DocketNumber： No. 23071-96
Judges： "Ruwe, Robert P."
Filed Date： 11/1/2000
Status： Non-Precedential
Modified Date： 4/17/2021
2000 Tax Ct. Memo LEXIS 395">*395 APPENDIX J
1992 Gross Receipts
Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
Educational
Zoological
Programs, Inc. $ 100 Plume Enterprises 400359855
Anheuser-Busch 2,000 Plume Enterprises 400359855
Anheuser-Busch 2,700 Plume Enterprises 400359855
Anheuser-Busch 1,400 Plume Enterprises 400359855
Timothy L. Charles 500 Galingale Group 400359863
Anheuser-Busch 1,400 Plume Enterprises 400359855
Avian Farms 560 Galingale Group 400359863
Avian Farms 350 Galingale Group 400359863
Avian Farms 70 Plume Enterprises 400359855
Anheuser-Busch 1,600 Plume Enterprises 23-043-10
Anheuser-Busch2000 Tax Ct. Memo LEXIS 395">*396 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
Anheuser-Busch 1,200 Plume Enterprises 23-043-10
______
Total 17,880
1992 Royalty Income
Deposited in
Payor Amount Payee Account No.
_____ ______ _____ ____________
Pennzoil Products $ 155 Trundle Management
Eton Trust Co.,
Ltd., Trustee n1 1163506106
Pennzoil Products 281 Trundle Management
Eton Trust Co.,
2000 Tax Ct. Memo LEXIS 395">*397 Ltd., Trustee 1163506106
Pennzoil Products 257 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 332 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 745 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
Pennzoil Products 432 Trundle Management
Eton Trust Co.,
Ltd., Trustee 1163506106
______
Total 2,203
Total Income n2 20,083
RUWE, JUDGE: 2000 Tax Ct. Memo LEXIS 395">*398 Respondent determined deficiencies and additions to tax in petitioner's Federal income tax as follows:
Additions to tax
___________________________________
Year Deficiency 6651(f) 6653(b)(1) 6654(a)
____ __________ _________ __________ _________
1988 $ 26,874 N/A $ 20,156 $ 1,718
1989 29,683 $ 22,262 N/A 2,006
1990 25,383 19,037 N/A 1,671
1991 7,078 5,309 N/A 410
1992 4,572 3,429 N/A 200
After concessions, 2000 Tax Ct. Memo LEXIS 395">*399 (3) whether petitioner is liable for failure to pay estimated tax under
Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioner resided in Bristolville, Ohio.
During the years in issue, petitioner and his wife2000 Tax Ct. Memo LEXIS 395">*400 Catherine Temple (Mrs. Temple) lived at 5955 Stroups Hickox Road, Bristolville, Ohio (5955 property). The 5955 property was a country home with more than 300 acres.
During the years in issue, petitioner was a veterinarian, and he operated a veterinary clinic out of his residence. Petitioner performed services as a veterinarian for several clients including Sea World, 2000 Tax Ct. Memo LEXIS 395">*401 Avian Farms, Ronald G. and Carole L. DeRhodes, Sunny Hill Farms, William L. and Maureen F. Crawford, Fish and Feathers Intl., Ronald C. and Lisa Blider, Educational Zoological Programs, Inc., 2000 Tax Ct. Memo LEXIS 395">*402 Approximately half of petitioner's receipts during 1988 were in the form of checks payable to Dr. Temple, while the remaining checks were payable to Plume Enterprises. 2000 Tax Ct. Memo LEXIS 395">*403 With the exception of one check issued in 1989 and seven checks issued in 1992, all checks payable to Plume Enterprises were deposited in an account with Bank One, 2000 Tax Ct. Memo LEXIS 395">*404 240
1989 Lets Go Travel 480
1989 Cash 1,000
1989 R&J Auto Services 404
1989 DS.BA 625
1990 R&J Auto Services 814
1990 R&J Auto Services 169
1990 Action Travel 791
1990 Radisson Resort 497
1990 Action Travel 158
1990 Admiral Bendoro 144
1990 Trundle Management 2000 Tax Ct. Memo LEXIS 395">*405 Action Travel 318
1991 Action Travel 296
1991 Greenbelt Holiday Inn 67
1992 Control Management Inc. 400
1992 Cash 391
1992 McMeyers & Ford, Inc. 300
_______
Total 11,534
The one check issued in 1989 that was not deposited into the Bank One 855 account was deposited in another Bank One account, account No. 400359863 (Bank One 863 account). 2000 Tax Ct. Memo LEXIS 395">*406 The Bank One 863 account was held in the name of Galingale Group, Oxford Charter Corp., Trustee. 2000 Tax Ct. Memo LEXIS 395">*407 1988 Trundle Management 2000 Tax Ct. Memo LEXIS 395">*408 The seven checks issued in 1992 that were not deposited in the Bank One 855 account were deposited in an account with Cortland Savings and Banking Co.2000 Tax Ct. Memo LEXIS 395">*409 1992 L. R. Mayer 2000 Tax Ct. Memo LEXIS 395">*410 All the above-listed checks were written between September and December 1992. The two largest checks drawn on the Cortland Savings account, one for $ 1,000 and the other for $ 5,458, were payable to Piccolo Co. The check for $ 1,000 was written on October 29, 1992, and the check for $ 5,458 was written on December 31, 1992. Piccolo Co. had an account with Second National Bank of Warren, 2000 Tax Ct. Memo LEXIS 395">*411 Year Amount Payee
____ ______ _____
1988 $ 10,000 Purfle Co.
1988 14,000 Purfle Co.
1988 10,000 Purfle Co.
1988 7,630 Purfle Co.
1989 22,571 Purfle Co.
1989 5,000 Purfle Co.
1989 9,597 Purfle Co.
1990 5,000 Purfle Co.
1991 4,400 Purfle Co.
1991 4,479 Purfle Co.
1992 2000 Tax Ct. Memo LEXIS 395">*412 into a Dollar Savings and Trust Co. account, account No. 218-000-827 (Dollar Savings 827 account). The Dollar Savings 827 account was held in the name of Purfle Co. with Eton Trust Co., Ltd., as trustee. 2000 Tax Ct. Memo LEXIS 395">*413 ______
Total 36,725
In addition to the above-listed checks payable to cash, Mrs. Temple withdrew $ 5,000 from the Dollar Savings 827 account in the form of a cashier's check payable to petitioner. Purfle Co. was remitter on another check drawn on a Dollar Savings bank account and payable to petitioner in the amount of $ 5,000.
The last four checks, listed on the previous page, and drawn on the Second National 006 account, totaled $ 15,879. All these checks were deposited into a second bank account with Dollar Savings and Trust Co., account No. 213-593-320 (Dollar Savings 320 account). The Dollar Savings 320 account was held in the name of Purfle Co. with Eaton Trust Co., Ltd., as trustee. 2000 Tax Ct. Memo LEXIS 395">*414 as follows:
Year Amount
____ ______
1990 $ 1,500
1990 500
1990 500
1990 2,500
1991 3,000
1991 2,000
1991 2,000
1991 1,500
1991 200
1992 2,000
1992 2,500
1992 2,000
______
Total 20,200
On May 26, 1992, B. L. Holtzhauer replaced petitioner and Mrs. Temple as the person authorized to sign checks on the Dollar Savings 320 account. The following checks payable to cash were signed by B. L. Holtzhauer:
Year Amount
____ ______
1992 $ 1,000
1992 1,000
1992 2,045
______
2000 Tax Ct. Memo LEXIS 395">*415 Total 4,045
On December 7, 1992, the Dollar Savings 320 account was closed, and the proceeds were deposited into Barclays Bank, Nassau, Bahamas.
Prior to February 1985, petitioner was title owner of the 5501 and 5955 properties. On February 28, 1985, petitioner granted his interest in the 5501 and 5955 properties to Black Creek Management Co. with Nassau Life Insurance Co., 2000 Tax Ct. Memo LEXIS 395">*416 Oil and gas drilling sites were located on both the 5501 and 5955 properties. On February 1, 1985, petitioner executed an Exchange of Royalty Interest with Old Labrador Investment Co. with Nassau Life Insurance Co., Ltd., as trustee. The Exchange of Royalty Interest indicates that petitioner granted Old Labrador Investment Co. with Nassau Life Insurance Co., Ltd., as trustee his interest in the oil and gas leases for both properties for a stated consideration of $ 10. The Exchange of Royalty Interest was recorded in the Trumbull County Recorder's Office on February 28, 1985.
On January 25, 1988, Black Creek Management Co. with Nassau Life Insurance Co., Ltd., as trustee granted by warranty deed for a stated consideration of $ 1 the 5501 and 5955 properties to Trundle Management with Eton Trust Co., Ltd., as trustee 2000 Tax Ct. Memo LEXIS 395">*417 Petitioner and his wife continued to reside at the 5955 property. Petitioner continued to use the 5501 and 5955 properties for livestock operations and to operate a veterinary clinic. Petitioner continued to exercise dominion and control over the 5501 and 5955 properties.
Pennzoil Oil and Scavenger Oil paid royalties for use of the oil and gas wells located on both properties during the years in issue. Royalty payments from Pennzoil and Scavenger were as follows:
Year Royalty Income
____ ______________
1990 2000 Tax Ct. Memo LEXIS 395">*418 of Warren, account No. 1163506106 (Second National 106 account). The account was held in the name of Trundle Management, Eton Trust Co., Ltd., Trustee. 2000 Tax Ct. Memo LEXIS 395">*419 3,450 Sweda Heating & Cooling
1990 1,316 R.C. Drywall
_____
Petitioner does not dispute the existence of the transactions that produced the income that respondent attributes to him. Rather, petitioner argues that the income was received by, and deposited into bank accounts of, valid irrevocable trusts. Petitioner asserts that respondent has improperly imputed gross income received by a trust to petitioner and has improperly failed to recognize the trust as a separate entity. We note, as a preliminary matter, that petitioner did not provide copies of any trust agreements, nor did he or his wife testify at trial.
Section 61(a) provides, in part, that "gross income means all income from whatever source derived, including (but not limited to)" compensation for services, gains derived from dealing in property and royalties. It is fundamental to our system of taxation that income must be2000 Tax Ct. Memo LEXIS 395">*421 taxed to the one who earns it. See
Petitioner provided veterinarian services, and he bred and sold animals. As a result, petitioner received payments by checks totaling $ 47,750 in 1988, 2000 Tax Ct. Memo LEXIS 395">*422 of animals that he sold. Mrs. Temple had signatory authority over the account.
In 1989, petitioner received checks totaling $ 88,404 for the services he provided as a veterinarian and from the sale of animals. Petitioner deposited checks totaling $ 87,804 in the Bank One 855 account, and the remaining check for $ 600 in the Bank One 863 account. Petitioner's spouse, Mrs. Temple, had signatory authority over both accounts.
In 1990, petitioner received checks totaling $ 74,360 for the services he provided as a veterinarian and from the sale of animals. Petitioner deposited checks totaling $ 74,360 into the Bank One 855 account, which Mrs. Temple had signatory authority over.
In 1991, petitioner received checks totaling $ 16,059 for the services he provided as a veterinarian and from the sale of animals. 2000 Tax Ct. Memo LEXIS 395">*423 authority over.
In 1992, petitioner received checks totaling $ 17,880 for the services he provided as a veterinarian and from the sale of animals. Petitioner deposited checks totaling $ 7,670 in the Bank One 855 account and checks totaling $ 1,410 in the Bank One 863 account. Mrs. Temple had signatory authority over both accounts.
Amounts deposited into the Bank One 855 account in the name of Plume Enterprises and the Bank One 863 account in the name of Galingale Group constituted income of petitioner. Petitioner earned the income, he and his wife exercised total dominion and control over those funds, and they expended the funds for their personal expenses. From these two accounts alone, Mrs. Temple signed checks totaling $ 38,254 2000 Tax Ct. Memo LEXIS 395">*424 she had signatory authority.
The remaining payments received by petitioner in 1992, checks totaling $ 8,800, from services he provided as a veterinarian and animals that he sold were deposited into the Cortland Savings account between August and December 1992. Neither petitioner nor his wife was listed as having signatory authority over the Cortland Savings account; however, monthly bank statements were sent to petitioner's residence, and the signature card listed petitioner's address as the account owner's address.
During the period from September to December 1992, checks totaling $ 8,053 were drawn on the Cortland Savings account. A majority of those funds, checks totaling $ 6,458, were deposited in an account with the Second National Bank of Warren. 2000 Tax Ct. Memo LEXIS 395">*425 $ 94,677 and deposited them into one of two Dollar Savings and Trust accounts. Petitioner and his wife had signatory authority over both Dollar Savings and Trust accounts. We find that the $ 8,800 was earned by petitioner and then funneled through the various accounts as part of petitioner's overall plan to conceal income. Once we view through the layers of nominee accounts through which the funds were channeled, petitioner remained in control of the funds.
A fundamental principle of income tax law is that economic substance prevails over form. See
We find the various transactions which purported to result in a transfer of petitioner's interest in the 5501 and 5955 properties and his royalty interest in those properties to be without economic substance. Petitioner always remained in possession of the properties, and he continued to control the properties as he had done before the transfers.
Petitioner and his wife continued to live in their residence located on the 5955 property. Petitioner continued to use the properties for livestock breeding, sale of livestock, and operation of a veterinary clinic. Petitioner, regardless of legal title, exercised dominion and control over the properties.
Payments of $ 7,191 were made for the use of oil and gas wells located on petitioner's properties during the years in2000 Tax Ct. Memo LEXIS 395">*427 issue. With the exception of one check for $ 1,800, payments totaling $ 5,391 were deposited into the Second National 106 account. Mrs. Temple had signatory authority over this account, petitioner's address was listed on the signature card, and bank statements were mailed to petitioner's residence.
Mrs. Temple signed checks totaling $ 2,000 payable to cash in 1989 and 1990 and checks totaling $ 4,766 in 1990 to contractors from this account. Petitioner was in the process of remodeling and expanding his personal residence in 1989.
The one check for $ 1,800 that was not deposited in the Second National 106 account was deposited into the Bank One 855 account. Mrs. Temple signed checks totaling $ 11,534 for personal items including, cash, hotels, several travel agencies, and an automobile service shop drawn on this account.
Petitioner argues that if the income items in appendixes F through J are attributed to him, then respondent has failed to subtract expenses or deductions from petitioner's gross receipts for each year in issue. However, petitioner did not provide any evidence regarding allowable expenses or deductions, and neither petitioner nor his wife testified.
Even in criminal2000 Tax Ct. Memo LEXIS 395">*428 tax evasion cases, where the Government bears the greater burden of proof beyond a reasonable doubt, it is well settled "that evidence of unexplained receipts shifts to the taxpayer the burden of coming forward with evidence as to the amount of offsetting expenses, if any."
We hold that petitioner had unreported taxable income of $ 47,750 in 1988, $ 88,404 in 1989, $ 77,149 in 1990, $ 18,258 in 1991, and $ 20,083 in 1992. See appendixes F through J.
The next issue is whether any part of the underpayment of income tax for each year in issue is2000 Tax Ct. Memo LEXIS 395">*429 due to fraud. Respondent's notice of deficiency determined that petitioner is liable for the addition to tax for fraud imposed under section 6653(b)(1)
2000 Tax Ct. Memo LEXIS 395">*430 Respondent has the burden of proving by clear and convincing evidence that an underpayment exists for the years in issue and that some portion of the underpayment is due to fraud. See sec. 7454(a);
Based on the evidence presented and our previous analysis, we find that respondent has clearly and convincingly established that petitioner understated his taxable income by $ 47,7502000 Tax Ct. Memo LEXIS 395">*431
Direct proof of a taxpayer's intent is rarely available; thus, fraud may be proven by circumstantial evidence, and reasonable inferences may be drawn from2000 Tax Ct. Memo LEXIS 395">*432 the relevant facts. See
The courts have relied upon a number of indicia of fraud in deciding whether an underpayment of tax is due to fraud. While no single factor is necessarily sufficient to establish fraud, the existence of several indicia is persuasive circumstantial evidence of fraud. See
Respondent argues that the following factors or "badges" of fraud are present in this case: (1) A substantial and consistent understatement of income; (2) extensive dealings in cash; (3) use of nominee accounts; 2000 Tax Ct. Memo LEXIS 395">*433 1. SUBSTANTIAL AND CONSISTENT UNDERSTATEMENT OF INCOME Consistent failure to report substantial amounts of income over a number of years is, standing alone, highly persuasive evidence of fraudulent intent. See Dealing in cash to avoid scrutiny of one's finances is a badge of fraud. See During the years in issue, Mrs. Temple signed checks payable to cash totaling $ 59,223 that were drawn on four different accounts, all of which were fashioned as trust accounts. Mrs. Temple was not a named trustee on any of these accounts. For the short period of time that B. L. Holtzauer replaced petitioner and Mrs. Temple2000 Tax Ct. Memo LEXIS 395">*434 on the Dollar Savings 320 account, checks totaling $ 4,045 were issued payable to cash. The last check issued to cash in the amount of $ 2,045 was used toward the purchase of a bank check for $ 2,645. The Dollar Savings 320 account was closed, and the proceeds deposited into an account in Nassau, Bahamas. Wendy Arbogast was one of petitioner's clients. Ms. Arbogast testified that she had purchased a bird from petitioner for $ 1,400 but paid $ 800 of the purchase price in cash. Ms. Arbogast testified that petitioner told her when she started going to him for veterinary services that he preferred cash payments. Use of nominees to conceal assets that a taxpayer has unfettered control over is evidence of fraud. See Petitioner received checks from various customers for providing veterinarian services, the sale of animals, and royalties and deposited them into various bank accounts fashioned as trustee accounts. These deposits were derived from income earned by and taxable to petitioner. The accounts were fashioned as trust accounts in an effort by petitioner2000 Tax Ct. Memo LEXIS 395">*435 to disguise the true ownership of the accounts. Failure to cooperate with revenue agents during the audit phase of a case is an additional indication of guilty knowledge on a taxpayer's part. See Revenue Agent Gentile conducted the examination of petitioner for the years in issue. Mr. Gentile testified that as an initial step in his examination of petitioner, he sent petitioner two appointment letters. However, petitioner did not appear at either appointment and did not provide any books or records during the course of the examination. A taxpayer's level of education and his prior history of filing proper Federal income tax returns are relevant. See Petitioner is a doctor of veterinary medicine. A person with his level of education should know that he cannot escape liability from income taxation and still enjoy control and dominion over all the income he received by establishing nominee accounts. Petitioner filed Federal income tax returns for 1975, 1976, 1977, 1978, and 1979. 2000 Tax Ct. Memo LEXIS 395">*436 His filing of proper returns for years prior to the years in issue demonstrates that he was aware of his income tax responsibilities. The facts and circumstances of this case clearly and convincingly support respondent's determination of fraud for each year in issue. For 1988, 1989, 1990, 1991, and 1992, respondent determined additions to tax for failure to pay estimated tax under The Commissioner's determinations of additions to tax under Under We have considered all arguments in this case. Those arguments not discussed herein are without merit or irrelevant. To reflect the foregoing, An appropriate order will be issued granting respondent's motion for a penalty, and decision will be entered under Rule 155. APPENDIX A 1988 Gross Receipts As2000 Tax Ct. Memo LEXIS 395">*438 Stated in Notice of Deficiency 2000 Tax Ct. Memo LEXIS 395">*439 0 5,000 Jerome T. Grone 2,500 0 2,500 Sea World of Ohio 1,500 0 1,500 Sunny Hill Farm 1,500 0 1,500 John C. Gifford 100 0 100 Sunny Hill Farm 13,500 0 13,500 Piccolo Company 10,000 (10,000) 0 John C. Gifford 1,100 0 1,100 John C. Gifford 7,300 0 7,300 Custom Parrot Network 3,500 (3,500) 0 Dollar Bank Cashier Check 15,000 (15,000) 0 ______ _________ ______ Total 82,200 (34,450) 47,750 2000 Tax Ct. Memo LEXIS 395">*440 APPENDIX B 1989 Gross Receipts As Stated in Notice of Deficiency n1 Concessions Total _________________________________ ___________ _____ Payor Amount _____ ______ Llamas of Michigan $ 2,450 0 $ 2,450 Llamas of Michigan 22,050 0 22,050 Dennis Grodings 900 0 900 Sea World of Ohio 1,500 0 1,500 John C. Gifford 9,500 0 9,500 Sea World of Ohio 1,500 0 1,500 Sea World of Ohio 105 0 105 Sea World of Ohio 1,500 0 1,500 John C. Gifford 1,200 0 1,200 Sea World of Ohio 1,500 0 2000 Tax Ct. Memo LEXIS 395">*441 1,500 State of Ohio 3,649 0 3,649 Valley Las Vegas 1,815 ($ 1,815) 0 Ronald G. DeRhodes 22,000 0 22,000 Canton Veterinary Hospital 5,000 0 5,000 Sea World of Ohio 3,000 0 3,000 Wendy H. Arbogast 1,800 0 1,800 Constance A. Halle 150 0 150 William C. Crawford 200 0 200 William C. Crawford 1,000 0 1,000 Sea World of Ohio 1,500 0 1,500 Sea World of Ohio 1,500 0 1,500 Sea World of Ohio 1,500 0 1,500 Ronald C. Blidar 1,800 0 1,800 Ronald C. Blidar 1,000 0 2000 Tax Ct. Memo LEXIS 395">*442 1,000 Sea World of Ohio 1,500 0 1,500 John C. Gifford 600 0 600 ______ _________ _______ Total 90,219 (1,815) 88,404 APPENDIX C 1990 Gross Receipts As Stated in Notice of Deficiency Concessions Total _________________________________ ___________ _____ Payor Amount _____ ______ John C. Gifford 9,500 0 $ 9,500 Educational Zoological Programs, Inc. 100 0 100 Kerney L. Martini 8,500 0 8,500 Scavenger Oil Corp. 1,800 ($ 1,800) 0 Sea World of Ohio 1,500 0 1,500 Kerney L. Martini 2000 Tax Ct. Memo LEXIS 395">*443 7,500 0 7,500 Intuit 2 0 2 Sea World of Ohio 1,500 0 1,500 Educational Zoological Programs, Inc. 350 0 350 Sea World of Ohio 1,500 0 1,500 Sea World of Ohio 1,200 0 1,200 Sea World of Ohio 1,500 0 1,500 Wendy H. Arbogast 200 0 200 Educational Zoological Programs Inc. 100 0 100 Sea World of Ohio 1,500 0 1,500 Sea World of Ohio 1,500 0 1,500 Robert Sabo 145 0 145 Sea World of Ohio 1,500 0 1,500 Ronald G. DeRhodes 1,200 2000 Tax Ct. Memo LEXIS 395">*444 0 1,200 State of Ohio 728 0 728 Wendy H. Arbogast 1,800 0 1,800 Sea World of Ohio 1,500 0 1,500 Sea World of Ohio 1,500 0 1,500 Robert Sabo 135 0 135 Robert Sabo 210 0 210 Sea World of Ohio 1,500 0 1,500 Educational Zoological Programs, Inc. 100 0 100 William Boever 15,500 0 15,500 Robert Sabo 90 0 90 Sea World of Ohio 1,500 0 1,500 Sea World of Ohio 1,500 0 1,500 Sea World of Ohio 9,000 0 9,000 Total2000 Tax Ct. Memo LEXIS 395">*445 2000 Tax Ct. Memo LEXIS 395">*446 Total Income 2000 Tax Ct. Memo LEXIS 395">*447 ___________ _____ Payor Amount _____ ______ Robert Sabo $ 600 0 $ 600 Robert Sabo 70 0 70 Robert Sabo 35 0 35 Fish and Feathers International 250 0 250 Robert Sabo 1,000 0 1,000 Robert Sabo 500 0 500 Bad Film 10,500 ($ 10,500) 0 Educational Zoological Programs Inc. 200 0 200 State of Ohio 1,000 0 1,000 Robert Sabo 35 0 35 Robert Sabo 123 0 123 Avian Farms 2,750 0 2000 Tax Ct. Memo LEXIS 395">*448 2,750 Mary Z. Reed 500 0 500 Avian Farms 35 0 35 ITT Hartford 595 0 595 Robert Sabo 66 0 66 Avian Farms 1,000 0 1,000 Sea World of Ohio 1,800 0 1,800 Avian Farms 1,000 0 1,000 Mary Z. Reed 1,500 0 1,500 Sea World of Ohio 1,800 0 1,800 Sea World of Ohio 1,200 0 1,200 ________ __________ ______ Total 26,559 (10,500) 16,059 1991 Royalty Income Payor Amount Concessions Total 2000 Tax Ct. Memo LEXIS 395">*449 _____ ______ ___________ _____ Pennzoil Products $ 249 $ 0 $ 249 Pennzoil Products 209 0 209 Pennzoil Products 241 0 241 Pennzoil Products 337 0 337 Pennzoil Products 217 0 217 Pennzoil Products 578 0 578 Pennzoil Products 369 0 369 Total 2,199 0 2,199 ______ ________ ______ Total Income 2000 Tax Ct. Memo LEXIS 395">*450 APPENDIX E 1992 Gross Receipts As Stated in Notice of Deficiency Concessions Total _________________________________ ___________ _____ Payor Amount _____ ______ Educational Zoological Programs, Inc. $ 100 0 $ 100 Anheuser-Busch 2,000 0 2,000 Anheuser-Busch 2,700 0 2,700 Anheuser-Busch 1,400 0 1,400 Timothy L. Charles 500 0 500 Anheuser-Busch 1,400 0 1,400 Avian Farms 560 0 560 Avian Farms 350 0 350 Avian Farms 70 0 70 Anheuser-Busch 1,600 0 1,600 Anheuser-Busch2000 Tax Ct. Memo LEXIS 395">*451 1,200 0 1,200 Anheuser-Busch 1,200 0 1,200 Anheuser-Busch 1,200 0 1,200 Cortland Savings Bank 391 ($ 391) 0 Anheuser-Busch 1,200 0 1,200 Anheuser-Busch 1,200 0 1,200 Anheuser-Busch 1,200 0 1,200 ______ _______ _______ Total 8,271 (391) 17,880 1992 Royalty Income Payor Amount Concessions Total _____ ______ ___________ _____ Pennzoil Products $ 155 $ 0 $ 155 Pennzoil Products 281 0 281 Pennzoil Products 2000 Tax Ct. Memo LEXIS 395">*452 257 0 257 Pennzoil Products 332 0 332 Pennzoil Products 745 0 745 Pennzoil Products 432 0 432 ________ ______ _______ Total 2,203 0 2,203 ________ ______ _______ Total Income 2000 Tax Ct. Memo LEXIS 395">*453 _____ ______ _____ ____________ Sea World of Ohio $ 500 Dr. Temple Sea World of Ohio 500 Dr. Temple Sea World of Ohio 1,000 Dr. Temple Sea World of Ohio 1,500 Dr. Temple Swan Lake Llamas 5,750 Plume Enterprises 400359855 Sea World of Ohio 1,500 Dr. Temple Sea World of Ohio 1,500 Dr. Temple Sea World of Ohio 1,500 Dr. Temple Sea World of Ohio 1,500 Dr. Temple Sea World of Ohio 5,000 Plume Enterprises 400359855 Jerome T. Grone 2,500 Plume Enterprises 400359855 Sea World of Ohio 1,500 Dr. Temple Sunny Hill Farm 1,500 Plume Enterprises 400359855 John C. Gifford 100 Plume Enterprises 400359855 Sunny Hill Farm 13,500 Plume Enterprises 400359855 John C. Gifford 1,100 Plume Enterprises 400359855 John C. Gifford 7,300 Plume Enterprises 400359855 _______ Total 47,750 2000 Tax Ct. Memo LEXIS 395">*454 APPENDIX G 1989 Gross Receipts Deposited in Payor Amount Payee Account No. _____ ______ _____ ____________ Llamas of Michigan $ 2,450 Plume Enterprises 400359855 Llamas of Michigan 22,050 Plume Enterprises 400359855 Dennis Grodings 900 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 John C. Gifford 9,500 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Sea World of Ohio 105 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 John C. Gifford 1,200 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 State of Ohio 3,649 Plume Enterprises 400359855 Ronald2000 Tax Ct. Memo LEXIS 395">*455 G. DeRhodes 22,000 Plume Enterprises 400359855 Canton Veterinary Hospital 5,000 Plume Enterprises 400359855 Sea World of Ohio 3,000 Plume Enterprises 400359855 Wendy H. Arbogast 1,800 Plume Enterprises 400359855 Constance A. Halle 150 Plume Enterprises 400359855 William C. Crawford 200 Plume Enterprises 400359855 William C. Crawford 1,000 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Ronald C. Blidar 1,800 Plume Enterprises 400359855 Ronald C. Blidar 1,000 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 John C. Gifford 600 Galingale Group 400359863 _______ Total 88,404 APPENDIX H 2000 Tax Ct. Memo LEXIS 395">*456 1990 Gross Receipts Deposited in Payor Amount Payee Account No. _____ ______ _____ ____________ John C. Gifford $ 9,500 Plume Enterprises 400359855 Educational Zoological Programs, Inc. 100 Plume Enterprises 400359855 Kerney L. Martini 8,500 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Kerney L. Martini 7,500 Plume Enterprises 400359855 Intuit 2 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Educational Zoological Programs, Inc. 350 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Sea World of Ohio 1,200 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Wendy2000 Tax Ct. Memo LEXIS 395">*457 H. Arbogast 200 Plume Enterprises 400359855 Educational Zoological Programs Inc. 100 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Robert Sabo 145 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Ronald G. DeRhodes 1,200 Plume Enterprises 400359855 State of Ohio 728 Plume Enterprises 400359855 Wendy H. Arbogast 1,800 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Robert Sabo 135 Plume Enterprises 400359855 Robert Sabo 210 Plume Enterprises 400359855 Sea World of Ohio 1,500 Plume Enterprises 400359855 Educational Zoological Programs, Inc. 100 Plume Enterprises 400359855 William Boever 2000 Tax Ct. Memo LEXIS 395">*458 15,500 Galingale Llamas 2000 Tax Ct. Memo LEXIS 395">*459 Eton Trust Co., Ltd. Trustee 2000 Tax Ct. Memo LEXIS 395">*460 Deposited in Payor Amount Payee Account No. _____ ______ _____ ____________ Robert Sabo $ 600 Wendy Arbogast 400359855 Robert Sabo 70 Plume Enterprises 400359855 Robert Sabo 35 Plume Enterprises 400359855 Fish and Feathers International 250 Plume Enterprises 400359855 Robert Sabo 1,000 Plume Enterprises 400359855 Robert Sabo 500 Plume Enterprises 400359855 Educational Zoological Programs, Inc. 200 Plume Enterprises 400359855 State of Ohio 1,000 Plume Enterprises 400359855 Robert Sabo 35 Plume Enterprises 400359855 Robert Sabo 123 Plume Enterprises 400359855 Avian Farms 2,750 Plume Enterprises 400359855 Mary Z. Reed 500 Plume Enterprises 400359855 Avian2000 Tax Ct. Memo LEXIS 395">*461 Farms 35 Plume Enterprises 400359855 ITT Hartford 595 Plume Enterprises 400359855 Robert Sabo 66 Plume Enterprises 400359855 Avian Farms 1,000 Plume Enterprises 400359855 Sea World of Ohio 1,800 Plume Enterprises 400359855 Avian Farms 1,000 Plume Enterprises 400359855 Mary Z. Reed 1,500 Plume Enterprises 400359855 Sea World of Ohio 1,800 Plume Enterprises 400359855 Sea World of Ohio 1,200 Plume Enterprises 400359855 ______ Total 16,059 1991 Royalty Income Deposited in Payor Amount Payee Account No. _____ ______ ______ ____________ Pennzoil Products $ 249 Trundle Management 2000 Tax Ct. Memo LEXIS 395">*462 Eton Trust Co., Ltd., Trustee 2000 Tax Ct. Memo LEXIS 395">*463 369 Trundle Management Eton Trust Co., Ltd., Trustee 1163506106 _______ Total 2,199 _______ Total Income 2000 Tax Ct. Memo LEXIS 395">*464 2,000 Plume Enterprises 400359855 Anheuser-Busch 2,700 Plume Enterprises 400359855 Anheuser-Busch 1,400 Plume Enterprises 400359855 Timothy L. Charles 500 Galingale Group 400359863 Anheuser-Busch 1,400 Plume Enterprises 400359855 Avian Farms 560 Galingale Group 400359863 Avian Farms 350 Galingale Group 400359863 Avian Farms 70 Plume Enterprises 400359855 Anheuser-Busch 1,600 Plume Enterprises 23-043-10 Anheuser-Busch 1,200 Plume Enterprises 23-043-10 Anheuser-Busch 1,200 Plume Enterprises 23-043-10 Anheuser-Busch 1,200 Plume Enterprises 23-043-10 Anheuser-Busch 1,200 Plume Enterprises 23-043-10 Anheuser-Busch 1,200 Plume Enterprises 23-043-10 Anheuser-Busch 1,200 Plume Enterprises 23-043-10 ______ Total 2000 Tax Ct. Memo LEXIS 395">*465 17,880 1992 Royalty Income Deposited in Payor Amount Payee Account No. _____ ______ _____ ____________ Pennzoil Products $ 155 Trundle Management Eton Trust Co., Ltd., Trustee 2000 Tax Ct. Memo LEXIS 395">*466 Products 745 Trundle Management Eton Trust Co., Ltd., Trustee 1163506106 Pennzoil Products 432 Trundle Management Eton Trust Co., Ltd., Trustee 1163506106 ______ Total 2,203 Total Income 1. Respondent concedes the following amounts of income set forth in the computation of petitioner's gross receipts from veterinary services and the sale of animals in the statutory notice of deficiency: $ 34,450 in 1988 (see appendix A); $ 1,815 in 1989 (see appendix B); $ 1,800 in 1990 (see appendix C); $ 10,500 in 1991 (see appendix D); and $ 391 in 1992 (see appendix E).↩ 2. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩ 3. Anheuser Busch purchased Sea World in 1989.↩ 4. Purchased a snake.↩ 1. See appendix F.↩ 2. See appendix G.↩ 3. See appendix H.↩ 4. See appendix I.↩ 5. See appendix J.↩ 5. See appendix F.↩ 6. All amounts throughout this opinion are rounded to the nearest dollar.↩ 7. See appendix H. This check was payable to Galingale Llamas and deposited into a Bank One account, account No. 400359863 (Bank One 863 account). Mrs. Temple had signatory authority over this account.↩ 8. See appendix I. This check was payable to Wendy Arbogast but deposited in Plume Enterprises' Bank One account, account No. 400359855 (Bank One 855 account). Mrs. Temple had signatory authority over this account.↩ 9. See appendix J. These checks were payable to Galingale Group and deposited into the Bank One 863 account. Mrs. Temple had signatory authority over this account.↩ 10. See appendixes F, G, H, I, and J.↩ 11. For a period that included June 10, 1988, through Sept. 25, 1992.↩ 1. These checks, totaling $ 3,500, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩ 2. These checks, totaling $ 3,500, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩ 12. For a period that included June 13, 1988, through Sept. 30, 1992.↩ 1. These checks, totaling $ 8,000, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩ 2. These checks, totaling $ 8,000, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩ 3. These checks, totaling $ 8,000, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩ 4. These checks, totaling $ 8,000, were deposited in an account with Second National Bank, account No. 1163506106. Mrs. Temple had signatory authority over this account, and monthly bank statements were sent to petitioner's residence.↩ 13. Account No. 23-043-10. See appendix J.↩ 14. For the period beginning Aug. 18 and ending Oct. 30, 1992. owner's address.↩ 1. L. R. Mayer was the executive director of Oxford Charter Corp. during 1987. Oxford Charter Corp. was listed as trustee on Plume Enterprises' Bank One 855 account and for a Plume Enterprises' bank account with Society Bank of Eastern Ohio.↩ 2. Control Management had a contract with Plume Enterprises with Pritchel & Pritchel as trustee. The agreement stated, in part, that Control Management would establish and maintain bank accounts for Plume Enterprises.↩ 3. The notation on this check indicates that it is payment for trustee fees.↩ 15. For a period that included May 2, 1988, through Dec. 29, 1992.↩ 16. Several substantial deposits were also made into Piccolo's account by Plume Enterprises, drawn on account No. 400359855 and by Trundle Management, drawn on account No. 1163506106. All these deposits were made by checks signed by Mrs. Temple in the years 1988- 1992.↩ 17. We note that petitioner's attorney Frank R. Bodor was the taxpayer, along with his wife Gina Bodor, in 1. This check was issued in 1992 and signed by B. L. Holtzhauer with what appears to be a signature stamp.↩ 18. For a period that included Nov. 22, 1988, through Mar. 15, 1990.↩ 19. For a period that included Mar. 15, 1990, through Dec. 7, 1992.↩ 20. Nassau Life Insurance Co. was an entity which assisted taxpayers to avoid the payment and collection of their Federal income taxes. See 21. The tax mailing address used by Nassau Life Insurance Co. on the warranty deeds was P.M.B. 11 Grand Turk, Turks & Caicos Islands, British West Indies.↩ 22. The tax mailing address used by Eton Trust Co., Ltd., on the warranty deeds was Grant Petroleum Building, Providenciales, British West Indies.↩ 23. The timing of the transfer is similar to the facts in 1. See appendix H.↩ 2. See appendix I.↩ 3. See appendix J.↩ 24. For a period that included June 9, 1988, through Jan. 8, 1993.↩ 1. B. L. Holtzhauer signed one check in the amount of $ 60, payable to Universal Disposal in 1992.↩ 25. See appendix F.↩ 26. See appendix G.↩ 27. See appendix H.↩ 28. See appendix I.↩ 29. See appendix J.↩ 30. One check for $ 600 was actually made payable to one of petitioner's customers, Wendy Arbogast, but deposited into the Bank One 855 account. See appendix I.↩ 31. Consisting of checks totaling $ 11,534 from the Bank One 855 account and checks totaling $ 26,720 from the Bank One 863 account.↩ 32. Additional checks totaling $ 825 were used to pay L. R. Mayer ($ 125), Control Management ($ 400), and McMeyers & Ford ($ 300). We believe these expenses were incurred, in part, to maintain the appearance of a valid trust arrangement. Most of the remaining funds were spent on travel expenses.↩ 33. Sec. 6653(b)(1) provides, in part: SEC. 6653(b) Fraud.-- (1) In General. -- If any part of any underpayment * * * of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.↩ 34. Sec. 6651(f) provides: SEC. 6651(f) Increase in Penalty for Fraudulent Failure to File. -- If any failure to file any return is fraudulent, paragraph (1) of subsection (a) shall be applied -- (1) by substituting "15 percent" for "5 percent" each place it appears, and (2) by substituting "75 percent" for "25 percent". Sec. 6651(a)(1) provides in relevant part: SEC. 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX. (a) addition to the Tax. -- In case of failure -- (1) to file any return required under authority of subchapter A of chapter 61 * * * on the date prescribed therefore (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate;↩ 35. See appendix A or F.↩ 36. See appendix B or G.↩ 37. See appendix C or H.↩ 38. See appendix D or I.↩ 39. See appendix E or J.↩ 40. Use of bank accounts fashioned as trust accounts to conceal assets.↩ 1. On some checks, more than one party is listed on a payor's check (i.e., John and Maria Gifford). We note, that in some instances, respondent may list one payor (i.e., John Gifford) as the payor when in fact it was the other party, presumably his spouse (i.e., Maria Gifford) who signed the check. These differences haveno impact on our decision, and for consistency, we use only the name of the party used by respondent in the notice of deficiency throughout these appendixes.↩ 1. In the notice of deficiency, the total is $ 74,360, however, this appears to be an adding error.↩ 1. Respondent originally included payment from Scavenger Oil in its computation of petitioner's gross receipts from the sale of animals and for royalty income. In respondent's concessions, the double counting of this one check was eliminated. We note that the record is not clear on whether the payment was for the purchase of an animal or for royalty payments. Nevertheless, it is clear that petitioner received an $ 1,800 payment from Scavenger Oil in 1990. Whether the check represents payment for the purchase of an animal or royalty income has no bearing on the outcome of this case. In either case, it is taxable income to petitioner as ordinary income.↩ 2. Includes totals from previous page.↩ 1. There is a $ 1 difference in the totals due to rounding.↩ 1. There is a $ 1 difference in the totals due to rounding.↩ 1. The deposit slip shows that Galingale Llamas belongs to Galingale Group.↩ 1. Petitioner's address is listed as the mailing address for all checks made payable to Trundle Management.↩ 2. Includes totals from previous page.↩ 1. Petitioner's address is listed as the mailing address for all checks made payable to Trundle Management.↩ 2. There is a $ 1 difference in the totals due to rounding.↩ 1. Petitioner's address is listed as the mailing address for all checks made payable to Trundle Management.↩ 2. There is a $ 1 difference in the totals due to rounding.↩Footnotes
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