-called badges of fraud -- showing intent to conceal or misstate taxable income, present a basis from which fraud may be inferred. Id.; Furnish v. Commissioner, 262 F. 2d 727, 728-729 (C. A. 9, 1958), remanding on another issue 29 T.C. 279">29 T.C. 279 (1957); Anderson v. Commissioner, 250 F. 2d 242, 250 (C.A. 5, 1957), remanding on another issue a Memorandum Opinion of this Court, certiorari denied 356 U.S. 950">356 U.S. 950 (1958); Drieborg v. Commissioner, supra at 219.

Petitioners' first argument is that respondent failed to satisfy his burden of proving fraud for 1950 and 1952 because the original returns filed for those years by the Clarkes were not introduced into evidence. For this reason petitioners assert that respondent is barred not only from asserting the additions to the tax for those years, but also from assessing and collecting the deficiencies for those years because of the statute of limitations.

It is true that where an original return for a particular year is not in evidence and there is no secondary evidence to show the contents of the return, respondent has failed to prove all of the elements of fraud, with the result that an addition to the tax for fraud for that year cannot be sustained, Drieborg v. Commissioner, supra at 219-220, and deficiencies barred by the statute of limitations cannot be upheld. Alex Rubinstein, 29 T.C. 861">29 T.C. 861, 863-864 (1958), affirmed per curiam 264 F. 2d 478 (C.A. 3, 1959). However, both Drieborg and Rubinstein are distinguishable from the present controversy. In both of those cases, although respondent produced the collector's records indicating the tax paid for the years for which returns were missing, there was no evidence as to what the returns contained -- i.e., the gross income reported or the credits or deductions claimed or allowed.

Here, by contrast, in addition to the Certificate of Assessments and Payments showing the amount of tax due and paid by the Clarkes, we have the penciled copies of the 1950 and 1952 returns retained by the accountant who prepared the returns. These copies show all of the income and deductions reported on the original returns. The amounts of tax shown on the retained copies and on the Certificate of Assessments and Payments correspond exactly. And we have the credible testimony of the accountant that the copies in evidence are identical to the original returns which he prepared and presented to Clarke for signature. <sup>Granquist v. Harvey, 258 F. 2d 599, 601 (C.A. 9, 1958), wherein the Court of Appeals stated:

the number of taxpayer's exemptions was known, the tax rate was fixed, and the tax paid was proven * * *. Also produced were his Oregon state returns for the same years * * *.</sup>

* * * *

It is thus apparent that there was sufficient evidence as to what the returns contained. True, it was secondary evidence, but we know of no rule excluding the use of such evidence to prove the contents of a destroyed or lost return just as in the case of any other document where the original is unavailable. * * *

See Moore v. United States, 254 F.2d 213">254 F. 2d 213, 215, and fn. 3, 216 (C.A. 5, 1958), certiorari denied 357 U.S. 926">357 U.S. 926 (1958) (extracts from a penciled retained copy used in preparation of a typed "dummy" copy used at the trial; as to another year, unsigned original return accepted in light of testimony by the accountant that it appeared to be the return prepared by him). We hold, therefore, that the accountant's retained copies of the 1950 and 1952 returns are sufficient evidence of what the original returns contained.

Turning now to the substantive issue of whether respondent has satisfied his burden of proof, there are numerous "badges of fraud" present in this case. Hundreds of Gypsum's receipts were diverted from the corporation, were neither recorded on the corporate books nor reported on its income tax returns, and eventually found their way into Clarke's hands. These omissions from corporate income were so extensive that a separate accounts receivable list, not regarded as part of the corporate books, had to be maintained to keep track of them. The majority of these diverted receipts were derived from the hundreds of jobs performed by Gypsum which were not numbered in that corporation's job records, pursuant to instructions given by Clarke and Ellerhorst. False entries were deliberately made on the corporate books and records -- including expense accounts of numbered jobs, petty cash and employee payroll accounts, accounts of jobs for Clarke, and accounts payable to Clarke -- checks payable to Gypsum were endorsed by and cashed for Clarke, and corporate checks were issued to Clarke as "advances." The testimony and exhibits substantially confirm that although Clarke did not make the actual false entries, he participated in these devious activities and benefited therefrom. All of these activities by which substantial amounts of corporate income were consistently diverted to Clarke and Ellerhorst establish that Clarke fraudulently siphoned receipts from Gypsum and failed to report them as income on his returns for the years in issue. See Jack M. Chesbro, supra at 130-131.

Also, during some of the years in issue substantial amounts of expenses incurred in connection with jobs done for Clarke -- construction of the houses and improvements to the properties owned by him -- were charged to various other jobs being performed by Gypsum. Instructions to make such charges were sometimes given by Clarke himself. As a result of these chargeoffs Clarke paid substantially less for these jobs than they cost. It is obvious that Clarke, who had been in the construction business for many years and was in charge of Gypsum's general construction jobs, knew that he was paying less than the full cost of the work being done on the properties involved. Clarke's knowing use of Gypsum funds to pay part of the cost of constructing houses on his own property and erecting improvements for him is indicative of fraudulent intent to evade the payment of taxes. See Elmer J. Benes, supra at 384-385, which is indistinguishable from the present case.

This brings us to the final and most seriously contested issue -- Hilda's liability for the deficiencies and additions to the tax. Sections 51(b)(1), I.R.C. 1939, and 6013(d)(3) provide that when a joint return is filed by a husband and wife, "the liability with respect to the tax shall be joint and several." Such joint and several liability extends not only to deficiencies in tax, but also to additions to the tax for fraud, since the term "tax" includes "additions to the tax." Sec. 6659(a)(2); Nadine I. Davenport, 48 T.C. 921">48 T.C. 921, 926 (1967), and cases cited.

Petitioners argue that Hilda is not subject to joint and several liability for any of the deficiencies or additions to the tax, because there is no evidence that she committed any fraud or had any knowledge of the source of, or the means employed in obtaining, the illgotten income. They assert that she had no income for the years in issue and that the reported (and unreported) income was that of her husband.

Except in limited circumstances, a spouse is liable both for deficiencies and additions to the tax for fraud attributable to unreported income and fraud of her (his) spouse, even though she (he) has no knowledge of the unreported income and is not a party to the fraud. Horn v. Commissioner, 387 F. 2d 621 (C.A. 5, 1967), affirming per curiam a Memorandum Opinion of this Court (deficiencies only; no additions determined); Howell v. Commissioner, 175 F. 2d 240, 241 (C.A. 6, 1949), affirming per curiam 10 T.C. 859">10 T.C. 859 (1948); W. L. Kann, 18 T.C. 1032">18 T.C. 1032, 1044 (1952), affd. 210 F. 2d 247, 252 (C.A. 3, 1953), certiorari denied 347 U.S. 967">347 U.S. 967 (1954); Tsuneo Otsuki, supra at 112-113; cf. Kathleen C. Vannaman, 54 T.C. 1011 (1970). The limited exceptions from liability involve instances in which a spouse innocent of wrongdoing did not knowingly and voluntarily execute the return. Thus, it has been held that a spouse is not liable if her (his) signature on the return is the result of duress, Furnish v. Commissioner, supra at 733-734; Lola I. Brown, 51 T.C. 116">51 T.C. 116, 120-121 (1968); Hazel Stanley, 45 T.C. 555">45 T.C. 555, 560-561 (1966) (dictum), or fraud, Scudder v. Commissioner, 405 F. 2d 222, 226 (C.A. 6, 1968), remanding 48 T.C. 36">48 T.C. 36 (1967), rehearing denied 410 F. 2d 686 (C.A. 6, 1969), certiorari denied 396 U.S. 886">396 U.S. 886 (1969), or forgery, trickery, or deliberate deception by the fraudulent spouse, Nadine I. Davenport, supra at 927 (dictum), or mistake, Payne v. United States, 247 F. 2d 481, 484 (C.A. 8, 1957), certiorari denied 355 U.S. 923">355 U.S. 923 (1958). However, none of these exculpatory exceptions are present in this case. We conclude, therefore, that Hilda is liable for the deficiencies and additions to the tax.

Since this case is subject to appeal to the Court of Appeals for the Sixth Circuit, we have given careful consideration to a trilogy of recent cases in which that court has remanded opinions of this Court for further findings. See Jack E. Golsen, 54 T.C. 742">54 T.C. 742 (1970) (on appeal, C.A. 10). We find nothing in the appellate court opinions in those cases to permit exoneration of Hilda.

The first, Scudder v. Commissioner, supra, involved a "bizarre" situation where a husband had wrongfully withdrawn funds from a partnership of which his wife was a member, and failed to report those amounts on their joint returns. The Court of Appeals held that the wife was not liable for any deficiencies or additions to the tax for fraud "which are based either directly or indirectly on [the husband's] withdrawals from the partnership," 405 F. 2d at 227, but remanded the case for further consideration of other matters not relevant here. That court reasoned that the withdrawn sums were merely unauthorized loans rather than embezzlements (and hence were not taxable even to the husband) and that the wife's execution of the joint returns was the "product of conduct equivalent in wrong to * * * fraud, trickery, and, indeed, * * * duress." Id. at 226. The court's supplemental opinion on rehearing made it clear, however, that its exoneration of the wife applied only to the funds taken from her partnership, as follows:

While some of these investments undoubtedly were made with the funds taken from the partnership, the earnings on them should not be excluded solely because our ruling has already excused her from paying tax on the monies from which the investments were made. n1 * * *

* * * *

* * * we do not look upon the failure of [the husband] to include earnings from his investments and properties in the joint return as "conduct equivalent in wrong to the fraud, trickery, and indeed, the duress" which has led us to hold that [the wife] is exempt from paying the tax and penalties assessed upon monies illegally withdrawn from the partnership. * * *

[Footnote omitted. 410 F. 2d at 688]

The second case, Huelsman v. Commissioner, 416 F. 2d 477 (C.A. 6, 1969), remanding a Memorandum Opinion of this Court, involved deficiencies -- additions to the tax for fraud were conceded by respondent -- attributable to the taxpayer's husband's failure to report on their joint returns funds embezzled by him from a third party. The case was remanded for "full development" of the "evidence as to the conditions existing when these returns were signed, so crucial to the determination of liability under Section 6013(d)(3)." Id. at 479. The Court of Appeals was concerned about the husband's possible trickery and fraud in his relationship with his wife. It indicated that an "innocent wife" should not be "victimized by a dishonest husband" through being "fraudulently induced to sign a return which she obviously would not have signed had the embezzled money been included in it," id. at 480-481, and then subjected to liability for tax on money which he had embezzled.

The third case of the trilogy, Sharwell v. Commissioner, 419 F. 2d 1057 (C.A. 6, 1969), remanding in part a Memorandum Opinion of this Court, also involved deficiencies only. There the wife, a party to what was apparently a stormy marital relationship, had kept meticulous records of her separate income which was included in the joint returns, but the source of the large amounts of omitted income determined to have been received by the husband is not at all clear. Citing Scudder and Huelsman, the Court of Appeals remanded the case for further findings to determine (1) whether the wife knew or could be charged with knowledge that her husband had received the unreported funds, (2) whether she received any benefits from such funds, and (3) the characterization for tax purposes of such funds (i.e., embezzlements, loans, or constructive dividends).

The fact pattern here is vastly different from those presented in the three cases just described. First, the moneys diverted from Gypsum and the expenses of Clarke's personal jobs charged to other jobs were not fraudulently obtained from Hilda by her husband, as was the case in Scudder and, apparently, in Sharwell. ^{*171 to their residence on Stansbury. The record shows that she and her husband frequently entertained friends, Gypsum customers, and key employees at the corporation's expense. Furthermore, she testified that she knew that in addition to Clarke's salary checks, which he gave to her and she cashed, other sums from Gypsum were being deposited in their bank account.}

Second, the diverted receipts omitted from Gypsum's income and the expenses of Clarke's personal jobs charged to other jobs cannot be classified as loans *172 or other nontaxable income; rather, they are constructive dividends or "other income." See Davis v. United States, 226 F. 2d 331, 334-335 (C.A. 6, 1955), certiorari denied 350 U.S. 965">350 U.S. 965 (1956); Elmer J. Benes, supra at 378-379 and cases cited.

Finally, we are convinced that Hilda's signatures on the joint returns were not the product of forgery, mistake, duress, fraud, trickery, deception, or any other type of similar conduct. Hilda testified that she did not know even the approximate amount of her husband's income and merely signed the returns -- without checking the figures thereon -- as they were presented to her for signature. There is thus no basis for an inference that she would not have signed the returns had they included the additional income. There is not even a hint in the record that Clarke intimidated her in any way to cause her to sign the returns, and petitioners do not contend otherwise. Indeed, except for an incident at a Christmas office party, the relationship between the Clarkes was entirely harmonious. The mere fact that Hilda signed the returns as they were presented to her does not prevent her signatures thereon from being voluntary, and certainly does not exonerate her. See, e.g., Howell v. Commissioner, supra;Federbush v. Commissioner, 325 F. 2d 1 (C.A. 2, 1963), affirming per curiam 34 T.C. 740">34 T.C. 740, 755-758 (1960).

We hold that Hilda is jointly and severally liable with the estate, by virtue of section 6013 (d)(3), for the deficiencies and additions to the tax for fraud, to be recomputed in accordance with our findings, for each of the years in issue.

Decision will be entered under Rule 50.

During the trial respondent filed a motion to change the designation of the petitioners herein from "Ernest Clarke, Deceased, and Hilda Clarke, Surviving Spouse" to "Estate of Ernest Clarke, Deceased, Hilda Clarke, Administratrix, and Hilda Clarke." Petitioners objected on the grounds that no valid notice of deficiency had been mailed to the estate and that granting the motion would result in adding a party -- the estate -- which had not been previously joined herein. After careful consideration of all the relevant facts and arguments presented by both parties, we have granted the motion.

Hilda was appointed as administratrix of her husband's estate on or about February 12, 1965, primarily for the purpose of prosecuting a Federal tax refund suit, handled by counsel in the present case, on behalf of the estate. The district director of internal revenue was not informed of Hilda's fiduciary appointment. The notice of deficiency, issued May 31, 1966, was mailed to "Mr. Ernest Clarke, Deceased and Mrs. Hilda Clarke, surviving spouse."

Under section 6212(b)(1), a notice of deficiency mailed to the last known address of a deceased taxpayer is sufficient in the absence of notice to the Internal Revenue Service under section 6903 of the existence of a fiduciary relationship. Edwin W. Eisendrath et al., Executors, 28 B.T.A. 744 (1933). Petitioners contend that sufficient notice under section 6903(a) was made by joinder of the estate in the refund suit, and that the deficiency notice therefore was invalid. However, the U.S. Government is not a monolith, and notice to one agency of the Government -- here, the Department of Justice, which has exclusive authority to defend refund suits -- is not notice to another governmental agency. Cf. Luhring v. Glotzbach, 304 F. 2d 556 (C.A. 4, 1962) (notice of change of address insufficient where sent to a district director in a district other than the one issuing the notice of deficiency), and cases cited. Moreover, section 301.6903-1(b), Proced. & Admin. Regs., promulgated under the express grant of authority in section 6903(b), requires that the section 6903(a) notice be filed with the appropriate district director. No other form of notice is sufficient. See Sanborn v. Helvering, 108 F. 2d 311 (C.A. 8, 1940). Therefore, the notice of deficiency mailed to "Mr. Ernest Clarke, Deceased" is valid as to the estate. See Edward A. Kenney, 37 T.C. 1161">37 T.C. 1161, 1168-1169 (1962); Edwin W. Eisendrath et al., Executors, supra; cf. Rite-Way Products, Inc., 12 T.C. 475">12 T.C. 475, 478 (1949).

Granting respondent's motion does not involve adding the estate as a party to these proceedings, as maintained by petitioners. Instead, we think it is evident from the petition and other documents filed by petitioners that the estate has been a party from the beginning, and changing the caption merely reflects the true situation as it has existed. Cf. Rules 6 and 23(d), Tax Court Rules of Practice.

Consistent with modern practice, a pleading must be "properly read and considered as a whole and construed in [its] entirety," Evans v. International Typographical Union, 81 F. Supp. 675">81 F. Supp. 675, 680 (S.D. Ind. 1948), and "judged by its substance and not its form," Kerrigan's Estate v. Joseph E. Seagram & Sons, 199 F.2d 694">199 F. 2d 694, 696 (C.A. 3, 1952). Cf. Fed. R. Civ. P. 8(f) ("All pleadings shall be so construed as to do substantial justice."); Maty v. Grasselli Co., 303 U.S. 197">303 U.S. 197, 200-201 (1938). Thus, if there is an inconsistency between the body of a petition and the form of its caption, the former controls. Bankers Realty Syndicate, 20 B.T.A. 612">20 B.T.A. 612, 616 (1930); see Estate of Thomas E. Arnett, 31 T.C. 320">31 T.C. 320, 330 (1958); cf. Bauers v. Watkins, 7 F.R.D. 150">7 F.R.D. 150 (N.D. Ohio 1945).

Examination of the petition as a whole -- referring throughout to more than one petitioner, and subscribed and verified by "Hilda Clarke, individually, and as surviving spouse of Ernest Clarke, deceased," with verification of counsel stating that "he is the attorney for the Petitioners and that he proposed the foregoing Petition on behalf of Ernest Clarke, Deceased, and Hilda Clarke, surviving spouse" -- leaves no doubt that the petition constituted an appeal to this Court to redetermine not only Hilda's individual liability, but also the deficiencies and additions to the tax determined against her husband's estate. ^{See Estate of Charles A. Peterson, 45 T.C. 497">45 T.C. 497 (1966); Bankers Realty Syndicate, supra; cf. Fed. R. Civ. P. 9(a), 17(a); Suders v. Campbell, 73 F. Supp. 112">73 F. Supp. 112, 115 (M.D. Pa. 1947). Indeed, we think it is clear that during any stage of the pendency of the present proceedings, the estate could have properly moved to enjoin assessment or collection of the determined deficiencies and additions. Sec. 6213(a).}

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Footnotes

• 1. All section references are to the Internal Revenue Code of 1954, as amended, unless otherwise noted.↩

• 2. These three items will hereinafter be collectively referred to simply as jobs.↩

• 1. These figures are one-half of the total amount credited to the particular job account.↩

• 3. The amounts of personal expenses for telephone, groceries, gas, dues, etc., paid by Gypsum on the Clarkes' behalf have been stipulated. These amounts represent taxable income to the Clarkes. See United States v. Durant, 324 F.2d 859">324 F.2d 859, 863 (C.A. 7, 1963), certiorari denied 377 U.S. 906">377 U.S. 906↩ (1964).

• 4. Petitioners' argument that Clarke received none of the diverted funds is undercut somewhat by their assertion that, during the years in issue, Clarke was continually paying back large sums of money to Gypsum, an argument that implies that he did receive some of the unreported funds.↩

• 5. In making our findings as to the amounts of expenses of job No. 1350 charged to other jobs, we have excluded two items -- $ 1,400 for work performed by Priest Plumbing and $ 266 for material supplied by Stamats Bros. -- which respondent included in his determination, because there is no evidence that these items were indeed charged to other jobs.↩

• 6. SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION.

  (a) General Rule. -- Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) * * *

• 7. SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION.

  (c) Exceptions. --

  (1) False return. -- In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.↩

• 8. SEC. 6653. FAILURE TO PAY TAX.

  (b) Fraud. -- If any part of any underpayment (as defined in subsection (c)) of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 50 percent of the underpayment. In the case of income taxes and gift taxes, this amount shall be in lieu of any amount determined under subsection (a).↩

• 9. SEC. 7454. BURDEN OF PROOF IN FRAUD AND TRANSFEREE CASES.

  (a) Fraud. -- In any proceeding involving the issue whether the petitioner has been guilty of fraud with intent to evade tax, the burden of proof in respect of such issue shall be upon the Secretary or his delegate.↩

• 10. It is well to note here that petitioners do not rely upon the principle of Davis v. Commissioner, 184 F. 2d 86, 88 (C.A. 10, 1950), remanding a Memorandum Opinion of this Court, that a taxpayer is not guilty of fraud if he has no knowledge that his return is false and he has made full disclosure to the expert preparing it. That principle would not apply here, because neither condition has been satisfied. See Foster v. Commissioner, 391 F. 2d 727, 732-733↩ (C.A. 4, 1968), remanding on another issue a Memorandum Opinion of this Court.

• 11. Although the parties stipulated that "Ernest Clarke and Hilda Clarke, individually or jointly, owned 50 percent of the outstanding shares of Gypsum," it is clear from Hilda's testimony that her stock ownership, if any, was purely nominal.↩

• 12. Although petitioners claim that Clarke paid large sums of money to Gypsum and his other corporations during the years in issue, thereby attempting to create the impression that he was merely borrowing whatever diverted funds he had received, they were unable to show that the payments were in any way related to funds he had "borrowed." Indeed, to the contrary, the largest of the alleged "loan repayments" (a check for $ 25,000, dated Dec. 22, 1955) apparently was in payment for 250 shares of Gypsum stock which the parties have stipulated were purchased on Dec. 22, 1955, for $ 25,000; and many, if not all, of the other checks apparently were in payment of those expenses for Clarke's personal jobs which were not charged off to other jobs.

• 13. We observe in passing that since the notice of deficiency is valid as to the estate, a contrary conclusion would apparently subject the estate to immediate assessment of the full amount of the deficiencies and additions. Sec. 301.6903-1(c), Proced. & Admin. Regs.↩