Accrual Method-Deductibility of Trust Fund-Contested
Liability.-Accrual basis construction company X, which transferred
funds in trust with bank in 1964 under agreement signed by X and bank,
for sole purpose of paying obligations expected to arise from pending
litigation, and which received return of funds in 1969 on notification to
bank that nominal amounts awarded on claims had been paid, was
entitled to sec. 461(f) deduction in 1964 in amount of transferred funds,
since (1) trust instrument, which named adverse claimants as benefi-
ciaries, effectively placed funds beyond X's control and obligated trustee
to pay claims and (2) neither statute and legislative history nor applicable
reg. reflected intent to require that trust agreement be signed by benefi-
ciaries, agreement being among trustee, taxpayer, and claimant-
beneficiaries to same extent as if beneficiaries had signed. Poirier &
McLane Corp
Disregard of Rules-Improper Reporting of Transactions—
Reliance on Accountant.-Commissioner, who had burden of proving
claimed intentional disregard of rules and regulations by petitioners in
preparing returns for 1965 and 1966, because tax additions therefor were
claimed for first time in amended answers, failed to carry burden of proof
for these years, and petitioners' total reliance on fully informed and
experienced attorneys and accountants in structuring their complicated
transactions and completing their returns, in view of petitioners'
inexpertise, was reasonable and avoided imposition of 1967 tax additions.
Athenaise M. Hill
Fraud-Gambling Business' Underpayment of Tax-
Commissioner's Burden of Proof.-Where others in petitioner's
State-licensed gambling business, with petitioner's knowledge, destroyed
records of certain bets on which applicable taxes were not paid, Commis-
sioner failed to carry burden of proving by clear and convincing evidence
fraudulent conduct by petitioner, since there was little in record other
than inherent improbability of witnesses' stories to connect petitioner
directly with skimming operations. Harry Gordon
Fraud-Omission of Estate Income-Fiduciary-Beneficiary.—
Where deceased lawyer, who was cobeneficiary and coexecutor, had
exclusive control of estate's finances, clandestinely converted its income
to personal use, and failed to report income on fiduciary return or his own
returns for taxable years, Court found (1) underpayment of tax was due to
fraud to support sec. 6653(b) tax additions, contrary to estate's contention
that fraud was limited to estate even though decedent underpaid taxes
and conducted estate matters fraudulently, absent proof he knew he
individually was taxable on estate income distributions, since record
clearly established that fraudulent intent was not to benefit estate alone
but to acquire its income undiminished by tax liability and that decedent
was aware of but avoided statutory reporting requirements and engaged in
consistent pattern of concealing income receipts, and (2) his joint return
with wife for 1965 was similarly false and fraudulent with tax evasion
intent to lift limitations bar for 1965 deficiency. Estate of W. Marion
Hendry