Britt v. Commissioner
This text of 1988 T.C. Memo. 419 (Britt v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
After receiving an extension of time within which to file, petitioner prepared a 1983 joint Federal income tax return on behalf of himself and his wife shortly before the August 15, 1984, due date. The return was not received by respondent, who on August 20, 1985, filed a "dummy" return on petitioner's behalf which designated petitioner's filing status as married filing separately. Thereafter, petitioner tendered a joint return to respondent which we ordered filed.
MEMORANDUM FINDINGS OF FACT AND OPINION
WHITAKER,
| LYLE W. BRITT | |||||
| Additions to Tax | |||||
| Section 1*438 | Section | Section | Section | ||
| Year | Deficiency | 6653(b)(1) | 6653(b)(2) | 6654 | 6661 |
| 1983 | $ 34,357 | $ 17,178 | 50% of interest | $ 2,103 | $ 3,436 |
| due on $ 34,357 | |||||
| LYLE W. AND SUE K. BRITT | ||||
| Additions to Tax | ||||
| Section | Section | Section | ||
| Year | Deficiency | 6653(b)(1) | 6653(b)(2) | 6661 |
| 1981 | $ 10,857 | $ 5,428 | -- | -- |
| 1982 | 6,092 | 3,046 | 50% of interest | $ 609 |
| due on $ 6,092 | ||||
| LYLE W. BRITT CHARTERED | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additions to Tax | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Section | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LYLE W. BRITT | |||||
| Additions to Tax | |||||
| Section 1*438 | Section | Section | Section | ||
| Year | Deficiency | 6653(b)(1) | 6653(b)(2) | 6654 | 6661 |
| 1983 | $ 34,357 | $ 17,178 | 50% of interest | $ 2,103 | $ 3,436 |
| due on $ 34,357 | |||||
| LYLE W. AND SUE K. BRITT | ||||
| Additions to Tax | ||||
| Section | Section | Section | ||
| Year | Deficiency | 6653(b)(1) | 6653(b)(2) | 6661 |
| 1981 | $ 10,857 | $ 5,428 | -- | -- |
| 1982 | 6,092 | 3,046 | 50% of interest | $ 609 |
| due on $ 6,092 | ||||
| LYLE W. BRITT CHARTERED | |||
| Additions to Tax | |||
| Section | Section | ||
| Year | Deficiency | 6653(b)(1) | 6653(b)(2) |
| 1981 | $ 3,613.73 | $ 1,806.87 | -- |
| 1982 | 2,677.42 | 1,338.71 | 50% of interest |
| due on $ 3,677.42 | |||
| 1983 | 8,670.05 | 4,335.02 | 50% of interest |
| due on $ 8,670.05 | |||
Petitioners, who have been most uncooperative in all their dealings with respondent, were not permitted to present evidence concerning corporate expenditures on behalf of the individual petitioners, as facts pertaining to these matters were deemed admitted pursuant to
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation and attached exhibits are incorporated herein by this reference. Additionally, some of the facts have been deemed admitted pursuant to
At the time their petitions were filed, the individual petitioners 4*440 were residents of Derby, Kansas, and Lyle W. Britt, Chartered (Chartered), had its principal place of business in Wichita, Kansas. Petitioner filed timely joint Federal income tax returns with his wife for the years 1981 and 1982. Chartered filed timely Federal income tax returns for all years at issue.
Chartered is wholly owned and controlled by petitioner, who practiced law through it as a sole practitioner. Petitioner supervised the maintenance of the corporate books and records and also the preparation and filing of the corporate tax returns. He personally prepared the personal income tax returns for himself and his wife.
At various times during the years in issue, Chartered paid petitioner's FICA taxes, deducting those payments as both business expenses and petitioner's salary. Chartered also paid part or all of the Federal, state, local, and personal property taxes of petitioner and his wife for those years. Finally, Chartered paid for many of the personal expenses of petitioner and his wife. In many cases, Chartered took deductions for these expenditures, although they were not reflected on petitioner's Form W-2, nor did he otherwise report those sums as income. These expenditures, as well as whether they were paid from Chartered's operating or trust account, are set forth with more specificity in Appendix A.
On April 14, 1984, petitioner *441 and his wife filed an application for an automatic extension of time within which to file their 1983 Federal income tax return. That request for extension showed no taxes to be due. In the few days before August 15, 1984, when the automatic extension was to expire, petitioner prepared a 1983 joint Federal income tax return for himself and his wife which they both duly executed. Petitioner placed the return in an envelope provided by the Internal Revenue Service which accompanied petitioner's Form 1040 packet. Petitioner then took the return to his office where the return was mailed along with the regular office mail.
An audit of petitioner's 1983 tax year was begun on November 30, 1984, by revenue agent Steven J. Glotzdach, who was the first to inform petitioner that he had no 1983 Federal income tax return on file. Petitioner provided agent Glotzdach with an unsigned photocopy of the 1983 return which he had previously prepared, asking him to accept it then for filing. Agent Glotzdach refused to accept the return, telling petitioner that a return could not be filed once an audit had begun. Petitioner made no further effort to file his 1983 Federal income tax return until after *442 trial when, at the Court's suggestion, petitioner prepared, executed, 5 and delivered to respondent's counsel a 1983 joint Federal income tax return utilizing the married filing jointly rates. The return was based upon the income and deductions determined by respondent in the statutory notice modified only by respondent's concession with respect to the automobile. That return was ordered filed with respondent by this Court by order dated June 3, 1988, as amended on June 22, 1988.
Respondent's Certificate of Official Record, made part of the record herein, reflects the filing on April 15, 1984, of petitioner's request for an extension of time within which to file a 1983 joint return. That Certificate also reflects respondent's filing of a substitute for return on August 20, 1985. That unsigned return consisted of only the front page of a Form 1040 containing petitioner's name and address, taxpayer identification number, and number of dependency exemptions, and designated his filing status as married filing separately. The Certificate does not reflect the filing of a joint return for 1983.
OPINION
The vast majority of facts describing *443 the transactions of Chartered and petitioner are based upon respondent's request for admissions which are deemed admitted under
We find that petitioner diverted corporate funds for his personal use, with Chartered in many instances claiming deductions under
It is sufficient to point out that the evidence discloses a plan of petitioner * * * to obtain earnings of the Corporate under the guise of corporate expenses and capital outlays, and not include the distributions in returns for tax purposes. The scheme and the effort made to conceal the actualities contain all of the essential earmarks of a determination to evade income taxes by false and fraudulent means.
The plan, as conceived by petitioner, required participation by the corporation, which was no obstacle in view of his complete ownership of its stock * * *. The intent of the individuals under the circumstances is to be imputed to the Corporation.
We therefore find petitioner and Chartered liable for an addition to tax under
We do not, however, find that Sue Britt shares in petitioner's and Chartered's liability for fraud. The complete control exercised by Britt over Chartered which is a persuasive element in Chartered's liability for the penalty makes it less likely that she "intended to evade taxes known to be owing by conduct intended to conceal, mislead or otherwise prevent the collection of such taxes."
Petitioner next contends that his testimony establishes that he and his wife filed a timely 1983 joint Federal income tax return by mail on or before the date on which their automatic extension expired in 1984. Respondent has no record of such a return being filed and argues that petitioner's testimony is insufficient to prove mailing. Further, respondent argues that he filed a separate return on petitioner's behalf pursuant to section 6020(b), and that since petitioner has filed a petition with this Court he is prohibited by
Section 7502 provides procedures whereby timely mailing of a document required by any internal revenue law shall be considered timely filing. However, that section is inapplicable when, as here, the document is not delivered. Sec. 301.7502-1(d), Proced. & Admin. Regs. The risk of nondelivery rests upon petitioner,
Respondent did not determine an addition to tax pursuant to section 6651 for failure to file a timely return. 7 The date the return was filed is therefore irrelevant for that purpose. However, respondent did determine an addition to tax for fraud pursuant to
Neither does petitioner's assertion that he is entitled to utilize the married filing jointly rates require us to determine whether petitioner filed a timely 1983 joint return. In
The "return" filed by respondent on petitioner's behalf contains no more than petitioner's name, address, taxpayer identification number, number of dependency exemptions, and his filing status, which respondent designated as married filing separately. That document does not contain sufficient data to calculate tax liability. See
Since no separate return was filed for purposes of
APPENDIX A
On November 16, 1987, respondent filed with the Court his request for admissions as follows:
1. During the taxable years 1981 , 1982 and 1983, Britt was a practicing attorney who practiced for his wholly-owned and controlled corporation, Lyle W. Britt Chartered, of which he was the president and sole officer.
2. Britt was the sole attorney practicing for Chartered during the years 1981 through 1983 (hereafter years in issue).
3. In his capacity as president *451 and sole officer of Chartered, Britt was solely and directly responsible for and controlled the day-to-day operations of Chartered.
4. Britt personally directed, controlled and supervised the employees of Chartered in the maintenance of the corporations books and records during the years in issue.
5. Britt prepared or caused to be prepared Chartered's income tax returns for each of the years in issue, and Britt signed and filed or caused those returns to be filed for each of the years in issue.
6. During the years in issue, Chartered was engaged in the business of providing legal services for which income was received.
7. Britt personally maintained the books and records of Lyle and Sue Britt for the taxable years 1981 and 1982.
8. Britt personally prepared the 1981 and 1982 income tax returns of Lyle and Sue Britt, which returns were examined, signed and filed by them for those years.
9. Britt was personally responsible for maintaining books and records of his income, deductions and liability for taxes for the taxable year 1983.
* * *
11. During the years 1981, 1982 and 1983, Chartered paid Britt's F.I.C.A. taxes in the amounts of $ 1,975.05, $ 2,171.80 and $ 2,3091.90, *452 respectively, without deducting those from his salary and without including those amounts as income on Britt's Forms W-2.
12. In 1982 and 1983, Chartered paid from its account no. XX2763 the personal federal income tax liabilities of the Britts for the taxable years 1981 and 1982 in the amounts of $ 1,551.00 and $ 4,146.00, respectively, and those payments were not included in the income shown on Britt's Forms W-2 or reported on the income tax returns for the respective years.
13. Payments were made to GMAC on Britt's Camaro from Chartered's account no. XX2763 in 1981 and 1982 in the amounts of $ 1,857.08 and $ 1,370.90, respectively.
14. In 1982, payments were made from Chartered's account no. XX2763 for (a) the Britt's income tax penalties for 1981 in the amount of $ 119.15, (b) the Britt's Kansas income tax liability for the year 1981 in the amount of $ 297.56, (c) personal property tax, tag and penalty for Britt's Camaro in the amount of $ 209.25, and (d) on Britt's loan no. 108549 at Valley State Bank in a total amount of $ 5,959.74.
15. In 1983, payments were made from Chartered's account no. XX2763 for the items and amounts as follows:
| Item | Amount |
| a. Britt's Kansas Income Tax for 1982 | $ 471.26 |
| b. Jaguar insurance | $ 63.23 |
| c. Sue Britt travel (check no. 2165) | $ 608.00 |
| d. IRA for 1982 | $ 2,250.00 |
| e. Carl Heidolph-home improvements | |
| (check nos. 1911 and 1887) | $ 1,100.00 |
| f. Valley State Bank -- Loan Nos. | |
| 1085406 and 1085417 | $ 1,730.00 |
*453 16. In 1981, payments were made from Chartered's Trust Account no. XX3174 as follows:
| Item | Amount |
| a. Britt (check no. 319) | $ 1,000.00 |
| b. Jewelry-Sue Britt (check no. 357) | $ 1,000.00 |
| c. Britt (check no. 358) | $ 1,100.00 |
17. In 1983, the following payments were made from Chartered's Trust Account No. XX3174 on Valley State Bank loans nos. XXX5403 and XXX5416 of which $ 1,740.04 and $ 1,313.00, respectively, represented personal loan payments.
18. In 1983, the payment of $ 6,456.32 was made to Wichita State Bank on a loan of World of Rodeo from Chartered's Trust account no. XX3174.
19. World of Rodeo is wholly-owned by Lyle and Sue Britt.
20. Britt reduced an invoice to the Britts from Mike Turpin for $ 1,016.00 by $ 350.00 for professional services in 1982.
21. During 1981, 1982 and 1983, unidentified deposits were made to the Britt's personal checking account no. 331449 at Valley State Bank in the total amounts of $ 2,750.05, $ 1,320.68 and $ 3,911.83, respectively, as is more specifically set out by date and amount on Exhibit A.
22. In 1983, the Britts made currency deposits of $ 870.00 and $ 4,100.00 to their Valley State Bank account no. XX1449.
23. During 1981, 1982 and 1983, *454 Chartered paid medical expenses for the Britts in the total amounts of $ 2,047.64, $ 2,457.23 and $ 3,476.85, respectively.
24. Chartered did not pay medical expenses for other full time employees, other than premiums for medical insurance.
25. On June 22, 1983, currency in the amount of $ 5,500.00 was deposited to the bank account of World of Rodeo.
27. In 1983, Britt expended $ 15,714.47 more than he had available from known and reported sources of income as shown on Exhibit A-1 to the statutory notice of deficiency.
28. In 1983, Britt received wages from Chartered in the amount of $ 52,161.60.
29. Title to the 1969 Jaguar referred to in paragraph 26 above was applied for in April 1984 in the name of Sue Britt and was conveyed from Mike Rogge on July 5, 1983.
30. Rodeo Publishing Corporation, Inc., did not file a Federal income tax return, Form 1120-S, for the taxable year 1983.
31. In 1983, Rodeo Publishing Corporation, Inc., sustained an ordinary loss due to business operations of $ 22,915.63 and Schedule D losses of $ 46,623.07.
32. Lyle and Sue Britt claimed a $ 28,901.00 medical deduction on their Form 1040 for 1980 for costs of a pool, spa (jacuzzi) and *455 pool house, which amount included the excess of the Britts' claimed cost of $ 59,126.00 over their claimed increase in the fair market value of the property of $ 29,800.00.
33. In 1981, the Britts claimed the following items as medical expense deductions and those same items were claimed by the Britts as 1980 medical expense deductions.
| Item | Amount |
| a. Superior Plumbing | $ 606.40 |
| b. Current Electric | $ 104.88 |
| c. Aggregate Sand | $ 403.87 |
| d. Metz Lumber | $ 80.02 |
| e. Jack's Tile | $ 2,045.00 |
| f. Mike's Air & Heating | $ 412.00 |
| Total | $ 3,652.17 |
34. In 1981, the Britts claimed payments to Executive Pool of $ 2,000.00 and $ 2,720.00 as medical expense deductions and also claimed those amounts as part of the 1980 medical expense deductions.
35. The Britts claimed the $ 1,133.00 cost of a spa/hot tub heater on their 1981 return as a casualty loss and also claimed that amount as a medical expense, and they were reimbursed $ 883.00 by the insurance company for this spa/hot tub heater.
36. In 1981, the Britts claimed additional medical expenses deductions in the amounts of $ 3,573.94 and $ 8,998.20 as more specifically set forth at items 1 and 2 of Exhibit B.
37. In 1982, Chartered received repayments *456 of client advances which had been previously deducted as business expenses in the amount of $ 2,469.70 which amount was not recorded on the corporate records as income or as a deduction of business expenses.
38. In 1982 and 1983, Chartered deducted as business tax expense corporate payments of personal income tax and property tax of Britt.
39. During the years 1981, 1982 and 1983, Chartered deducted as business tax expenses payments of trust fund taxes for F.I.C.A., state income tax and Federal income tax and also deducted those same amounts as expenses for salaries or wages.
40. Chartered claimed an independent contractor expense of $ 1,020.00 on its 1983 return and also claimed the same payment as a janitor expense on its books and 1983 return.
41. Chartered claimed the full cost of an automobile acquisition as a business expense on its 1981 return.
42. In 1982 and 1983, Chartered claimed loan repayments in the amounts of $ 5,959.74 and $ 3,458.99 as corporate business expenses.
43. In 1983, Chartered paid $ 300.00 to Jeff DeHon and $ 160.00 to Bill Buck for services in the adoption of Adrienne by the Britts and charged those payments off as corporate business expenses. *457
44. In 1982, Chartered deducted a $ 1,000.00 loan to James Britt, Britt's father, as a business expense.
45. The Britts owned a 1982 Chevy Van which was used 100 percent for personal use.
46. Chartered claimed equipment expense of $ 4,834.42 in 1982, but has not produced any documentary evidence to substantiate this expenditure, its nature or purpose.
47. In 1981, Chartered paid $ 6,357.08 for two automobiles, consisting of $ 4,500.00 to Miller for a 1977 Corvette and $ 1,857.08 to GMAC for a 1981 Camaro, all of which was deducted as corporate expenses.
48. During the years 1981, 1982 and 1983, Chartered had a medical reimbursement plan; however, the employees other than Britt were not notified of that and employees other than Britt were not reimbursed for any medical, drug or doctors cost.
49. In 1983, Chartered deducted a $ 700.00 payment to Carl Heidolph as a corporate legal expense; however, the expense was for home improvement work on Britts' personal residence.
Footnotes
1. All section references are to the Internal Revenue Code of 1954, as amended and in effect during the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
2. Respondent's request for admissions is attached to this opinion as Appendix A. ↩
3. These requests are not included in Appendix A. ↩
4. Sue Britt is not a petitioner with respect to 1983, having been issued no statutory notice of deficiency for that year. For convenience all further references to petitioner are to Lyle Britt.
5. Petitioner's wife also executed this return. ↩
6. See also
Doncaster v. Commissioner, 77 T.C. 334↩ (1981)7. Pursuant to
section 301.6653-1(b) (2) (i)↩ , Proced. & Admin. Regs., an addition to tax for late filing is not assessed in cases where an addition to tax for fraud is assessed.8. On appeal, respondent abandoned his argument to the contrary. ↩
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1988 T.C. Memo. 419, 56 T.C.M. 56, 1988 Tax Ct. Memo LEXIS 437, Counsel Stack Legal Research, https://law.counselstack.com/opinion/britt-v-commissioner-tax-1988.