Nelson v. Commissioner

1957 T.C. Memo. 215, 16 T.C.M. 988, 1957 Tax Ct. Memo LEXIS 35

Opinion

Harry Nelson et al. ¹ v. Commissioner.

Nelson v. Commissioner

Docket Nos. 41505, 53192, 58008-58010, 59943-59945.

United States Tax Court

T.C. Memo 1957-215; 1957 Tax Ct. Memo LEXIS 35; 16 T.C.M. (CCH) 988; T.C.M. (RIA) 57215;

November 18, 1957

---

Ralph V. Cecil, Esq., and Ralph J. Whitinger, C.P.A., 114 South Franklin Street, Muncie, Ind., for the petitioners. Elmer E. Lyon, Esq., and John M. Webb, Esq., for the respondent.

---

TIETJENS

Memorandum Findings of Fact and Opinion

TIETJENS, Judge: The Commissioner determined the following deficiencies in income tax and additions to tax:

				Sec. 294	Sec. 294
Docket No.	Year	Income Tax	Sec. 293(b)	(d)(1)(A)	(d)(2)
58010	1948	$ 647.65	$ 369.33	$ 63.97	$ 42.66
58009	1949	1,012.91	556.46	91.77	61.18
53192	1950	2,828.82	1,414.41	284.88	170.92
58008	1951	969.16	484.58	86.87	57.91
41505	1948	$ 7,303.76	$3,651.88	$ 728.49	$437.09
59943	1949	9,664.84	4,832.42	870.15	580.09
59944	1950	14,788.85	7,394.42	1,333.91	889.26
59945	1951	2,623.42	1,311.71	223.72	157.92

The questions for decision are whether the petitioners received certain "protection" payments which they fraudulently failed to report and whether additions to tax pursuant to sections 294(d)(1)(A) and (d)(2) were properly determined.

Findings of Fact

Petitioners Harry Butler and Alice R. Butler are husband and wife with residence in Muncie, Indiana. Harry Butler signed and filed individual income tax returns for the calendar years 1948 and 1949 with the collector of internal revenue for the district of Indiana. Similarly, Harry Butler and Alice R. Butler signed and filed joint income tax returns for the calendar years 1950 and 1951 with the collector of internal revenue for the district of Indiana.

Petitioner Butler served as Lieutenant of Detectives of the Police Department of the City of Muncie from January 1, 1948, through December 31, 1951.

Petitioner Butler had been on the Muncie police force since 1939, serving as a patrolman from 1939 until the end of 1942 and as Night Captain from 1943 until the end of 1947.

Petitioners Harry Nelson and Sarah Moore Nelson are husband and wife with residence in Muncie, Indiana. Harry Nelson signed and filed individual income tax returns for the calendar years 1948, 1949 and 1950 with the collector of internal revenue for the district of Indiana. Similarly, Harry Nelson and Sarah Moore Nelson signed and filed a joint income tax return for the calendar year 1951 with the collector of internal revenue for the district of Indiana.

Petitioner Nelson served as Chief of Police of the Police Department of the City of Muncie from January 1948 through December 1951.

In his income tax returns for the years 1948 and 1949, the petitioner Harry Butler reported taxable net income in the amounts of $3,285 and $3,462.50. For the years 1950 and 1951, petitioners Harry Butler and Alice R. Butler filed joint returns wherein they reported taxable net income in the amounts of $4,375.16 and 4,009.35. The Commissioner determined that the petitioner Harry Butler received additional unreported income in the amounts of $3,700, $5,250, $13,200 and $4,040 for the years 1948, 1949, 1950 and 1951.

The petitioner Harry Nelson reported taxable net income in the amounts of $4,312.50, $4,672.50 and $4,680 for the years 1948, 1949 and 1950. For the year 1951, in which Nelson filed a joint return with his wife, Sarah Moore Nelson, the petitioners reported taxable net income in the amount of $6,480. The Commissioner determined that the Nelsons received additional unreported income in the amounts of $20,687.50, $24,850, $32,700 and $10,650 in these four years, respectively.

Petitioner Harry Nelson had taxable interest in the amounts of $16.17, $20.33, 32.02 and 36.49 for the years 1948, 1949, 1950 and 1951, respectively. Sarah Moore Nelson had taxable interest of $5.28 in 1951. These amounts were omitted from their returns for the years in question.

With the exception of the unreported items of interest income petitioners properly reported all income for the years in question. No part of the deficiencies which may result from the unreported interest was due to fraud with intent to evade tax.

Opinion

In answers the Commissioner specifically alleged in support of his determination of fraud that petitioners Harry Butler and Harry Nelson had received additional unreported income by way of "protection payments" from certain named individuals during the years in question.

At the trial Butler and Nelson and Alice Butler testified in their own behalf. They categorically and emphatically denied ever having received any amounts from any of the named individuals at any time. In this they were corroborated by the testimony of at least one of the persons named.

On the other hand the Commissioner called four or five of the named persons who were alleged to have made the "payoffs." They testified generally that they had paid sums ranging from $50 up per week, mostly to Butler, for "protection" in carrying on places of gambling or prostitution.

Persons alleged to have made the largest payoffs were not called by either the petitioners or the Commissioner.

In this posture the case presents only a question of fact and the outcome must necessarily depend upon our observation and appraisal of the witnesses and our belief or disbelief of their testimony. Extended analysis and discussion of the testimony would serve no useful purpose. It is sufficient to say that we believe the testimony of the petitioners with respect to the alleged protection payments and place no credence in the testimony of the witnesses called by the Commissioner in that regard, with the result that the Commissioner has not carried his burden of proof as to fraud and the petitioners have carried theirs as to the deficiencies. Our findings of fact have been made accordingly.

Decisions will be entered under Rule 50.

---

Footnotes

• 1. Proceedings of the following petitioners are consolidated herewith: Harry Nelson, Docket Nos. 59943 and 59944; Harry Nelson and Sarah Moore Nelson, Docket No. 59945; Harry Butler and Alice R. Butler, Docket Nos. 53192 and 58008; Harry Butler, Docket Nos. 58009 and 58010.