Lapas attēli
PDF
ePub

Such a burden would clearly be impossible to meet, whereas it would be feasible for respondent to prove that, whatever the state of the law, petitioner in fact believed his improper receipts to be taxable and accordingly took steps to conceal those receipts from the Government forever.

8

Our conclusion here is buttressed by the existence of confusion in Texas law and uncertainty in the law generally as to what constitutes embezzlement." We think that under both the laws of Texas and the general principles of embezzlement enunciated by the Federal courts after Wilcox, petitioner's activities by which he came into possession of the funds at issue here more closely resembled "swindling" than embezzlement. There is at least sufficient uncertainty that it would be unreasonable to assume without inquiry that petitioner believed his activities to be embezzlement so he could not, in legal contemplation, have had the intent to evade taxes by failing to report the amounts received."

Article 1534 of the Texas Penal Code provides, with respect to embezzlement, that if any officer, agent, or employee of a corporation or private person—

shall embezzle, fraudulently misapply or convert to his own use, without the consent of his principal or employer, any money *** of such principal or employer which may have come into his possession or be under his care by virtue of such office, agency or employment, he shall be punished

Article 1545 of the Penal Code defines "swindling" as:

the acquisition of *** money *** by means of some false or deceitful pre-tense or device, or fraudulent representation, with intent to appropriate the same to the use of the party so acquiring

The Texas courts have defined embezzlement as the fraudulent appropriation of the personal property of another by one to whom it has been entrusted, Leonard v. State, 7 Tex. Crim. 417 (1879), while to constitute swindling, they require that some false pretense as to an existing fact or past event be made in order to obtain the property, Johnson v. State, 41 Tex. 65 (1874), and in Akers v. Scofield, 167 F. 2d

See fn. 5 to Mr. Justice Blackmun's opinion in Geiger's Estate v. Commissioner, supra. 8 Uncertainty exists whether Texas law should govern whether petitioner's acts constituted embezzlement within the meaning of Wilcox and James. Reference to State law regarding embezzlement was made in Wilcox itself and in United States v. Jannsen, 339 F. 2d 916, 918 (C.A. 7, 1964). But in Marienfeld v. United States, 214 F. 2d 632 (C.A. 8, 1954), the Eighth Circuit flatly rejected arguments that State embezzlement statutes should be applied or that Wilcox intended to require reference to State laws in this context. In accord is United States v. Wyss, 239 F. 2d 658 (C.A. 7, 1957).

We think the distinction between embezzlement and misappropriation of funds by other illegal means is important in this context, where we are trying to decide whether petitioner could have had a fraudulent intent while Wilcox was viable, because the rationale of the Wilcox opinion likened embezzlement to a loan, where there is an acknowledged obligation to repay. We find no such similarity present in the circumstances in this case.

718 (C.A. 5, 1948), the court, in finding a swindle, stated that the distinction between embezzlement and swindling is that in the former title to the property acquired never passes while in the latter title does pass. In this case while it is true that petitioner was an employee of Gulf and it was by virtue of his employment that he was able to activate the scheme under which he obtained the funds, he did not appropriate the funds directly to himself; he induced Gulf to pay excessive amounts to PAMEW by use of false invoices indicating that more work had been done than was actually done. When Gulf paid the excessive amounts to PAMEW, the latter deposited the funds in its own bank account and title passed to PAMEW. Petitioner then received a part of the excessive funds from PAMEW. While petitioner's activities may have technically constituted embezzlement as well, it seems clear that the funds were obtained through false representation which constituted a swindle.

Wilcox, again, dealt only with embezzlement, which, as noted above, seems unlikely to have been the exact means by which petitioner obtained the funds which he failed to report. As supra, the tax years here involved came after the Supreme Court had decided Rutkin which undercut the rationale of Wilcox and limited that decision to its facts. It was in the climate of the law created by the combination of Wilcox and Rutkin, not in the climate of Wilcox alone, that petitioner would have had to form the belief that the funds he received from PAMEW were nontaxable in order to escape liability here.10 Because of the considerable doubt that petitioner received the unreported funds through embezzlement as used in Wilcox, and because Rutkin limited Wilcox to its own facts, we think it was perfectly possible that, "in legal contemplation," petitioner could have had the intent to evade taxes that he believed to be due when he failed to report this income on his returns. We see no reason to extend the equitable doctrine used by the Supreme Court in James beyond the bounds we believe it was intended to encompass.

Since we have concluded that James does not prohibit a finding of fraudulent intent in this case, we now must turn to the evidence to determine whether fraud has been proven. Respondent has the burden of proving fraud by clear and convincing evidence. We find that he has done so, even without reliance on petitioner's mere failure to report the income as evidence of his fraudulent intent, which may (or may not) be prohibited by Adame's Estate v. Commissioner, supra.

It is clear from the evidence that petitioner devised a scheme to swindle and defraud his employer, Gulf, and that he carried out this

10 Petitioner did not testify at the trial of this case so we have no direct evidence of his actual state of mind.

scheme during the years 1957-63 with the cooperation of W. O. Nelson, the owner of PAMEW.11 Petitioner has admitted that he received funds during those years as a result of that scheme, which he did not report on his tax returns. It also appears, by inference at least, that petitioner kept no record of these receipts or transactions; the evidence shows that he denied receiving any such funds to the revenue agent who audited his returns for the years involved. While evidence that a taxpayer was attempting to defraud another in a business transaction may not be direct evidence of fraud with intent to evade tax, see Toledano v. Commissioner, 362 F. 2d 243, 247 (C.A. 5, 1966), the Court is entitled to consider such evidence along with other evidence in determining the intent of the taxpayer in doing certain acts, because it is a fair inference that a man who will misappropriate another's funds to his own use through misrepresentation and concealment will not hesitate to misrepresent and conceal his receipt of those same funds from the Government with intent to evade tax. Rogers v. Commissioner, 111 F.2d 987 (C.A. 6, 1940). The legal relevancy of such evidence is based upon logical principles which go to negate innocent intent. United States v. Bridell, 180 F. Supp. 268 (N.D. Ill. 1960); Pappas v. United States, 216 F. 2d 515 (C.A. 10, 1954).

We also find significance in the fact that petitioner received kickbacks from PAMEW in cash which could not be identified in his accounts or in cash deposits to his bank account. The receipt of cash rather than checks from PAMEW would be unimportant in petitioner's efforts to conceal his fraud from Gulf, but it would be important in concealing his income from the Government. Weight can also be given to the fact that petitioner reported the kickbacks he received from GCMC, which reported these payments to the Government on Treasury Forms 1099. Petitioner argues that this was done because GCMC received no excess funds from Gulf and petitioner knew that nonembezzled kickbacks were taxable income even under Wilcox. However, we note that petitioner continued to treat the receipts from GCMC and PAMEW differently for tax-reporting purposes even after James had removed the distinction, taxwise, between embezzled funds and funds unlawfully obtained in other ways. We think it is more logical to assume that petitioner reported his receipts from GCMC prior to 1961 on his tax returns because he knew that the Government had notice of them but that he did not report his receipts from PAMEW because he thought he could conceal them from the Government as well as Gulf.

And finally, petitioner continued failing to report his income from PAMEW for several years after the James case was decided, which

11 W. O. Nelson died several months before the trial of this case.

should have removed any doubt from his mind, even in legal contemplation, that those funds were taxable income. Such a consistent pattern of conduct with regard to the income received from PAMEW both before and after the James decision is quite convincing that petitioner was not relying on the possibly nontaxable nature of the income prior to James in failing to report that income on his returns, but rather, that he was attempting to conceal that income with intent to evade tax. If petitioner was relying on Wilcox in not reporting the income he received from PAMEW, he had ample opportunity to so advise the Revenue Service and this Court.

We conclude from the record as a whole that respondent has carried his burden of proving fraud under both sections 6501(c) and 6653 (b). This is particularly true with regard to the years 1961-63 when petitioner could not possibly have been relying on Wilcox and the rationale of James, and consideration is given to the repeated omissions of substantial amounts of taxable income as additional evidence of fraudulent intent. See Estate of Millard D. Hill, 59 T.C. 846, 856 (1973); Anderson v. Commissioner, 250 F. 2d 242 (C.A. 5, 1957); Bryan v. Commissioner, 209 F. 2d 822 (C.A. 5, 1954). Hence, assessment of the deficiencies for the years 1957-63 is not barred by the statute of limitations; and the 50-percent additions to tax determined to be due by respondent for each of those years is sustained. The purpose of the addition to tax is well served in this case: The precise amount by which petitioner's income was understated in the years in question appears still to be uncertain, and the record shows that the Government was indeed caused extra expense in attempting to undo petitioner's efforts at concealment. The addition is thus appropriate to protect the revenue and indemnify the Government.

As to the amount of the deficiencies asserted by respondent, petitioner's only challenge is to the size of the cash payments respondent determined petitioner received from PAMEW. Petitioner's assertion that he received no cash at all is contradicted by the record. While petitioner made some effort to rebut respondent's determination with reference to several cash payments reflected on PAMEW's books, we do not find that he has succeeded in showing that respondent's determination in this regard was arbitrary or unreasonable or in overcoming the presumptive correctness of respondent's determination; thus, respondent's determination must stand. Welch v. Helvering, 290 U.S. 111 (1933); Rule 32, Tax Court Rules of Practice. Because of certain concessions made by the parties,

Decision will be entered under Rule 50.

CANDIDO JACUZZI AND INEZ JACUZZI, PETITIONERS V. COMMISSIONER

OF INTERNAL REVENUE, RESPONDENT

Docket No. 856-69. Filed November 20, 1973.

Petitioner's employer unconditionally paid certain amounts to a
trustee as compensation for services previously rendered to it by the
petitioner. At the end of the trust term the trustee was to pay the
entire entrusted funds to petitioner or if he were not alive to certain
named members of his family. Held, the petitioner realized income
when his employer placed funds in trust for petitioner's benefit.

Jerry T. Light and William H. Sutton, for the petitioners.
G. Phil Harney, for the respondent.

WILES, Judge:* Respondent has determined the following deficiencies in petitioners' income tax:

Year 1959

1960

Deficiency $964, 649. 14 72, 762.55

The only issue remaining for our decision is whether petitioner, Candido Jacuzzi, realized taxable income in 1960 when his employer paid to a trust for his benefit certain amounts representing salary earned by him during 1959 and 1960 and interest thereon.

FINDINGS OF FACT

Some of the fact have been stipulated and are found accordingly. Petitioners are Candido Jacuzzi (hereinafter referred to as petitioner) and Inez Jacuzzi, husband and wife, who resided in Lafayette, Calif., at the time of the filing of the petition herein. They filed joint Federal income tax returns for the taxable years 1959 and 1960 with the district director of internal revenue in San Francisco, Calif. On June 13, 1960, petitioners filed an amended joint Federal income tax return for the taxable year 1959 with the district director of internal revenue in San Francisco, Calif.

Jacuzzi Universal, S.A. (hereinafter referred to as Universal) is a Mexican corporation and was at all times in issue in this case wholly owned subsidiary of Jacuzzi Brothers, Inc. Its headquarters and manufacturing plant are located in the town of Los Trevino, municipality of Santa Catarina, Nuevo Leon, Mexico.

The board of directors of Universal is elected by the vote of the proxy holder representing Jacuzzi Brothers, Inc. On October 20,

*Pursuant to a notice of reassignment sent to counsel for the parties, and to which no objections were filed, this case was reassigned by the Chief Judge on Oct. 25, 1972, from Judge Craig S. Atkins to Judge Darrell D. Wiles for disposition.

« iepriekšējāTurpināt »