[691]*691OPINION.
Milliken:
Petitioner avers that there has not been a “legal determination” of deficiencies for the years 1920 and 1921 by the respondent, in that the provisions of section 1005 of the Revenue Act of 1924 were not complied with. We are unable to accept his views in the matter. Section 1309 of the Revenue Act of 1921 and section 1005 of the Revenue Act of 1924 contain identical provisions, as follows:
No taxpayer shall be subjected to unnecessary examinations or investigations, and only one inspection of a taxpayer’s books of account shall be made tor each taxable year unless the taxpayer requests otherwise or unless the Commissioner, after investigation, notifies the taxpayer in writing that an additional inspection is necessary.
It is not disputed that the agent of the respondent did not present to petitioner a notification in writing that an additional investigation was necessary. No doubt the petitioner might have refused to permit Revenue Agent Shofner access to his books at Altheimer, Ark., when he conducted his investigation without prior notification to him by the respondent of his intentions to conduct the same, as provided in section 1005. However, that section of the statute merely provides for the relief from unnecessary examinations of a taxpayer’s books and does not propose to provide that any deficiency resulting from such investigation shall be void. Petitioner did not object to the examination of his books at Altheimer, at least we have no evidence to that effect, and his failure so tó do may be taken as a waiver of the protection the statute afforded. It is pertinent to note, also, that petitioner maintained no books or records of that part of his income which forms practically the entire basis for the defi-ciences here in question. The revenue agents determined almost his entire income from deposits at the bank at which petitioner dealt [692]*692and from the concerns that had paid interest to petitioner during the years involved. He had no books relative to most of these items, and, accordingly, can not set up the defense of a reexamination of something he did not possess. Petitioner is in an anomalous position in objecting to the reexamination of his books, such as he had, for he testified that when filing his returns he knew that they were not true reports of income and that he filed them with the expectation that Government agents would check up his returns and that his true income would be made subject to tax. In relying upon section 1005 as a protection, he is denying to the Government the rig]it to do that which he expected them to do, namely, to check up and ascertain his true income. There might be the interesting question in instances of a false and fraudulent return, where no statute of limitation pertains, as to the applicability of section 1309 and section 1005, but in view of our previous statements no discussion seems necessary.
We next come to the important question presented in the case at bar. Were the returns filed by petitioner for the years 1920, 1921, and 1922, showing an understatement of income, false or fradulent, with the willful intent to evade the tax? Before we can determine if such be the case, the facts and circumstances incident and subsequent to the filing of the returns for the years in question, should, in this case, be weighed. The petitioner is a business man of advanced years, yet active and aggressive. Pie has been in business for over forty-five years, is possessed of considerable wealth, and his affluence is to be ascribed to his own efforts. Pie was fully conversant with the value of a dollar and the necessity in his business for the prompt collection of accounts due from a debtor. Federal income-tax returns were not new to him, for the evidence shows he had filed returns for at least three years preceding the years in question. He knew of his obligation to the Government in this respect. Wo find him, as the time arrives for filing the returns for each of the years in question, dilatory in securing the information upon which the returns wore to be based. He had interest payments for each of the years in question, in substantial amounts, which he knew he had received, for he testified the banks collected the interest payments when due and he had noted their collection on his pass book. The principal payments of interest were not large in number, never exceeding payments from five or six sources in any one year. The payments were made to him on a semiannual or annual basis. He testified that with but little effort he could have ascertained the correct amount of interest in any given year when filing his tax return. He testified that he knew when he filed his returns that the information contained therein was incorrect and his counsel admitted that they were false and petitioner testified he [693]*693expected to subsequently file a correct return, yet we are unable to find that he made any effort to correctly report his income for the years in question. He also testified he knew it was his duty to correctly report his income and not to delay until the Government agent checked up his accounts, yet we find the petitioner making no effort to divulge to the Government his true income, and doing nothing until approached by the agents of the respondent and then his cooperation was not active, only passive, and the agents of the respoirdent were left to resort to bank statements and data obtained from concerns or persons who paid interest to the petitioner. .The understatement of income does not relate to only one year — it relates to all the three years in question, and to essentially the same kind of income understated. The income understated seems to grow with the years, for in the first year, i. e., 1920, there was an understatement of approximately $33,000, and in 1922 there was an understatement of approximately $39,000. What reasons does the petitioner assign for such understatement? He testified that he sought, to approximate his interest income for each of the years in question by balancing it with the amount paid. At the hearing of this case, petitioner did not submit any proof as to the interest which he paid. His petition has been pending with this Board since April, 1926, and he was given thirty clays’ advance notice of the date of this hearing, which took place on October 8, 1926, and if he had a defense that he had paid sums as interest which would offset the interest received, he has had ample opportunity to present proof thereof, and his reason for the understatement, in this particular, is of no avail. It is not enough that the petitioner should deal in generalities at the hearing of this case, and state that he had paid sums as interest without giving any basis for such statement, or facts or figures in support thereof.
The further reason assigned for his failure to report interest, is that he thought, by the terms of the agreement between the partners of the Beal-Burrow Dry Goods Co., the interest payments from that source would be returned for him. This defense is open to the attack that large sums of interest were received from sources other than the Beal-Burrow Dry Goods Co. and as to which the agreement did not attempt to provide. He testified that he made no inquiries, during any of the years, to ascertain if such reports were being made for him, and also that he was not informed by the treasurer of the Beal-Burrow Dry Goods Co. that reports of hi? income were being made for Mm. The evidence also shows that petitioner reported as income the salary which he received from the Beal-Burrow Dry Goods Co., indicating, further, that he was not depending upon the agreement.
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[691]*691OPINION.
Milliken:
Petitioner avers that there has not been a “legal determination” of deficiencies for the years 1920 and 1921 by the respondent, in that the provisions of section 1005 of the Revenue Act of 1924 were not complied with. We are unable to accept his views in the matter. Section 1309 of the Revenue Act of 1921 and section 1005 of the Revenue Act of 1924 contain identical provisions, as follows:
No taxpayer shall be subjected to unnecessary examinations or investigations, and only one inspection of a taxpayer’s books of account shall be made tor each taxable year unless the taxpayer requests otherwise or unless the Commissioner, after investigation, notifies the taxpayer in writing that an additional inspection is necessary.
It is not disputed that the agent of the respondent did not present to petitioner a notification in writing that an additional investigation was necessary. No doubt the petitioner might have refused to permit Revenue Agent Shofner access to his books at Altheimer, Ark., when he conducted his investigation without prior notification to him by the respondent of his intentions to conduct the same, as provided in section 1005. However, that section of the statute merely provides for the relief from unnecessary examinations of a taxpayer’s books and does not propose to provide that any deficiency resulting from such investigation shall be void. Petitioner did not object to the examination of his books at Altheimer, at least we have no evidence to that effect, and his failure so tó do may be taken as a waiver of the protection the statute afforded. It is pertinent to note, also, that petitioner maintained no books or records of that part of his income which forms practically the entire basis for the defi-ciences here in question. The revenue agents determined almost his entire income from deposits at the bank at which petitioner dealt [692]*692and from the concerns that had paid interest to petitioner during the years involved. He had no books relative to most of these items, and, accordingly, can not set up the defense of a reexamination of something he did not possess. Petitioner is in an anomalous position in objecting to the reexamination of his books, such as he had, for he testified that when filing his returns he knew that they were not true reports of income and that he filed them with the expectation that Government agents would check up his returns and that his true income would be made subject to tax. In relying upon section 1005 as a protection, he is denying to the Government the rig]it to do that which he expected them to do, namely, to check up and ascertain his true income. There might be the interesting question in instances of a false and fraudulent return, where no statute of limitation pertains, as to the applicability of section 1309 and section 1005, but in view of our previous statements no discussion seems necessary.
We next come to the important question presented in the case at bar. Were the returns filed by petitioner for the years 1920, 1921, and 1922, showing an understatement of income, false or fradulent, with the willful intent to evade the tax? Before we can determine if such be the case, the facts and circumstances incident and subsequent to the filing of the returns for the years in question, should, in this case, be weighed. The petitioner is a business man of advanced years, yet active and aggressive. Pie has been in business for over forty-five years, is possessed of considerable wealth, and his affluence is to be ascribed to his own efforts. Pie was fully conversant with the value of a dollar and the necessity in his business for the prompt collection of accounts due from a debtor. Federal income-tax returns were not new to him, for the evidence shows he had filed returns for at least three years preceding the years in question. He knew of his obligation to the Government in this respect. Wo find him, as the time arrives for filing the returns for each of the years in question, dilatory in securing the information upon which the returns wore to be based. He had interest payments for each of the years in question, in substantial amounts, which he knew he had received, for he testified the banks collected the interest payments when due and he had noted their collection on his pass book. The principal payments of interest were not large in number, never exceeding payments from five or six sources in any one year. The payments were made to him on a semiannual or annual basis. He testified that with but little effort he could have ascertained the correct amount of interest in any given year when filing his tax return. He testified that he knew when he filed his returns that the information contained therein was incorrect and his counsel admitted that they were false and petitioner testified he [693]*693expected to subsequently file a correct return, yet we are unable to find that he made any effort to correctly report his income for the years in question. He also testified he knew it was his duty to correctly report his income and not to delay until the Government agent checked up his accounts, yet we find the petitioner making no effort to divulge to the Government his true income, and doing nothing until approached by the agents of the respondent and then his cooperation was not active, only passive, and the agents of the respoirdent were left to resort to bank statements and data obtained from concerns or persons who paid interest to the petitioner. .The understatement of income does not relate to only one year — it relates to all the three years in question, and to essentially the same kind of income understated. The income understated seems to grow with the years, for in the first year, i. e., 1920, there was an understatement of approximately $33,000, and in 1922 there was an understatement of approximately $39,000. What reasons does the petitioner assign for such understatement? He testified that he sought, to approximate his interest income for each of the years in question by balancing it with the amount paid. At the hearing of this case, petitioner did not submit any proof as to the interest which he paid. His petition has been pending with this Board since April, 1926, and he was given thirty clays’ advance notice of the date of this hearing, which took place on October 8, 1926, and if he had a defense that he had paid sums as interest which would offset the interest received, he has had ample opportunity to present proof thereof, and his reason for the understatement, in this particular, is of no avail. It is not enough that the petitioner should deal in generalities at the hearing of this case, and state that he had paid sums as interest without giving any basis for such statement, or facts or figures in support thereof.
The further reason assigned for his failure to report interest, is that he thought, by the terms of the agreement between the partners of the Beal-Burrow Dry Goods Co., the interest payments from that source would be returned for him. This defense is open to the attack that large sums of interest were received from sources other than the Beal-Burrow Dry Goods Co. and as to which the agreement did not attempt to provide. He testified that he made no inquiries, during any of the years, to ascertain if such reports were being made for him, and also that he was not informed by the treasurer of the Beal-Burrow Dry Goods Co. that reports of hi? income were being made for Mm. The evidence also shows that petitioner reported as income the salary which he received from the Beal-Burrow Dry Goods Co., indicating, further, that he was not depending upon the agreement. He reported this item in the tax [694]*694returns filed by himself, yet he failed to mention the interest. Counsel for respondent asked petitioner the following question as to why he reported salary from the Beal-Burrow Dry Goods Co. if he was depending upon the agreement, and why he left out interest . from the Beal-Burrow Dry Goods Co.:
Q. Wliy did you put in salary and leave out interest?
A. Because I thought I included all I owed the Government in that block— the sum ot interest there.
If petitioner thought he was including in his return filed the entire amount of interest received from the Beal-Burrow Dry Goods Co., lie could not have, at the same time, been relying upon the agreement recited in the findings of fact, whereby he thought another was going to report it for him.
A large amount of interest from bonds of the Pine Bluff Hotel Co. which petitioner owned was not reported as income, fío error was assigned in the petition to the action of the respondent in adding such interest to his income for the years in dispute. At the hearing the petitioner testified that he had made a gift of some of the bonds prior to the years in question. If the gift was made, proof should have been introduced in support thereof, and we are not warranted in accepting generalities without a definite basis of fact for their support.
Petitioner assigns as his reason for failure to report income from dealing in cotton futures, that he believed that the Government did not tax gains arising from this source, and also for the reason that he had large losses in the years 1923 and 1924. It is obvious that petitioner did not know, when he filed his returns in *March, 1921, March, 1922, and February, 1923, that he would have large losses for the years 1923 and 1924, for, at the time those returns were filed, the years had not passed in which the losses had occurred.
It is true that petitioner is entitled to additional deductions from income because of state, county and city taxes paid during the respective years, and some minor adjustment in the trading account which he maintained. These deductions, however, are of a minor nature when compared with the understatements of income and do not change the force of the fact that no deductions have been proven which would materially offset the large understatement of income from interest received. It may also be that petitioner is entitled to some deductions for bad debts for the year 1920. We have no evidence before us from which it could be determined that the debts were ascertained to be worthless and charged off within that taxable year. Cf. Georgetown Grocery Co. v. United States, 63 Ct. Cls. 160.
[695]*695This case is not one where a mere clerical error results. in the understatement of income, or where there is a mistaken idea as to some regulation or requirement of the respondent, cf. Cooper v. United States, 9 Fed. (2d) 216; nor is it a case of constructive fraud, see decision of the United States District Court for the Western District of Pennsylvania, in the case of United States v. Whyel, 19 Fed. (2d) 260. Nor docs it represent a case involving a question of fact upon which differences of opinion might reasonably exist, cf. Ohio Farmers' Ins. Co. v. Hard, 59 Ohio St. 248; 52 N. E. 635. Nor have we in this case the fact that the return was hied by the petitioner based upon erroneous legal or accounting advice given him and upon which he honestly relied, cf. Beam v. Hamilton, 289 Fed. 9. Nor do we have in this case the question of a device relied upon to reduce taxes, which device was lawful, cf. United States v. Isham, 17 Wall. 496; Weeks v. Sibley, 269 Fed. 155.
Based iqjon all the facts of record in this proceeding, we are of the opinion that the respondent did not commit error in the imposition of the 50 per cent penalty, pursuant to the provisions of section 250(b) of the Revenue Acts of 1918 and 1921.
We are also of the opinion that no error was committed in the method of computation of the deficiencies and penalty for each of the years, as set forth in the findings of fact.
The deficiencies should be redetermined, making adjustments for the errors stipulated and found, as set forth in the findings of fact.
Judgment will be entered on %0 days' notice, under Rule 50.