Memorandum Findings of Fact and Opinion
MULRONEY, Judge: Respondent determined deficiencies in income tax and additions to tax as follows:
| | Additions to |
| | Tax Under |
| Year | Income Tax | Section 291(a) |
| 1946 | $584.85 | $146.21 |
| 1947 | 160.98 | 40.25 |
| 1948 | 270.47 | 67.62 |
| 1949 | 190.71 | |
The issues presented are (1) whether the respondent was correct in computing the petitioner's taxable income for years involved on the cash receipts and disbursements method; (2) whether the petitioner is liable for additions to tax under section 291(a) of the 1939 Internal Revenue Code1 for the years 1946, 1947, and 1948; and (3) whether the years 1946 and 1947 are barred by the statute of limitations.
Findings of Fact
Petitioner is a corporation organized under the laws of the State of New Jersey, with its principal office in Elizabeth, New Jersey. During the years here involved, the petitioner was engaged in the real estate business, owning and operating a single property. Rent from this property was petitioner's only income. In the years 1946, 1947, and 1948 petitioner filed a purported corporation income tax return with the then collector of internal revenue for the fifth district of New Jersey. These purported returns were signed only by Mario G. Mirabelli, designating himself as president in 1947 and 1948, but with no designation of any corporate title in 1946. Petitioner's 1949 corporate return, also filed with the then collector of internal revenue for the fifth district of New Jersey, was signed by Mario G. Mirabelli and Katherine Mirabelli, with the parties designating themselves as president and treasurer, respectively. During the years 1946 through 1949, inclusive, Mario G. Mirabelli was the president of the petitioner, and Katherine Mirabelli was treasurer. Albert J. Ruocco was the secretary of the petitioner in 1946. Mario is the sole stockholder of petitioner at the present time. He paid $400 for his stock at the time petitioner was organized.
No indication was made by the petitioner on the purported return filed for 1946 as to whether the return was made on the basis of the cash receipts and disbursements method or some other method. On the purported returns filed for the years 1947 and 1948, and the return for 1949, the word "accrual" appeared in the space provided on the form for that purpose. No inventories were kept by the petitioner.
Petitioner purchased the rental property in 1946 for approximately $86,000, and gave a mortgage for $62,000 on a loan from the Elizabethport Banking Company. At the time of the purchase, Mario G. Mirabelli made a loan of $5,000 to the petitioner, and at approximately the same period Katherine Mirabelli made a loan to the petitioner of $21,000. The balance remaining unpaid on the mortgage on November 7, 1956, was $46,264.91.
Petitioner was unable to produce or turn over any books or records for the years here involved to the revenue agent who was making an examination of petitioner's returns for those years. There were no minute books or transfer books, no general ledgers, no cash receipts or disbursements books, nor were there any other records of any formal nature. It was therefore necessary for the agent to compute the petitioner's income for those years on a cash basis, using as a basis of such computation the petitioner's canceled checks and bank statements which were made available. In making this computation, the agent disallowed certain items on the returns which apparently represented accruals. It is this computation by the revenue agent of petitioner's income for the years 1946 through 1949 that gives rise to the deficiencies determined by the respondent.
Opinion
We have examined the entire record carefully and conclude that the respondent was correct in making the computation of the petitioner's income for the years 1946 through 1949 on the cash basis. Section 41.2 It should be made clear at the outset that this is not a case where the respondent has changed a taxpayer's long established and consistently used method of accounting on the ground that it does not clearly reflect income or on any other ground. Instead, it is a matter of deciding which method of accounting the taxpayer is on - cash or accrual - and then computing the taxpayer's income in a manner consistent with such method. See Harry Hartley, 23 T.C. 353; Elsie SoRelle, 22 T.C. 459. Here, no books or other records, however fragmentary, were introduced in evidence, and we conclude that none were kept during the years here involved. Where books and records are not in existence, and absent any other satisfactory evidence as to a method of accounting, this Court has approved the determination of the respondent that the cash receipts and disbursements method should be used. Federico Stallforth, 6 T.C. 140; Mansuss Realty Co., 1 T.C. 932, affd. 143 Fed. (2d) 286; Sam Greengard, 8 B.T.A. 734, affd. 29 Fed. (2d) 502. We have examined the returns filed by petitioner for the years involved, and we have studied the nature of its operations and are convinced that the petitioner's method of accounting for its income, rudimentary as it was, more closely resembled the cash receipts and disbursements method than the accrual method. Its income was entirely from rentals, and we have been given no indication that any of the rentals reported as income represent accruals. No inventories were kept or needed. We are shown no accruals of salaries or other compensation for services. There are no books which would make the accrual method at all meaningful, and, as we pointed out in Paul Irvin Redcay, 12 T.C. 806, "'an accrual method without accounting records is an anomaly.'" Nor is the label which the petitioner attaches to its income tax returns determinative of the question before us. Aluminum Castings Co. v. Routzahn, 282 U.S. 92. It is true that the petitioner introduced as evidence at the trial certain balance sheets, one for each of the years involved. We have examined these and do not see how they can establish that the petitioner was on the accrual basis during those years. There appears on these statements an item, on the liability side, designated as an accrual of interest, which appears to be a cumulative figure from year to year. However, even as to this figure, there is no correlation between it and the amounts deducted as interest on the returns filed by petitioner. Consequently, the mere presence of such items on these financial statements standing alone, is of no help to this Court in deciding whether or not petitioner was on the accrual basis. Certainly such items do not by themselves establish that the petitioner was on an accrual basis, for it is clear that minor deviations from the cash basis are not sufficient to sustain a holding that the accrual basis was used. Estate of L. W. Mallory, 44 B.T.A. 249; cf. M. D. Rowe, 7 B.T.A. 903.
Respondent has determined additions to petitioner's tax for the years 1946, 1947, and 1948 under section 291(a) 3 for failure to make and file the required corporate returns for those years. Petitioner's returns for those years were signed only Mario G. Mirabelli as president. However, we have found as a fact that during these same years petitioner's treasurer was Katherine Mirabelli, and without her signature as well as that of Mario it cannot be said that the returns filed by petitioner for the years 1946, 1947, and 1948 were proper returns within the meaning of section 52(a).4 Section 52(a) specifies that a "return shall be sworn to by the president, vice president, or other principal officer and by the treasurer, assistant treasurer, or chief accounting officer." These requirements are mandatory. Fourth & Railroad Realty Co., 25 T.C. 458; Burford Oil Co., 4 T.C. 613, affd. 153 Fed. (2d) 745. We do not believe that Mario was, in effect, both president and treasurer, and therefore cases like Lucas v. Pilloid Lumber Co., 281 U.S. 245, and Consolidated Apparel Co., 17 T.C. 1570, reversed in part on other issues, 207 Fed. (2d) 580, are not applicable. During the year 1946, Albert J. Ruocco was secretary of the petitioner, and his name appears on the return for that year as a notary, but not as a corporate officer. We do not see how this meets the requirements of section 52(a). The purpose of the signature on a corporate return by the corporate officers is to fix responsibility, and we do not believe that a signature as a notary meets this need. Petitioner has not shown reasonable cause for its failure to file proper corporate returns for the years 1946, 1947, and 1948. We conclude that petitioner did not file a corporation income tax return as required by section 52(a) and that, absent a showing of reasonable cause, the addition to tax under section 291 is applicable.
Petitioner argues that the years 1946 and 1947 are barred by the statute of limitations. We cannot agree. Section 276(a) provides that in the case "of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time." We have held that the returns filed by the petitioner in 1946 and 1947 were not proper returns within the meaning of section 52(a), and we conclude that this holding is also determinative of the statute of limitations issue. We hold that petitioner failed to file a return for the years 1946 and 1947 and that consequently, under section 276(a), the deficiencies for those years are properly before this Court.
Decision will be entered for the respondent.