DocketNumber： Docket No. 1391-79
Filed Date： 9/29/1981
Status： Non-Precedential
Modified Date： 11/20/2020
MEMORANDUM OPINION
WILBUR,
| Additions to Tax | |||
| Taxable Year | Deficiency | Section 6653(b) Section 6654 | |
| 1973 | $ 4,407.41 | $ 2,203.70 | $ 141.03 |
| 1974 | 2,170.42 | 1,085.21 | 69.44 |
This matter came before the Court on respondent's motion to dismiss this case for failure of petitioner to properly prosecute insofar as the income tax deficiency and the addition to tax under section 6654 are concerned. See
In all proceedings before this Court, the parties are required to stipulate to the fullest extent possible all matters not privileged which are relevant to the pending case.
Rex McFarlin (hereinafter referred to as Rex or petitioner) did not file Federal income tax returns for 1973 and 1974. At the time of the commencement of this action, petitioner had his legal residence in Tulsa, Oklahoma. During the taxable years 1973 and 1974, petitioner was engaged in business operations under the names of Chimera and Elysian Isle. These were sole proprietorships which he operated in Norman, Oklahoma.
Rex failed to maintain or submit for examination by the respondent complete and adequate books of account and records for the operations of his business which were essential to the determination of his correct income tax liabilities*189 for the taxable years 1973 and 1974. Petitioner realized net profit of $ 1,996.56 from his operation of Chimera and Elysian Isle in 1973 and a loss of $856.71 from them in 1974. Respondent computed these amounts on the basis of petitioner's bank statements, which were the only business records maintained by petitioner during these years. *190 the records of his illegal narcotics transactions.
Rex had agents which he sometimes employed in his drug business. One of them was arrested for narcotics trafficking in Tulsa in 1973. Rex himself was arrested in 1974 and was subsequently convicted and sentenced to 10 years in Federal prison for conspiring to distribute a controlled substance. He began serving his sentence in 1975 and was released in May of 1977.
Rex was interviewed in 1975 by a special agent of the Criminal Investigation Division, Internal Revenue Service. Rex admitted to the agent that he had destroyed any records that he had maintained of his drug activities over the preceding 2 years. Rex told him that it would be stupid to keep any records of his income to show his tax liabilities. Rex also said that he had a good year in the drug business in 1973. He characterized himself as a jet-setter, and told the agent that he employed a maid and a butler at his apartment. Rex told him that it was his intent to hide his drug transactions and his income from the Government.
During 1973 and 1974, petitioner attended the University of Oklahoma. By 1975 he lacked only 6 hours of completing his bachelor's degree*191 with a major in economics and marketing. In connection with his studies, Rex took two accounting courses. He had also kept books and records for a firm for income tax purposes.
Petitioner did not file Federal income tax returns for the taxable years 1973 and 1974. By determining the amount expended by petitioner for personal purposes during the taxable years in issue, respondent calculated that petitioner had realized income of $ 15,828.95 in 1973 and $ 10,317.68 in 1974 in addition to his income from his legitimate businesses discussed earlier. *192 Respondent allowed petitioner a standard deduction of $ 2,000 and a personal exemption of $ 750 for the taxable year 1973, based on a computation of tax utilizing the tax rate tables. For 1974, petitioner is entitled to a tax computation utilizing the optional tax tables for a single individual, one exemption. Thus computed, petitioner's taxable income was determined to be $ 15,075.51 for 1973 and $ 9,460.97 for 1974.
During the taxable years 1973 and 1974, petitioner did not borrow or receive from any source any funds not properly taken into account by respondent which would cause or account for the additional taxable income. During these years, petitioner did not have any deductions, credits or exemptions, other than those taken into account by respondent, which would reduce his taxable income or the resulting income tax liabilities.
No appearance was made by or on behalf of petitioner when this case was called for trial from the trial calendar of the Court in Miami, Oklahoma on June 29, 1981. Respondent therefore moved that the case be dismissed for lack of prosecution insofar as the underlying deficiency and the addition to tax under section 6654 are concerned. We hereby*193 grant respondent's motion and decision will be entered for the respondent in the amount of the deficiency in petitioner's income tax and the section 6654 addition determined in the notice of deficiency.
As to the addition to tax for fraud, the burden of proof rests on respondent to show that at least some portion of the understatement of income for each year was due to fraud with the intent to evade tax.Section 7454(a),
This juxtaposition of the parties as to the burden of proof prevents us from disposing summarily of the fraud issue as we have with the other issues here. Even though petitioner failed to prosecute his case, we must nevertheless determine whether respondent has presented sufficient evidence of fraud. This burden may be met in part by matters deemed stipulated under
The facts presented here clearly and convincingly reveal*195 an intent to evade tax known to be owing. Petitioner used fictitious names, operated legitimate businesses as "fronts" for his narcotics operations, and admitted to destroying whatever records he may have maintained relating to his illegal activities. Rex told the revenue agent that it was his intent to hide his drug transactions and his income from the Government. Fraud has been established by clear and convincing evidence.
1. Petitioner was originally represented by an attorney, Steven P. Flowers, who filed the pleadings in this case. On February 11, 1981, we granted Mr. Flower's motion to withdraw as counsel of record upon his allegations that petitioner had moved without informing counsel of a new address and that numerous attempts to contact petitioner or determine his whereabouts had been to no avail.↩
2. All section references are to the Internal Revenue Code of 1954, as amended and in effect during the taxable years here in issue.↩
3. This determination was made on the following basis:
| 1973 | 1974 | |
| Bank Deposits | $ 10,925.62 | $ 9,931.63 |
| Checks Written | 8,929.06 | 10,788.34 |
| Net profit (loss) | $ 1,996.56 | $ (856.71) |
| notice of def. Sch. 1-A |
4. Respondent's computation of expenditures for personal purposes was as follows:
| Expenditure | ||
| Item | 1973 | 1974 |
| Groceries and outside meals | $ 5,475.00 | $ 4,215.00 |
| Clothing | 500.00 | 500.00 |
| Laundry and dry cleaning | 100.00 | 100.00 |
| Barber and toiletries | 130.00 | 130.00 |
| Education | 146.00 | |
| Recreation, entertainment, vacation | 1,254.47 | |
| Fines | 93.00 | 34.00 |
| Rent | 2,520.00 | 1,890.00 |
| Automobile expenses | 654.88 | 1,491.97 |
| Interest | 77.16 | |
| Personal assets - etc.: | ||
| Ring | 1,000.00 | |
| Loans to others | 2,100.00 | |
| Car - 1971 Corvette | 3,775.00 | |
| Stereo | 2,300.00 | |
| Less: Loan Balance on Stereo | (1,200.00) | |
| Funds required to make up business loss | 856.71 | |
| Total | $ 17,825.51 | $ 10,317.68 |
| Funds available from business | ||
| Net profit | 1,996.56 | |
| Other income | $ 15,828.95 | $ 10,317.68 |
5. As we have recently observed in
As to the underlying deficiency, there is no question that respondent should prevail, either on the ground that the petitioner has defaulted by virtue of his nonappearance at trial and/or has failed to carry his burden of proof.