Kramer v. Commissioner
Opinion
An appropriate order will be issued denying petitioners' oral motion to dismiss in the case at docket No. 22457-91. Decisions will be entered under Rule 155.
MEMORANDUM FINDINGS OF FACT AND OPINION
BEGHE,
| Additions to Tax | ||||
| Sec. | Sec. | Sec. | ||
| Year | Deficiency | 6651(a)(1) | 6653(a)(1) | 6653(a)(2) |
| 1985 | $ 25,766 | $ 10,191.50 | $ 2,304.75 | 1*530 |
| Additions to Tax | |||||
| Sec. | Sec. | Sec. | Sec. | ||
| Year | Deficiency | 6653(b)(1)(A) | 6653(b)(1)(B) | 6654 | 6661 |
| 1986 | $ 338,783 | $ 254,087 | 1 | $ 15,981 | $ 84,696 |
| 1987 | 69,977 | 52,483 | 3,571 | 17,494 | |
After concessions, the following deficiencies and additions remain in dispute:
| Additions to Tax | ||||
| Sec. | Sec. | Sec. | ||
| Year | Deficiency | 6651(a)(1) | 6653(a)(1) | 6653(a)(2) |
| 1985 | $ 25,177 | $ 6,294.25 | $ 2,275.30 | 1 |
Free access — add to your briefcase to read the full text and ask questions with AI JACK J. KRAMER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent; JACK S. KRAMER 1 AND MAXINE C. KRAMER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Kramer v. Commissioner Docket Nos. 22785-90, 22457-91. T.C. Memo 1996-513; 1996 Tax Ct. Memo LEXIS 529; 72 T.C.M. (CCH) 1270; November 19, 1996, Filed *529 An appropriate order will be issued denying petitioners' oral motion to dismiss in the case at docket No. 22457-91. Decisions will be entered under Rule 155. Kathleen L. Donohue, BEGHE, Judge BEGHE MEMORANDUM FINDINGS OF FACT AND OPINION BEGHE,
After concessions, the following deficiencies and additions remain in dispute:
All section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references *531are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated. All references to petitioner are to petitioner Jack Kramer. All references to petitioners for tax year 1985 are to petitioner and Maxine C. Kramer (Maxine), his wife. The issues for consideration are: (1) Whether petitioners are liable for a deficiency in income tax for tax year 1985, and whether petitioner is so liable for tax years 1986 and 1987; (2) whether petitioners are liable for additions to tax for failure to file and negligence for 1985; and (3) whether petitioner is liable for additions to tax for fraud, underpayment of estimated tax, and substantial understatement for 1986 and 1987. We hold, based upon the parties' stipulations, respondent's concessions at trial, the entire record, and the findings below, that petitioner has deficiencies that are less than those recomputed by respondent for 1985 and 1986 and the same as respondent recomputed for 1987. We also hold petitioner liable for all determined additions computed on the reduced deficiencies. We further hold, based upon the parties' stipulations, respondent's concessions at trial, the entire record, and the findings below, that Maxine *532has no deficiency for 1985 and is therefore not liable for any additions to tax for that year. 4 FINDINGS OF FACTSome of the facts have been stipulated, and are so found. The stipulation of facts and attached exhibits are incorporated herein. The cases were consolidated for trial, briefing, and opinion. When petitioners filed their petition for 1985, petitioner resided in the Federal Correction Institution at Jesup, Georgia, and Maxine resided in North Miami Beach, Florida. When petitioner filed his petition for 1986 and 1987, he resided in the Metropolitan Correctional Center, Miami, Florida. Throughout 1985-87, petitioner was married to Maxine; they divorced in 1993 after having lived separately since 1989. Petitioner and Maxine have two children, Benjamin (Ben) and Mark. Ben is a convicted drug smuggler, serving a life sentence without possibility of parole. His younger brother, Mark, was convicted and subsequently imprisoned for his role in attempting to help Ben escape from Federal custody. *533 For 1985, after obtaining the appropriate extensions, petitioner and Maxine signed and filed a Form 1040 that they styled a "tentative return". The Form 1040 contained no detail concerning income and deductions, although it did list $ 20,329 on line 56 as the "total tax". The Form 1040 also displayed the following legend at the bottom of page one: "Ongoing Grand Jury Investigation May Materially Affect Tax Liability". Max Forman (Forman), an accountant who performed services for Ben's enterprises, signed the form as tax preparer. Petitioner was aware of his obligation to file Federal income tax returns for 1986 and 1987, but he did not do so for either year. 1. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1985 | $ 29,480.75 | (From Table 4) |
| 1986 | 99,077.39 | (From Table 9) |
| 1987 | 36,088.00 | (From Table 14) |
Based upon respondent's statutory notices of deficiency, her concessions, and the unexplained bank deposits, petitioner's income and deductions are:
| Item | 1985 1 | 1986 2*553 | 1987 3 |
| Net unexplained | |||
| bank deposits | $ 29,480.75 | $ 99,077.39 | $ 36,088 |
| Wages | 32,199.00 | 34,020.00 | 17,000 |
| Interest income | 11,777.00 | 7,922.00 | 388 |
| Other income | 3,468.00 | - 0 - | - 0 - |
| Gross income | 76,924.75 | 141,019.39 | 53,476 |
| Stipulated | |||
| deductions | (28,044.00) | (31,362.92) | (23,394) |
| Taxable income | 48,880.75 | 109,656.47 | 30,082 |
OPINION
The convoluted facts and missing records in these cases, attributable in part to the criminality of petitioner's activities, have resulted in a fragmentary record, all the gaps in which have not been fully explained by the parties.
Petitioner's counsel, Mr. Soltz, became ill shortly after trial, and died without filing a brief. Although Mr. Soltz had originally associated with Mr. Kaplan to obtain his help in preparing a brief, we granted Mr. Kaplan's motion to withdraw, filed shortly after Mr. Soltz's death. Petitioner did not retain new counsel and declined to file an answering brief, citing his limited education. Respondent then decided not to file a reply brief.
Respondent's opening and only brief does not reconcile the differences between respondent's notices of deficiency and the stipulated bank record exhibits. 16*555 As a starting place for the deficiency calculations, Schedules C in the deficiency notices listed certain amounts as the total deposits, from which the net unexplained bank deposits were then calculated. For 1986, these amounts do not correspond to the total deposits recorded in the bank records. The record indicates that the deposits for *554that year total $ 1,043,161.86. Schedule C of the notice of deficiency for 1986 and 1987 shows the total deposits in the three accounts to be $ 975,648.36. Nothing in the record or respondent's brief explains this difference or why respondent determined the numbers she did. The amounts of respondent's concessions and how she arrived at them are also unclear.
In the stipulations, respondent claimed $ 593,716 in unexplained deposits for 1986, which petitioner denied. But, based on the record, and using respondent's *556concessions and known non-income items, that number cannot be reconciled with the actual deposits in that year, nor can it be reconciled with respondent's total for the 1986 deposits. Because petitioner denies the income, the $ 593,716 has not been stipulated by the parties.
We are presented with a similar problem for 1987, although, as shown in tables 13 and 14, the cause seems to be arithmetical error in one case and an oversight in the other. Respondent also never explained her stipulation that the 1987 unexplained bank deposits were only $ 36,088. Using the bank records as a starting point, the record supports a different and slightly larger number, $ 41,899.34. In determining the unexplained bank deposits for each of the years, we went back to the bank deposits, as listed in the record, to recalculate the amounts that remain unexplained based upon the record and concessions made by respondent. Tables 4, 9, and 14 summarize the unexplained deposits and expenditures for the 3 years.
Section 61 provides the general rule that gross income includes income from whatever source derived. To facilitate calculating that income, section 6001, *557as interpreted by
Ordinarily, the presumption of correctness does not allow "looking behind the notice of deficiency to examine the evidence used by the Commissioner".
Because of the "obvious intent of that Congress to tax income derived from both legal and illegal sources, to remove the incongruity of having the gains of the honest laborer taxed and the gains of the dishonest immune", funds from illegal sources have long been considered taxable income.
If petitioner could show that he accrued no gain or benefit and had mere dominion over the funds without control, he could rebut the presumption that the funds are taxable income to him.
Petitioner relies upon his own testimony as his primary proof. "Undoubtedly, as a general rule, positive testimony as to a particular fact, uncontradicted by any one, should control the decision of the court; but that rule admits of many exceptions",
Petitioner *562corroborated his testimony on the use of the bank deposits with bank statements for each of the three accounts and exhibits summarizing various annotated checks. His testimony at the trial in these cases is consistent with his earlier testimony in the criminal trial of his former associates Michael Gilbert and Fainsbert and the civil forfeiture trial adjunct to his own criminal trial. The flows of funds that petitioner did explain were almost exclusively directed towards the entities associated with Ben's powerboat racing, paying Allsworth for his legal and other services, and paying for other costs that Ben had incurred. As in
Respondent did not controvert petitioner's testimony that he made each of these disbursements at Ben's behest. Respondent also did not dispute petitioner's assertion that Ben, not he, controlled and owned the various Apache enterprises. *563Respondent's failure on this count is telling because the circumstantial evidence strongly corroborates petitioner's story. The May 1986 meeting in which Fainsbert told petitioner that the 15-percent "kicker" had been eliminated is just one instance of petitioner as a subordinate participant being presented with a fait accompli. Another such instance is how, after breaking his ankle in the boating accident, petitioner never went to California to assume the role he had sought as overseer of Ben's investment in the card club, see
Even after accepting petitioner's explanations for the disbursements to and from the various bank accounts, significant amounts still remain unaccounted for and unexplained in each of the 3 years. Petitioner failed to discharge his burden of proof with regard to all the funds that came into his accounts. Indeed, petitioner used funds from Barnett joint checking exclusively for his own personal *564use. Only one deposit in that account is not income: a $ 150,000 loan to petitioner by his sister-in-law. The record does show that funds going through Safra, and, to a lesser extent, Barnett money market, came from the card club via LCP Associates and other entities. But, without more, merely showing the source is insufficient to rebut the presumption that they were income to petitioner. Accordingly, we find that petitioner has unexplained bank deposits in the amounts set forth in our concluding findings, with resulting decreased deficiencies for 1985 and 1986. The unexplained deposits for 1987 are as the parties have stipulated for that year.
Section 6011(a) requires that "any person made liable for any tax * * * shall make a return or statement according to the forms and regulations prescribed by the Secretary." Treasury regulations require that returns contain "therein the information required by the applicable regulations or forms."
To be a return that starts the period of limitations, a document must "purport to be a specific statement of the items of income, deductions, and credits in compliance with the statutory duty to report information and '
In 1985, petitioner filed appropriate extensions and eventually filed what he labeled a "tentative return" on a Form 1040. The document did not include any information on income, deductions, credits or exclusions, although it did list $ 20,329 in line 56 as the "total tax". It also displayed the legend: "Ongoing Grand *566Jury Investigation May Materially Affect Tax Liability". Even with an "estimated tax" listed in the "total tax" line, the form still lacked the minimum information prescribed by the regulations. 18 It did not evince an honest and genuine endeavor to satisfy the law.
A taxpayer who fails to *567file a return bears the burden of showing that: (1) His failure to file did not result from "willful neglect"; and (2) he had reasonable cause for failure to file the return. Sec. 6651(a)(1);
Petitioner must also show, by a preponderance of the evidence, that he had reasonable cause to fail to file a return, a question determined in the "instant circumstances".
Accordingly, we find that petitioner failed to show either that he had reasonable cause not to file a return or that his failure to file was not due *569to willful neglect. Petitioner is therefore liable for the addition to tax under section 6651(a)(1) for 1985.
Respondent also determined a 5-percent penalty on underpayments under section 6653(a)(1) and an additional penalty of 50 percent of interest due on the underpayment under section 6653(a)(2), based on her determination of petitioner's negligence. Section 6653(c)(1) defines an underpayment as, among other things, a deficiency as defined in section 6211(a). As discussed
Section 6653(a), as applicable to the 1985 tax year, does not define negligence. It makes no real distinction between negligence and "disregard of rules and regulations". For purposes of this section, courts have generally followed
Petitioner bears the burden of proof to show that he was not negligent. Rule 142(a);
Respondent determined that petitioner was liable for additions to tax under three different Code sections: (1) section 6653(b) for civil fraud; (2) section 6661 for failing to pay estimated tax; and (3) section 6654 for substantial underpayment of tax.
The addition to tax for fraud is a civil sanction provided primarily to safeguard the revenue and recoup the heavy costs of investigating tax fraud.
For the 2 tax years at issue, the fraud additions under 6653(b)(1) are two-fold. First, a taxpayer is liable for 75 percent of the underpayment attributable to fraud. Sec. 6653(b)(1)(A). However, that effectively means that the taxpayer who fails to show that part of the underpayment is not attributable to fraud can be liable for 75 percent of the entire underpayment. Sec. 6653(b)(2). Second, section 6653(b)(1)(B) calls for an addition equal to 50 percent of the interest payable on that underpayment under section 6601(a).
Section 6653(b)(1) requires the presence of two elements for a finding of civil tax fraud: underpayment of tax and fraudulent intent. Respondent bears the burden of proof on the issue of existence of fraud, sec. 7454(a); Rule 142(b), and can meet that burden by presenting *574a prima facie case of clear and convincing evidence.
In addition to proving fraudulent intent, respondent bears the burden of proving, by clear and convincing evidence, that there is an underpayment. Sec. 7454(a); Rule 142(b);
Respondent did adduce considerable evidence that petitioner had large, unreported bank deposits in 1986 and 1987. For 1986, the parties also stipulated that petitioner received income from wages and interest, which also explained some of the deposits. Respondent further conceded that transfers and the $ 200,000 loan from Safra Bank explained still more of the bank deposits, because they were not includable in income. Petitioner's own corroborated explanations for the expenditure of much of the money that flowed through the three accounts in 1986 accounted for another portion of the bank deposits as nontaxable income. Only $ 99,077.39 of the bank deposits for 1986, along with stipulated sources of income and deductions, form clear and convincing evidence of taxable income of $ 109,656.47, upon which a deficiency may be calculated.
In 1987, the parties stipulated the unexplained bank deposits were $ 36,088. They also stipulated items of income and deductions such that petitioner's taxable income in 1987 upon which the deficiency is calculated is $ 30,082.
The Code does not specifically define fraudulent intent. However, courts have developed a working *576definition of fraudulent intent as the "'actual, intentional wrongdoing, and the intent required is the specific purpose to evade a tax believed to be owing'".
Fraudulent intent may never be imputed or assumed, but must be proven by independent evidence.
To that end, courts have, in the past, developed a non-exhaustive list of the "badges of *577fraud".
Petitioner's relative experience and sophistication are relevant in determining whether fraud exists.
The Court has repeatedly found that illegal activity strongly indicates the presence of fraud even when the taxpayer has not been criminally convicted.
The evidence of illegal activity in this case is even more compelling than in
A taxpayer's failure to maintain accurate records is another badge of fraud, especially in combination with other indicia.
While unexplained bank deposits are not themselves necessarily clear and convincing evidence of fraud,
Petitioner's failure to file tax returns in 1986 or 1987 serves as yet another indicator of fraud.
Failure to cooperate with tax authorities is a badge of fraud.
Reliance on an attorney or another tax preparer may constitute a defense against fraud if the taxpayer relied upon *583the preparer's advice and actual preparation of the returns to calculate his taxable income. See, e.g.,
The record is replete with the badges of fraud as discussed above from which we can infer the specific purpose of evading taxes. But the record also contains some evidence that petitioner may not have actually intended to fraudulently evade paying taxes. The issue is whether, *584using the indicia of fraud in the presence of such contrary evidence, we infer from the record as a whole that petitioner had the specific purpose to evade paying his taxes.
In April 1987, when the 1986 return was due, petitioner was trying to recover the card club investment, and find a way out of the marina, activities that had occupied him for nearly a year following Murphy's arrest in Tortola. In May of the previous year, Sam Gilbert had reneged on the payment of the "kicker" on the Troon Mortgage, and Fainsbert had openly said, at the May 1986, meeting at the Miami Marriott, that petitioner was no longer in charge of the marina. By June 1987, petitioner had left the marina, either in a desperate attempt to continue to conceal Ben's interest in it, or because the Gilberts had forced him out.
In the wake of Ben's arrest in August 1987, petitioner and Maxine stayed in a condominium they had leased in Atlantic City during the late summer and fall of 1987 to "get away from it all". Petitioner focused on recovering the $ 9.5 million from June 1987 until the meeting in Zurich in November 1987 effectively ended those efforts. *585Thereafter, until his arrest in December 1989, petitioner was using laundered funds to make payments to lawyers and generally doing all that he could to keep his son from being convicted. He also took care of his own legal fees of $ 250,000 with these same funds. 20
Petitioner also feared criminal prosecution. Murphy had been arrested and the Troon Mortgage conduit disrupted. Petitioner was under investigation by a grand jury. Petitioner's fear of prosecution drove him in October 1986 to file a document that, as we have held, was not a tax return. Petitioner was afraid that a proper return could reveal his illegal sources of income and perhaps tie *586him to the money laundering. Max Forman, the accountant who had advised him and Ben on the card club investment, had signed the 1985 Form 1040 that petitioner and Maxine jointly filed. With Forman's advice and preparation, that Form 1040 completely lacked the requisite detail about income and deductions, even to the point of excluding the SGA "wages", the interest income, and bona fide deductions such as home mortgage interest. Fear of criminal investigation must have driven the decision to disclose no detail, because petitioner also inscribed a legend on the document that referred to the possible effect that the outcome of the grand jury investigation could have on his tax liability.
By 1987, petitioner's fear of criminal prosecution had grown even stronger. Ben's criminal enterprise was falling apart, and petitioner was trying to help him in the wake of his arrest by ensuring that his lawyers were paid. Petitioner also ensured that his own criminal lawyer was paid. But his understanding that filing a legitimate return and paying the tax shown thereon as due could reveal a link to criminal activity had not disappeared. Petitioner has stipulated that he knew that he was required to *587file returns and pay taxes for 1986 and 1987.
Based upon the clear link between petitioner's fear of criminal prosecution, and his deliberate attempt to evade paying his taxes, we infer that petitioner had the requisite fraudulent intent. The pressures that petitioner was under, and any sense that he was simply overwhelmed by events, do not rebut our conclusion, especially in light of the continuing nature of petitioner's fear of criminal prosecution. The combination of the other indicia of fraud and petitioner's fear that filing adequate returns and paying taxes for 1986 and 1987 would increase his vulnerability to criminal prosecution is clear and convincing evidence of fraudulent intent to evade paying taxes.
Once the underpayment is established, respondent need only establish that some portion stems from fraud, sec. 6653(b)(2);
For 1986 and 1987, section 6661 authorizes an addition to tax of 25 percent of any underpayment if there has been a substantial understatement of income.
The underpayment against which the statute calculates the 25 percent addition is the understatement net of any prepayment credits, which in this situation is the withholding paid in each of the two years.
Respondent determined an addition to tax under section 6654(a) for petitioner's failure to pay estimated income tax. The addition is imposed at the rate determined by section 6621. 21*591 Imposition of the tax is mandatory where prepayments of the tax, either through withholding or by making estimated quarterly payments, do not satisfy the specified percentages of total liability required under the statute.
Once respondent determines that petitioner is liable for the addition to tax under section 6654, the burden shifts to petitioner to prove, by a preponderance of the evidence, that respondent's determination was incorrect. Rule 142(a);
Petitioner presented no evidence on this issue. He did not pay any estimated income tax in either 1986 or 1987 beyond minimal withholding on the wages reported by Sam Gilbert Associates in 1986 and Fort Apache, Inc. in 1987. 22 Therefore, petitioner is liable for the addition to tax imposed by section 6654(a) for both years.
To reflect the foregoing,
Table 1
| Safra Bank--1985 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjustment | Explanation |
| January | - 0 - | - 0 - | - 0 - | |
| February | - 0 - | - 0 - | - 0 - | |
| March | - 0 - | - 0 - | - 0 - | |
| April | - 0 - | - 0 - | - 0 - | |
| May | - 0 - | - 0 - | - 0 - | |
| June | - 0 - | - 0 - | - 0 - | |
| July | - 0 - | - 0 - | - 0 - | |
| August | - 0 - | - 0 - | - 0 - | |
| September | - 0 - | - 0 - | - 0 - | |
| October | - 0 - | - 0 - | - 0 - | |
| November | - 0 - | - 0 - | - 0 - | |
| December | $ 85,000 | $ 50,000 | $ 50,000 | 1. Deposit came from Len-Ed, |
| of which Dublin was an | ||||
| owner. | ||||
| 2. $ 35,000 "loan" to Apache | ||||
| Power Boats and $ 15,000 to | ||||
| Team Apache "to pay expenses" | ||||
| Total | 85,000 | 50,000 | 50,000 | |
| for year | ||||
| Adjustments | 50,000 | 50,000 | ||
| Net total | 35,000 | - 0 - | ||
*592 Table 2
| Barnett Money Market Account--1985 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjust- | Explanation |
| ment | ||||
| January | $ 18,860.35 | $ 11,176.89 | - 0 - | |
| February | 6,229.83 | 20,923.98 | 7,845.00 | 1. $ 4,000 to Miami Boat Show |
| for Apache Powerboat. | ||||
| 2. $ 3,845 for Marina insur- | ||||
| ance (Fort Apache). | ||||
| March | 1,824.19 | 4,731.08 | - 0 - | |
| April | 3,227.26 | 5,203.15 | - 0 - | |
| May | 4,012.70 | 9,733.40 | 2,733.40 | 1. $ 2,733.40 to sponsor of |
| boat race. | ||||
| June | 4,681.10 | 500.00 | - 0 - | |
| July | 21,179.70 | 2,930.22 | - 0 - | |
| August | 1,012.70 | 3,443.69 | - 0 - | |
| September | 2,352.34 | 6,294.90 | - 0 - | |
| October | - 0 - | 2,873.00 | - 0 - | |
| November | 18,454.81 | 2,273.00 | - 0 - | 1. $ 17,518.84 is from an |
| inheritance conceded by | ||||
| respondent in the notice | ||||
| of deficiency for tax year | ||||
| 1985. This amount is not | ||||
| included in adjustments, but | ||||
| deducted from income as | ||||
| nontaxable | ||||
| income in Table 5. | ||||
| December | 19,249.67 | 19,387.40 | 18,887.40 | 1. $ 18,887.40 for furniture |
| for Fort Apache/Team | ||||
| Apache. | ||||
| 2. $ 2,122.49 is traced to an | ||||
| inheritance conceded by | ||||
| respondent in the notice of | ||||
| deficiency. This amount | ||||
| is not included in the | ||||
| adjustments, but deducted from | ||||
| income as nontaxable income | ||||
| in Table 5. | ||||
| Total | 101,084.65 | 89,470.71 | 29,465.80 | |
| for year | ||||
| Adjustments | 29,465.80 | 29,465.80 | ||
| Net total | 71,618.85 | 60,004.91 | - 0 - | |
Table 3
| Barnett Joint Checking--1985 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjust- | Explanation |
| ment | ||||
| January | $ 3,208.61 | $ 2,832.71 | - 0 - | |
| February | 1,198.61 | 1,536.69 | - 0 - | |
| March | 3,767.12 | 5,017.69 | - 0 - | |
| April | 5,529.70 | 3,546.56 | - 0 - | |
| May | 3,592.03 | 4,620.54 | - 0 - | |
| June | 4,322.44 | 4,868.57 | - 0 - | |
| July | 2,185.03 | 2,286.76 | - 0 - | |
| August | 2,830.09 | 1,779.65 | - 0 - | |
| September | 2,313.98 | 3,628.08 | - 0 - | |
| October | 2,848.30 | 2,236.89 | - 0 - | |
| November | 2,559.63 | 1,409.10 | - 0 - | |
| December | 4,186.36 | 4,695.21 | - 0 - | |
| Total | 38,541.90 | 38,458.45 | - 0 - | |
| for year | ||||
| Adjustments | - 0 - | - 0 - | ||
| Net total | 38,541.90 | 38,458.45 | ||
Table *5934
| Schedule C Reconstruction--1985 | |||
| Bank Deposits | Amount | Explanation | |
| Barnett joint checking | $ 38,541.90 | ||
| Barnett money market | 101,084.65 | ||
| Safra Bank | 85,000.00 | ||
| 224,626.55 | |||
| Nontaxable Income | |||
| Refunds/Reimbursements | 2,753.00 | 1. These figures | |
| drawn from | |||
| notice of | |||
| deficiency for tax | |||
| year 1985. | |||
| Certificate of deposit | 15,191.00 | ||
| Transfers | 3,000.00 | ||
| Exchanges | 1,250.00 | ||
| Sale of house | 20,000.00 | ||
| Inheritance | 19,641.00 | 2. Inheritance | |
| deposited into | |||
| the Barnett | |||
| money market account | |||
| in November and | |||
| December 1985. | |||
| Sale of car | 14,000.00 | ||
| (75,835.00) | |||
| Petitioner's Explanations | |||
| Safra Bank | 50,000.00 | 1. Table 1. | |
| Barnett money market | 29,465.80 | 2. Table 2 | |
| Barnett joint checking | - 0 - | 3. Table 3 | |
| (79,465.80) | |||
| Unexplained Bank Deposits | 69,325.75 | ||
| (Without taking into | |||
| account stipulated | |||
| sources of income) | |||
| Wages | 32,199.00 | ||
| Less withholding | (5,329.00) | ||
| Less FICA | (2,270.00) | ||
| Net Wages | (24,600.00) | ||
| Other Sources of Income | |||
| Interest income | 11,777.00 | ||
| State tax refund | 3,468.00 | ||
| (15,245.00) | |||
| Net unexplained deposits | 29,480.75 | ||
Table 5
| Income Calculation--1985 | |||
| Amount | Explanation | ||
| Wages | $ 32,199.00 | ||
| Interest | 11,777.00 | ||
| State income tax refund | 3,468.00 | ||
| Unexplained bank deposits | 29,480.75 | 1. From Table 4. | |
| Total income | 76,924.75 | ||
| Stipulated deductions | (28,044.00) | 2. All deductions | |
| listed herein | |||
| either | |||
| stipulated by the | |||
| parties or | |||
| drawn from the | |||
| notice of deficiency | |||
| for tax | |||
| year 1985. | |||
| Contributions | 2,733.00 | ||
| Sales tax | 747.00 | ||
| Real property taxes | 3,483.00 | ||
| Mortgage interest | 21,501.00 | ||
| Zero Bracket Amount | (3,540.00) | 3. Reduction in | |
| allowable itemized | |||
| deductions as | |||
| calculated in the | |||
| notice of | |||
| deficiency for tax | |||
| year 1985. | |||
| Personal exemptions | 3,120.00 | 4. Three personal | |
| exemptions allowed | |||
| in the | |||
| notice of deficiency. | |||
| (28,044.00) | |||
| Taxable Income | 48,880.75 | ||
Table *5946
| Safra Bank--1986 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjust- | Explanation |
| ment | ||||
| January | $ 30,768.33 | $ 26,013.29 | $ 19,123.29 | 1. $ 370.89 for freight |
| delivery to Team Apache. | ||||
| 2. $ 2,355.80 insurance | ||||
| for the racing enterprises. | ||||
| 3. $ 1,396.60 for | ||||
| engine blocks. | ||||
| 4. $ 5,000 "loan" to | ||||
| Apache Boats, Inc. | ||||
| 5. $ 10,000 to pay for | ||||
| Fort Apache insurance. | ||||
| February | - 0 - | 37,208.44 | 35,025.44 | 1. $ 3,229 to pay balance |
| on insurance installment. | ||||
| 2. $ 8,557.50 to pay for | ||||
| Fort Apache advertising. | ||||
| 3. $ 10,000 to pay next | ||||
| installment for insurance. | ||||
| 4. $ 9,000 to Emerson | ||||
| Allsworth Trust for legal | ||||
| services rendered. | ||||
| 5. $ 4,238.94 to Allsworth | ||||
| personally--exact reason | ||||
| unknown--probably to pay | ||||
| for land for the marina. | ||||
| Ben used Allsworth's Trust | ||||
| Account as a conduit for | ||||
| purchase of that land. | ||||
| March | - 0 - | 126.00 | - 0 - | |
| April | 505,000.00 | 155,000.00 | 155,000.00 | 1. $ 5,000 for offshore |
| boat race purse | ||||
| for race that | ||||
| Ben sponsored. | ||||
| 2. $ 100,000 payment for | ||||
| forklifts used | ||||
| at Fort Apache | ||||
| 3. $ 50,000 to Ben's | ||||
| racing team. | ||||
| May | - 0 - | 240,914.18 | 217,434.00 | 1. $ 100,000 payment to |
| Len-Ed Construction. | ||||
| This was | ||||
| one of the destinations | ||||
| for the $ 505,000 | ||||
| that Sam | ||||
| Gilbert, using LCP | ||||
| Associates, | ||||
| which was run by Dale | ||||
| Lyon and David Pierson, had | ||||
| deposited in the account | ||||
| that month, although the | ||||
| funds originated from Ben. | ||||
| 2. $ 5,000 for | ||||
| insurance costs. | ||||
| 3. $ 6,384 to Allsworth | ||||
| Trust Account for property | ||||
| purchased by Allsworth | ||||
| for Ben. | ||||
| 4. $ 3,500 to | ||||
| Allsworth Trust; | ||||
| legal services rendered. | ||||
| 5. $ 2,700 to repay | ||||
| a personal | ||||
| loan from Dublin, one of | ||||
| the owners of Len-Ed | ||||
| Construction, | ||||
| a beneficiary of | ||||
| funds from this account. | ||||
| 6. $ 9,980 to buy a boat. | ||||
| 7. $ 43,000 to pay rigger | ||||
| for Ben's race boats. | ||||
| 8. $ 5,370 for three | ||||
| airline tickets | ||||
| to Hong Kong so | ||||
| that petitioner could open | ||||
| new accounts for money | ||||
| laundering. | ||||
| 9. $ 12,500 for work on | ||||
| the boat just purchased. | ||||
| 10. $ 24,000 for legal | ||||
| services to Melvin Kessler | ||||
| (Kessler was involved in | ||||
| the laundering | ||||
| of $ 12 million | ||||
| in an operation involving | ||||
| banks in Lichtenstein). | ||||
| 11. $ 5,000 for insurance. | ||||
| June | - 0 - | 206,500.00 | - 0 - | |
| July | 165,000.00 | 71,814.17 | 69,435.00 | 1. $ 6,500 to Allsworth |
| Trust for legal services. | ||||
| 2. $ 2,500 to Allsworth | ||||
| Trust for legal services. | ||||
| 3. $ 6,403 for insurance | ||||
| for the offshore boat race. | ||||
| 4. $ 2,090 to American | ||||
| Power Boat Assn. for an | ||||
| entry fee for race. | ||||
| 5. $ 28,742 for race | ||||
| expenses for the race that | ||||
| Ben was sponsoring. | ||||
| 6. $ 10,000 for electronics | ||||
| installed on one of Ben's | ||||
| Boats, the Apache Queen. | ||||
| 7. $ 10,000 to Apache Boats | ||||
| Inc. | ||||
| 8. $ 3,200 (five checks) to | ||||
| IRS for taxes owed by | ||||
| Superchief, Apache Boats, | ||||
| Inc., Apache Offshore | ||||
| Engineering, Apache Racing | ||||
| Team, Inc., and Fort | ||||
| Apache, Inc. | ||||
| 9. The deposits for this | ||||
| month are labeled in the bank | ||||
| deposit slip as having come | ||||
| from proceeds of Loan # | ||||
| 730-000-4195. | ||||
| August | 35,000.00 | 46,742.19 | 43,226.22 | 1. $ 2,500 in two payments |
| (to Nova University and Joe | ||||
| Sonken) for the building | ||||
| housing Apache Boats, Inc. | ||||
| 2. $ 11,726.22 for | ||||
| a helicopter | ||||
| lease for the offshore | ||||
| boat race. | ||||
| 3. $ 4,000 to furnish the | ||||
| interior of Apache Queen. | ||||
| 4. $ 10,000 to the local | ||||
| offshore boat racing | ||||
| association for a boat race | ||||
| 5. $ 5,000 to Kate Bonner for | ||||
| legal services for Ben's | ||||
| enterprises (She | ||||
| was a criminal | ||||
| defense attorney who | ||||
| was later associated with Ben | ||||
| Kramer's criminal trial | ||||
| as one of his counsel). | ||||
| 6. $ 10,000 to pay an invoice | ||||
| for Apache racing. | ||||
| 7. The deposits for | ||||
| this month | ||||
| are listed on the | ||||
| deposit Memos as having come | ||||
| from the proceeds of loan | ||||
| # 730-000-4195. | ||||
| September | 75,000.00 | 38,019.53 | 36,646.75 | 1. $ 6,000 to Allsworth Trust |
| Account for either legal | ||||
| services or | ||||
| property purchased | ||||
| on account for Ben. | ||||
| 2. $ 1,985 for pilot services | ||||
| for helicopter. | ||||
| 3. $ 20,000 to an employee | ||||
| of Team Apache (which entity | ||||
| is unclear), given at Ben's | ||||
| behest, to buy out his | ||||
| retirement fund from another | ||||
| employer. | ||||
| 4. $543.90 for paperhanger | ||||
| for Marina. | ||||
| 5. $ 2,000 for the Apache | ||||
| Queen. | ||||
| 6. $ 4,000 to Allsworth | ||||
| Trust Account for legal | ||||
| services. | ||||
| 7. $ 2,117.85 for office | ||||
| furniture for the Marina. | ||||
| 8. The deposit is listed | ||||
| as a transfer from account | ||||
| number 939-0614467 | ||||
| "per letter | ||||
| in file" [signed] Jack | ||||
| Kramer. | ||||
| October | 38,359.87 | 43,311.93 | 34,540.00 | 1. $ 20,000 for insurance |
| for Fort Apache. | ||||
| 2. $ 2,500 for rent on | ||||
| building Apache Power Boats. | ||||
| 3. $ 3,200 for pictures | ||||
| of the offshore boat race. | ||||
| 4. $ 8,840 for cabinetry | ||||
| of the Marina Office. | ||||
| 5. A deposit slip | ||||
| for $ 12,000 | ||||
| lists that deposit as | ||||
| having come from account | ||||
| # 0614270 - not the same | ||||
| account number as the | ||||
| previous month. | ||||
| November | - 0 - | 20,220.50 | 10,720.50 | 1. $ 7,505.50 to Allsworth |
| Trust Account for either | ||||
| legal services or property | ||||
| purchased on account for | ||||
| Ben. | ||||
| 2. $ 1,000 to the offshore | ||||
| boat association. | ||||
| 3. $ 1,215 to an air service | ||||
| for trip in conjunction | ||||
| with a boat race. | ||||
| 4. $ 1,000 to Allsworth Trust | ||||
| Account for services of | ||||
| some kind. | ||||
| December | - 0 - | - 0 - | - 0 - | |
| Total | 849,128.20 | 885,870.23 | 621,151.20 | 1. The total amount of |
| for year | all the deposits | |||
| listed exceeds | ||||
| by $ 75,200 the amount listed | ||||
| in Schedule C of the | ||||
| notice of deficiency for | ||||
| tax years 1986 and 1987. | ||||
| Adjustments | 621,151.20 | 621,151.20 | ||
| Net total | 227,977.00 | 264,719.03 | ||
*595 Table 7
| Barnett Money Market Account--1986 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjustment | Explanation |
| January | $ 5,000.00 | $ 3,980.98 | - 0 - | |
| February | 968.87 | 1,109.40 | - 0 - | |
| March | - 0 - | 11,045.95 | 5,087.50 | 1. $ 5,087.50 paid balance |
| for decorating services for | ||||
| Team Apache. | ||||
| April | 1,887.74 | 2,698.00 | - 0 - | |
| May | 2,449.94 | 11,193.67 | - 0 - | |
| June | 1,887.74 | 1,876.00 | - 0 - | |
| July | 30,204.45 | 6,198.00 | 32,204.45 | 1. $ 30,204.45 is a Federal |
| tax refund and nontaxable. | ||||
| 2. $ 2,000 paid for | ||||
| accounting services to the | ||||
| enterprise. | ||||
| August | - 0 - | 17,766.35 | 5,120.00 | 1. $ 3,620 for interior |
| decoration of Ben's office. | ||||
| 2. $ 1,500 for office | ||||
| furniture for one | ||||
| of the Apache | ||||
| enterprises. | ||||
| September | - 0 - | 4,531.39 | 2,023.39 | 1. $ 2,023.39 for interior |
| decoration of Ben's office. | ||||
| October | 2,263.50 | 17,000.00 | - 0 - | |
| November | 100,900.00 | 44,328.58 | - 0 - | 1. There was single large |
| deposit of unexplained | ||||
| origin. On the same day | ||||
| as the deposit, there was an | ||||
| outgoing funds transfer | ||||
| of $ 25,550. A check was | ||||
| written on the account the | ||||
| next day for $ 15,000. | ||||
| Petitioner offered no | ||||
| explanation. In 1987, however, | ||||
| there were more funds with | ||||
| an explanation from | ||||
| petitioner that were outgoing | ||||
| than were deposited. | ||||
| This partially explains the | ||||
| use of this large deposit. | ||||
| December | - 0 - | 11,795.00 | - 0 - | |
| Total | 145,562.24 | 133,523.32 | 44,435.34 | 1. The total amount of bank |
| deposits is greater than | ||||
| that listed in Schedule C | ||||
| of the notice of deficiency | ||||
| for tax years 1986 and 1987 | ||||
| by $ 2,263.50. | ||||
| Adjustments | 44,435.34 | 44,435.34 | ||
| Net total | 101,126.90 | 89,087.98 | ||
*596 Table 8
| Barnett Joint Checking--1986 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjustment | Explanation |
| January | $ 4,473.38 | $ 1,790.79 | - 0 - | |
| February | - 0 - | 3,122.21 | - 0 - | |
| March | 1,953.57 | 2,230.17 | - 0 - | |
| April | 2,131.87 | 1,341.79 | - 0 - | |
| May | 3,507.00 | 1,310.24 | - 0 - | |
| June | 2,403.94 | 4,398.60 | - 0 - | |
| July | 3,177.88 | 3,068.53 | - 0 - | |
| August | 4,830.54 | 4,386.61 | - 0 - | |
| September | 1,611.62 | 2,567.52 | - 0 - | |
| October | 1,881.62 | 2,849.85 | - 0 - | |
| November | 22,500.00 | 7,395.13 | - 0 - | |
| December | - 0 - | 12,920.34 | - 0 - | |
| Total | 48,471.42 | 47,381.78 | - 0 - | |
| for year | ||||
| Adjustments | - 0 - | - 0 - | ||
| Net total | 48,471.42 | 47,381.78 | 1. Note that amount of bank | |
| deposits is $ 9.050 less | ||||
| than Schedule C, contained in | ||||
| the notice of deficiency | ||||
| for tax years 1986 and 1987. | ||||
| The difference cannot be | ||||
| explained by counting the | ||||
| beginning balance | ||||
| ($ 1,564.62). | ||||
Table 9
| Schedule C Reconstruction--1986 | |||
| Bank Deposits | Amount | Explanation | |
| Barnett joint checking | $ 48,471.42 | ||
| Barnett money market | 145,562.24 | ||
| Safra Bank | 849,128.20 | ||
| 1,043,161.86 | |||
| Nontaxable Income | |||
| Transfers | 37,300.00 | 1. These figures | |
| drawn from the | |||
| notice of | |||
| deficiency for tax | |||
| years 1986 | |||
| and 1987. | |||
| 2. The notice of | |||
| deficiency | |||
| lists only | |||
| $ 37,300 from | |||
| transfers this | |||
| year. The | |||
| Safra account lists | |||
| $ 62,000 in | |||
| transfers | |||
| from two different | |||
| bank accounts. | |||
| The | |||
| other two accounts | |||
| do not list any | |||
| transfers. | |||
| Loans - Safra Bank | 200,000.00 | 3. Respondent conceded | |
| the nontaxable | |||
| source of funds on | |||
| its original | |||
| Schedule C | |||
| calculations in the | |||
| notice of deficiency. | |||
| These loans probably | |||
| account for July and | |||
| August deposits. | |||
| Tax Refund | 30,204.45 | ||
| (267,504.45) | |||
| Petitioner's Explanations | |||
| Safra Bank | 621,151.20 | 1. Table 6. | |
| Barnett money market | 14,230.89 | 2. Table 7. This | |
| 1986 expenditures | amount is less the | ||
| $ 30,204.45 tax | |||
| refund conceded by | |||
| respondent and | |||
| accounted for in | |||
| "Nontaxable Income". | |||
| Barnett money market | 8,475.93 | 3. This reflects | |
| 1987 expenditures | expenditures made | ||
| in 1987 | |||
| whose source was 1966 | |||
| deposits. See Table | |||
| 12. | |||
| (643,858.02) | |||
| Unexplained Bank Deposits | 131,799.39 | ||
| (Without taking into | |||
| account stipulated | |||
| sources of income) | |||
| Stipulated Sources | |||
| of Income | |||
| Wages | 34,020.00 | ||
| Less withholding | (6,788.00) | ||
| Less FICA | (2,432.00) | ||
| Net Wages | (24,800.00) | ||
| Other Sources of Income | |||
| Interest income | 7,922.00 | (7,922.00) | |
| Net unexplained deposits | 99,077.39 | ||
*597 Table 10
| Income Calculation--1986 | |||
| Amount | Explanation | ||
| Wages | $ 34,020.00 | ||
| Interest | 7,922.00 | ||
| Unexplained bank deposits | 99,077.39 | 1. From Table 9. | |
| Total income | 141,019.39 | ||
| Stipulated deductions | (31,362.92) | 1. All deductions | |
| listed herein were | |||
| either stipulated by | |||
| the parties or drawn | |||
| from the notice of | |||
| deficiency for tax | |||
| years 1986 and 1987. | |||
| Real property taxes | 3,104.00 | ||
| Mortgage interest | 21,366.00 | ||
| Personal interest | 4,732.92 | ||
| deduction | |||
| Personal Exemptions | 2,160.00 | 2. Two exemptions. | |
| (31,362.92) | |||
| Taxable Income | 109,656.47 | ||
Table 11
| Safra Bank--1987 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjustment | Explanation |
| January | $ 400 | - 0 - | - 0 - | 1. This deposit was made to |
| correct a $ 372 overdraft | ||||
| that had existed since | ||||
| November. | ||||
| February | - 0 - | - 0 - | - 0 - | |
| March | - 0 - | - 0 - | - 0 - | |
| April | - 0 - | - 0 - | - 0 - | |
| May | - 0 - | - 0 - | - 0 - | |
| June | - 0 - | - 0 - | - 0 - | |
| July | - 0 - | - 0 - | - 0 - | 2. Account closed in July. |
| August | - 0 - | - 0 - | - 0 - | |
| September | - 0 - | - 0 - | - 0 - | |
| October | - 0 - | - 0 - | - 0 - | |
| November | - 0 - | - 0 - | - 0 - | |
| December | - 0 - | - 0 - | - 0 - | |
| Total | 400 | - 0 - | ||
| for year | ||||
| Adjustments | - 0 - | - 0 - | ||
| Net total | 400 | |||
Table 12
| Barnett Money Market Account--1987 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjustment | Explanation |
| January | - 0 - | $ 17,183.19 | - 0 - | |
| February | - 0 - | 13,943.25 | $ 2,500.00 | 1. $ 2,500 for Apache Power |
| Boats building rental. | ||||
| March | $ 1,495.00 | 9,990.00 | 3,200.00 | 1. $ 3,200 to Allsworth |
| Trust Account for legal | ||||
| services rendered. | ||||
| April | 2,680.00 | 7,393.81 | 6,950.93 | 1. $ 4,850.93 for taxes |
| on Ben's house at Hibiscus. | ||||
| 2. $ 2,100 to Allsworth | ||||
| Trust Account for legal | ||||
| services rendered. | ||||
| May | - 0 - | 994.00 | - 0 - | |
| June | - 0 - | - 0 - | - 0 - | |
| July | - 0 - | - 0 - | - 0 - | |
| August | - 0 - | - 0 - | - 0 - | |
| September | - 0 - | - 0 - | - 0 - | |
| October | - 0 - | 730.80 | - 0 - | |
| November | - 0 - | - 0 - | - 0 - | |
| December | - 0 - | - 0 - | - 0 - | |
| Total | 4,175.00 | 50,235.05 | 12,650.93 | 1. The source of funds |
| for year | for these checks for which | |||
| petitioner makes explanations | ||||
| comes from the previous | ||||
| year's deposits, which were | ||||
| largely the remains of the | ||||
| November 1985 $ 100,900 | ||||
| deposit. | ||||
| Adjustments | 12,650.93 | 12,650.93 | ||
| Net total | (8,475.93) | 37,584.12 | ||
Table *59813
| Barnett Joint Checking--1987 | ||||
| Deposit/ | Check/ | |||
| Month | Credit | Debit | Adjust- | Explanation |
| ment | ||||
| January | $ 11,290.50 | $ 8,929.50 | - 0 - | |
| February | 4,245.40 | 5,403.47 | - 0 - | |
| March | 2,131.92 | 3,966.59 | - 0 - | |
| April | 4,342.50 | 3,109.65 | - 0 - | |
| May | 1,047.50 | 4,067.93 | - 0 - | |
| June | 10,745.44 | 4,045.92 | - 0 - | |
| July | 8,154.44 | 9,450.52 | - 0 - | |
| August | - 0 - | 2,817.45 | - 0 - | |
| September | - 0 - | 945.85 | - 0 - | |
| October | 3,439.00 | 4,515.70 | - 0 - | |
| November | 4,269.70 | 3,363.18 | - 0 - | |
| December | 154,928.94 | 155,151.45 | $ 150, | 1. This is the $ 150,000 loan |
| 000.00 | ||||
| from petitioner's sister- | ||||
| in-law conceded | ||||
| by respondent. | ||||
| The monthly statement | ||||
| reports a $ 150,000 check | ||||
| written on the same day as a | ||||
| $ 150,000 deposit. | ||||
| Total | 204,595.34 | 205,767.21 | 150,000.00 | 2. This is exactly $ 10,000 |
| for year | more than respondent | |||
| reported in Schedule C | ||||
| income in the notice of | ||||
| deficiency for tax years 1986 | ||||
| and 1987 as coming from | ||||
| this account. | ||||
| Adjustments | 150,000.00 | 150,000.00 | ||
| Net total | 54,595.34 | 55,767.21 | ||
Table 14
| Schedule C Reconstruction--1987 | |||
| Bank Deposits | Amount | Explanation | |
| Barnett joint checking | $ 204,595.34 | Table 13. | |
| Barnett money market | 4,175.00 | Table 12. | |
| Safra Bank | 400.00 | Table 11. | |
| 209,170.34 | |||
| Petitioner's Explanations | |||
| Safra Bank | - 0 - | 1. Table 11. | |
| Barnett money market | 4,175.00 | 2. To account for the | |
| balance carried | |||
| forward from 1986, | |||
| $ 8,475.93 allocated to | |||
| 1986 (the amount that | |||
| exceeds 1987 | |||
| deposits). The rest | |||
| is allocated to 1987. | |||
| Barnett joint checking | 150,000.00 | 3. Table 13. | |
| (154,175.00) | |||
| Unexplained Bank Deposits | 54,995.34 | ||
| (Without taking into | |||
| account stipulated | |||
| sources of income) | |||
| Wages | 17,000.00 | ||
| Less withholding | (3,077.00) | ||
| Less FICA | (1,215.00) | ||
| Net Wages | (12,708.00) | ||
| Other Sources of Income | |||
| Interest income | 388.00 | (388.00) | |
| Net unexplained deposits | 41,899.34 | 1. Respondent and | |
| petitioner stipulated | |||
| that the unexplained | |||
| bank deposits for | |||
| 1987 were $ 36,088. | |||
| The record supports | |||
| $ 41,899.34 of | |||
| unexplained | |||
| deposits. The | |||
| $ 8,450 properly | |||
| allocated to 1986 | |||
| does not | |||
| explain the difference. | |||
| We calculate | |||
| petitioner's 1987 | |||
| income | |||
| using the smaller | |||
| amount stipulated by | |||
| the parties. | |||
*599 Table 15
| Income Calculation--1987 | |||
| Amount | Explanation | ||
| Wages | $ 17,000.00 | ||
| Interest | 388.00 | ||
| Unexplained bank deposits | 36,088.00 | 1. Amount stipulated | |
| by the parties (see | |||
| explanation in | |||
| Table 14). | |||
| Total income | 53,476.00 | ||
| Stipulated deductions | (23,394.00) | 1. The deductions | |
| listed herein were | |||
| either stipulated or | |||
| drawn from the notice | |||
| of deficiency for tax | |||
| years 1986 and 1987. | |||
| Real property taxes | 6,594.00 | ||
| Mortgage interest | 13,000.00 | ||
| Personal exemptions | 3,800.00 | 2. Two exemptions. | |
| (23,394.00) | |||
| Taxable Income | 30,082.00 | ||
Footnotes
1. Although the petition in the case at docket No. 22457-91 was filed on behalf of petitioners Jack S. Kramer and Maxine C. Kramer, Jack S. Kramer and Jack J. Kramer are the same person.↩
2. Mr. Soltz filed the original petitions on behalf of petitioners in both cases. At trial, he made an oral motion in the case at docket No. 22457-91 to dismiss for lack of jurisdiction as to Maxine C. Kramer. Mr. Soltz died after trial without filing a brief on behalf of petitioners.↩
3. Although at trial Mr. Kaplan entered his appearance on behalf of Jack J. Kramer in the case at docket No. 22785-90, he represented petitioner only as a transitional figure after Mr. Soltz's illness and eventual death; he did no substantive work on petitioner's case and eventually withdrew as counsel.↩
1. Equals 50 percent of interest due on the entire deficiency.
1. 50 percent of the statutory interest applicable on $ 338,783 and $ 69,997 for 1986 and 1987, respectively, from the due date of the return to the date of assessment of the tax or, if earlier, the date of the payment.↩
1. Equals 50 percent of interest due on the amount of the deficiency.↩
1. 50 percent of the statutory interest applicable on $ 287,224 and $ 7,290 for 1986 and 1987, respectively, from the due date of the return to the date of assessment of the tax or, if earlier, the date of the payment.↩
4. Concurrently with the issuance of this opinion, we deny petitioners' oral motion at trial to dismiss for lack of jurisdiction as to petitioner Maxine C. Kramer in the case at docket No. 22457-91.↩
5. Ben's share of these funds was $ 4 million. The other $ 8 million came from his partners in the drug smuggling enterprise, Randy Lanier and "Tommy", also known as George Brock. By his own testimony, petitioner was to control the laundering of these funds. Petitioner and Ben met Tommy in New York in Sept. 1983 to convince Tommy to invest in the Bell Gardens Bicycle Club, Inc., discussed
infra↩ .6. Petitioner, as discussed
infra pp. 13-14, would later testify at the criminal trial of Michael Gilbert and Fainsbert as a Government witness. Many of the findings for this background story of petitioner's involvement in Ben's money laundering activities are drawn from petitioner's testimony at this trial in 1993 and his similar testimony at the civil forfeiture trial adjunct to his own criminal trial in 1991. Transcripts of petitioner's testimony from those trials were made part of the record in the trial of the cases at hand.7. In addition to signing petitioner's 1985 Form 1040 as return preparer, Forman performed services for Ben's various criminal enterprises, not the least of which was evaluating the investment decisions concerning the card club, in which Ben and his associates, with petitioner's assistance, invested $ 12 million.↩
8. Allsworth, petitioner's longtime friend, served as attorney to Ben's criminal enterprises, for which he was well paid from petitioners' Safra Bank account (see
infra pp. 16-17), especially in 1986. Allsworth was listed as President of Hallandale Residential Properties, Inc., the entity created to hold legal title to the house that served as Ben's personal residence. Allsworth also was listed as the registered agent for the various entities associated with the racing boat enterprise describedinfra↩ .9. Super Chief South came into existence in Aug. 1985 and was dissolved just 15 months later in Nov. 1986. Super Chief, Inc., was created in Jan. 1984 and not dissolved until 1992, well after Ben, petitioner, and all of the others had been arrested, tried, and convicted on various smuggling and money laundering charges.↩
10. Ben's attempts to conceal his ownership of the marina and the card club destroyed his ability to later liquidate and recover his interests. None of the entities that legally owned the marina or the card club reflected Ben's ownership interest as initially arranged with Sam Gilbert. The "safeguards" for Ben's interests that Sam Gilbert put into place included holding the resignation letters of the principals of Marina Bay Associates and LCP Associates. But, as petitioner testified, the only real safeguard was Ben's trust in Sam Gilbert. This meant that Ben had no recourse but to accept the consequences when the Gilberts reneged on their various arrangements with him. The Gilberts had the upper hand until Federal agents seized the various assets, beginning with the marina in Aug. 1987. See
infra↩ pp. 11-12.11. Petitioner prepared to relocate to California to such a degree that Michael Gilbert even leased a house for him. About this time, in April 1984, petitioner broke his ankle in a boating accident aboard one of Ben's new offshore power boats. The severity of his injury effectively postponed petitioner's further preparations to move to California for several months. Whether the injury itself genuinely caused the change in petitioner's eventual plans or merely served as a convenient excuse to keep him out of California and away from the card club is unclear from the record.
12. Petitioner testified at the civil forfeiture trial adjunct to his criminal trial that he lied at the deposition to protect Allsworth, his longstanding friend and attorney for Ben's criminal enterprise.
However, as he testified at the civil forfeiture trial on cross-examination, petitioner was also apparently concerned about the possible effects of his testimony on any possible criminal indictment that could result against Maxine as well as on his own exposure to further criminal prosecution.
Cross-examination at the civil forfeiture trial also brought out that petitioner also lied to conceal the $ 9.5 million left in limbo in Europe in the aftermath of petitioner's abortive attempts to recover the card club investment. At the Fainsbert-Michael Gilbert criminal trial, he also testified to this lie.
13. Petitioner denied that the Government offered him inducements for his actual testimony at the Fainsbert/Michael Gilbert criminal trial. He testified that the Government would make a "recommendation" only to the judge about his future incarceration.↩
14. The payroll checks from SGA, while not necessarily for services rendered, did provide support for petitioner during 1983-86.↩
15. The tables summarize the inflows and outflows for the three accounts, petitioner's explanations for some of these transactions, and respondent's concessions on others.↩
1. From Table 5.↩
2. From Table 10.
3. From Table 15.↩
16. These differences and the failure of those exhibits to fully substantiate the amounts that respondent presents in the notices of deficiency bring up the issue of who bears what burden, especially in regard to the accuracy of the computations in the notice of deficiency.
Judge Tannenwald, in his concurring opinion in
Llorente v. Commissioner , 74 T.C. 260, 275 (1980)649 F.2d 152 (2d Cir. 1981) , wrote that "All of the decided cases are in agreement that the presumption of correctness of a notice of deficiency does not cause the notice to be evidence as such, and, that, at least initially, the taxpayer has the burden of proof." (Citations omitted.) He later wrote that "This Court has consistently made it clear that, even in cases involving unreported income, we will only shift to respondent the burden of coming forward with evidence".O'Reilly v. Commissioner , T.C. Memo. 1994-61Weimerskirch v. Commissioner , 596 F.2d 358, 361 (9th Cir. 1979)67 T.C. 672 (1977) , the Commissioner failed to produce any records to "substantiate the computations made by the IRS agent", which was one component of a decision by the Court of Appeals for the Ninth Circuit to require some linkage between the taxpayer's unreported income and alleged illegal activity.The situation here is somewhat different. Respondent made deficiency determinations and then conceded certain items. She also stipulated to the bank exhibit records, thus satisfying her burden of coming forward with evidence. A problem arises because that evidence does not match the determinations in the notices of deficiency, and respondent's brief does not explain the differences. However, for the reasons described above, the burden of proof has not shifted from petitioner.↩
17. As discussed
supra pp. 20-2218. "Each taxpayer should carefully prepare his return and set forth fully and clearly the information required to be included therein. Returns which have not been so prepared will not be accepted as meeting the requirements of the Code."
Sec. 1.6011-1(b), Income Tax Regs.↩ 19. The Court of Appeals for the Fourth Circuit recently reaffirmed the principle of
Helvering v. Mitchell , 303 U.S. 391, 401 (1938)Thomas v. Commissioner , 62 F.3d 97 (4th Cir. 1995)T.C. Memo. 1994-128 ; see alsoMcNichols v. Commissioner , 13 F.3d 432, 434-435 (1st. Cir. 1993)Helvering v. Mitchell, supra T.C. Memo. 1993-61 ;United States v. Alt , 83 F.3d 779, 782 (6th Cir. 1996)United States v. Halper , 490 U.S. 435, 446 (1989)United States v. Brennick , 908 F. Supp. 1004, 1009 (D. Mass. 1995)Helvering v. Mitchell in the wake of recent Supreme Court decisions inUnited States v. Halper, supra , Montana DOR v. Kurth Ranch , 511 U.S. 767 (1994)Austin v. United States , 509 U.S. 602 (1993)Mitchell inHalper andKurth Ranch "strongly indicates that the Court did not intend to overturnHelvering [v. Mitchell] sub silentio ");Ianniello v. Commissioner , 98 T.C. 165↩ (1992)20. This $ 250,000 may have been additional income to petitioner in 1987 if he received the funds to pay his attorney in that year. Although the record is somewhat ambiguous about the exact date that petitioner paid his attorney or received the funds to do so, petitioner did pay Ben's attorney in Nov. 1987.
Even if respondent could establish receipt of the $ 250,000 in 1987, she has not asserted an increased deficiency pursuant to sec. 6214(a). Accordingly, we have not considered this in discussing the amount of the unreported income for 1987.↩
21. The rate is the short-term Federal rate for the applicable period plus 3 percentage points. Sec. 6621(a)(2) and (b).
22. See
infra↩ Tables 9 and 14 in appendix.
1996 T.C. Memo. 513 (Kramer v. Commissioner) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.