D. C., the fact that Mr. Bragg had filed an incorrect return for the taxable year 1921, with the fraudulent intent of evading tax. An examination followed and fraudulent intent was proven. QUESTION: What payment will Mr. Bragg be required to make to the Bureau of Internal Revenue? Are there any penalties which may be imposed upon him? ANSWER: Mr. Bragg will be required to pay the deficiency in tax plus an additional tax equal to 50 per centum of the total amount of the deficiency in the tax. He is regarded as guilty of a misdemeanor and shall be fined not more than $10,000 or imprisoned for not more than one year, or both, together with the costs of prosecution. REFERENCES: Sec. 250 (b): "... If any part of the deficiency is due to fraud with intent to evade tax, then, in lieu of the penalty provided by section 3176 of the Revised Statutes, as amended, for false or fraudulent returns willfully made, but in addition to other penalties provided by law for false or fraudulent return, there shall be added as part of the tax 50 per centum of the total amount of the deficiency in the tax. In such case the whole amount of the tax unpaid, including the penalty so added, shall become due and payable upon notice and demand by the collector." Sec. 1302 (b): "Any person who willfully refuses to pay, collect, or truly account for and pay over any such tax, make such returns or supply such information at the time or times required by law or regulation, or who willfully attempts in any manner to evade such tax shall be guilty of a misdemeanor and in addition to other penalties provided by law shall be fined not more than $10,000 or imprisoned for not more than one year, or both, together with the cost of prosecution." PROBLEM 251 Illustrating Authority of Internal Revenue Bureau in Case Taxpayer Fails to File Return Required FACTS: The Weldon Clothing Company, a New Jersey corporation, operated a retail clothing store in the city of Newark, N. J. It deliberately destroyed all of its accounting records for the calendar year 1921, and did not file an income and excessprofits tax return for this period as required. The Collector of Internal Revenue in due course instituted an examination of the matter as a result of which the bookkeeper testified that net earnings of approximately $80,000 were derived from the sales of the company during the calendar year 1921. QUESTION: What action is the Commissioner of Internal Revenue authorized to take with respect to the return of the company? ANSWER: The Commissioner is authorized to prepare a return for the company, and is required to assess the tax shown thereon, together with an amount equal to 25 per centum of the tax. The amount thus assessed is payable upon notice and demand by the collector. REFERENCES: Sec. 250 (c): "If the return is made pursuant to section 3176 of the Revised Statutes as amended, the amount of tax determined to be due under such return shall be paid upon notice and demand by the collector." Sec. 3176, of Revised Statutes, as amended: "If any person, corporation, company, or association fails to make and file a return or list at the time prescribed by law or by regulation made under authority of law, or makes, willfully or otherwise, a false or fraudulent return or list, the collector or deputy collector shall make the return or list from his own knowledge and from such information as he can obtain through testimony or otherwise. In any such case the Commissioner may, from his own knowledge and from such information as he can obtain through testimony or otherwise, make a return or amend any return made by a collector or deputy collector. Any return or list so made and subscribed by the Commissioner, or by a collector or deputy collector and approved by the Commissioner, shall be prima facie good and sufficient for all legal purposes. "If the failure to file a return or list is due to sickness or absence, the collector may allow such further time, not exceeding thirty days, for making and filing the return or list as he deems proper. "The Commissioner of Internal Revenue shall determine and assess all taxes, other than stamp taxes, as to which returns or lists are so made under the provisions of this section. In case of any failure to make and file a return or list within the time prescribed by law, or prescribed by the Commissioner of Internal Revenue or the collector in pursuance of law, the Commissioner of Internal Revenue shall add to the tax 25 per centum of its amount, except that when a return is filed after such time and it is shown that the failure to file it was due to a reasonable cause and not to willful neglect, no such addition shall be made to the tax. In case a false or fraudulent return or list is willfully made, the Commissioner of Internal Revenue shall add to the tax 50 per centum of its amount. "The amount so added to any tax shall be collected at the same time and in the same manner and as part of the tax unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in which case the amount so added shall be collected in the same manner as the tax." PROBLEM 252 Illustrating Case in Which Additional Tax Cannot be FACTS: Without Permission of Taxpayer The Mount Vernon Pipe Company, a corporation organized under the laws of the State of New York in December, 1908, had filed returns of income for each calendar year from 1909 to 1921, inclusive. In April, 1922, the returns of the above company (for the entire period from 1909 to 1921), were examined by an internal revenue agent. As a result of the examination the revenue agent recommended the assessment of additional taxes for the years 1909, 1913, 1916, 1917, 1918, 1920 and 1921. There was no fraudulent intent on the part of the company to evade The additional taxes as computed by the agent were the result of a somewhat different interpretation of various provisions of the Revenue Acts covering the years under review than the interpretation placed thereon by the taxpayer. taxes. QUESTIONS: Is the Internal Revenue Bureau authorized to assess additional tax for each of the above years? If not, what procedure is necessary in order to carry out the recommendations of the evenue agent? ANSWER: Provided the findings of the revenue agent are found to be correct and in accordance with the rulings of the Internal Revenue Bureau, the additional tax for the taxable year 1921 may be assessed by the Commissioner within four years after the return was filed. The additional tax for all prior years, according to the provisions of the Revenue Act of 1922, is required to be determined and assessed within five years after the respective returns were filed; therefore, the additional tax recommended by the agent for the taxable years 1909, 1913, and 1916, cannot be assessed, as the five-year limitation has expired, unless both the Commissioner and the taxpayer consent in writing to the assessment and collection of the tax; and no suit or proceeding for the collection of the above taxes can be begun after the expiration of five years after the date when each return was filed. The additional tax recommended by the agent for the taxable years 1917, 1918, and 1920, may be assessed by the Commissioner (at the time of his findings in say September, 1922), as the returns covering the above taxable years were filed less than five years prior to September, 1922. REFERENCE: Sec. 250 (d): "The amount of income, excess-profits, or warprofits taxes due under any return made under this Act for the taxable year 1921 or succeeding taxable years, shall be determined and assessed by the Commissioner within four years after the return was filed, and the amount of any such taxes due under any return made under this Act for prior taxable years or under prior income, excess-profits, or war-profits tax Acts, or under section 38 of the Act entitled 'An Act to provide revenue, equalize duties, and encourage the industries of the United States, and for other purposes,' approved August 5, 1909, shall be determined and assessed within five years after the return was filed, unless both the Commissioner and the taxpayer consent in writing to a later determination, assessment, and collection of the tax; and no suit or proceeding for the collection of any such taxes due under this Act, or under prior income, excess-profits, or war-profits tax Acts, or of any taxes due under section 38 of such Act of August 5, 1909, shall be begun, after the expiration of five years after the date when such return was filed, but this shall not affect suits or proceedings begun at the time of the passage of this Act." PROBLEM 253 Illustrating Case in Which Commissioner is Required to Determine Tax Due for Estate of Decedent Within One Year from Date of Written Request by Executor FACTS: of Estate Mr. Isaac Pulaski who had a controlling interest in several silk mills and was a resident of East Orange, New Jersey, died August 31, 1921. The executor of his estate filed an income tax return on September 15, 1921, including therein the income. received by the decedent from January 1, 1921 to the day of his death. On October 15, 1921 the executor wrote a letter to the Commissioner requesting an examination of the return of the decedent as soon as possible in order that all taxes due by the estate might be definitely determined and the estate closed. QUESTION: How long a period of time will the Commisioner be allowed for the determination and assessment of the tax due from the estate of Mr. Pulaski? ANSWER: According to the provisions of the Revenue Act of 1921, the Commissioner is allowed one year from the date of the written request made by the executor. REFERENCE: Sec. 250 (d): Provided, That in the case of income received during the lifetime of a decedent, all taxes due thereon shall be determined and assessed by the Commissioner within one year after written request therefor by the executor, administrator, or other fiduciary representing the estate of such decedent. . . ." |