Opinion
Docket No. 36954.
1954-05-20
DAVID J. PLEASON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Maurice J. Walsh, Esq. , for the petitioner. George T. Donoghue, Jr., Esq. , and Thomas C. Cravens, Jr., Esq. , for the respondent.
1. Petitioner was the sole owner of a wholesale whiskey business known as Royal Distillers Products. Being unable to obtain renewal of a license to carry on the business he caused it to be transferred to his daughter's name and it was thereafter known as Anne Davis, doing business as Royal Distillers Products. Petitioner continued to manage the business as theretofore. Held, the purported transfer was a sham, and petitioner is accountable for the income from the business.
2. Petitioner bought and sold whiskey on the black market. The greater portion of overceiling payments received by him was in turn used to pay overceiling prices to his suppliers. Amount of overceiling payments received and retained by him determined.
3. Held, part of the deficiencies for each of the taxable years was due to fraud with intent to evade tax. Maurice J. Walsh, Esq., for the petitioner. George T. Donoghue, Jr., Esq., and Thomas C. Cravens, Jr., Esq., for the respondent.
The respondent determined deficiencies in income and Victory tax for 1943 and in income tax for 1944, and additions to tax for fraud, as follows:
+-----------------------------------+ ¦Year¦Deficiency ¦Addition to tax¦ +----+--------------+---------------¦ ¦1943¦ $222,268.68¦$111,134.34 ¦ +----+--------------+---------------¦ ¦1944¦28,415.34 ¦14,207.67 ¦ +-----------------------------------+ The year 1942 is also involved because of the Current Tax Payment Act of 1943.
In his answer the respondent claimed an increase in the deficiency for 1943 from $222,268.68 to $250,007.79 and an increase in the addition to tax for fraud from $111,134.34 to $125,003.90. The respondent on brief concedes that he did not prove facts to support his claim for such increases.
The issues are:
1. Is the entire net profit of Royal Distillers Products, computed on a calendar year basis for the years 1942, 1943, and 1944, includible in petitioner's gross income for the taxable years 1942, 1943, and 1944, under section 22(a) of the Internal Revenue Code?
2. Did Royal Distillers Products realize profits during the years 1943 and 1944, in excess of those recorded on its books and records for those years, as determined by the respondent?
3. Is some part of the deficiency for each of the years 1943 and 1944 due to fraud with intent to evade tax?
FINDINGS OF FACT.
The petitioner is now a resident of Brownsville, Texas. He filed his income tax returns for the years 1942, 1943, and 1944 with the collector of internal revenue for the eighth district of Illinois. At all times material herein he and his wife resided at Cairo, Illinois.
In 1938, petitioner began the operation as a sole proprietor of a wholesale liquor business at Cairo, Illinois. He operated the business under a basic permit issued to him under the Federal Alcohol Administration Act and under annual licenses issued to him by the State of Illinois. The business was conducted under the name ‘Royal Distillers Products' (sometimes hereinafter referred to as Royal). The customers of Royal had their places of business in Mississippi, Oklahoma, and Tennessee. Royal sold and delivered liquor to these customer at Royal's place of business in Cairo and received payment for the liquor upon delivery. Royal's customers hauled the liquor in their own vehicles to their places of business. Royal's sales to these customers were in lots of approximately 40 to 400 cases. The average transaction involved approximately 200 cases. Royal's gross profit was approximately $0.40 per case.
Petitioner purchased liquor for Royal from distillers and other wholesalers. He made arrangements under which Royal borrowed the entire cost of liquor purchased for resale. Royal paid for this liquor as soon as it was received with loans from the Security National Bank, Cairo, Illinois, covering the entire cost. It repaid these loans when the liquor was sold from proceeds of sales. To secure these loans, Lawrence Warehouse Company retained possession of Royal's liquor for the bank in a locked enclosure on the premises where the business of Royal was conducted. It surrendered possession to Royal as the liquor was sold and the loans repaid. Lawrence Warehouse Company had an employee on the premises, who was also an employee of Royal, to safeguard the liquor and release it as loans secured by it were paid. Lawrence Warehouse Company issued warehouse receipts for the liquor in its possession, and the bank retained possession of these receipts until Royal repaid the loans for which the receipts were security. Under the method by which Royal financed purchases, its capital was not invested in inventory.
During the entire period of its operation, Royal conducted its business in premises leased by petitioner at 706 Commercial Avenue, Cairo, Illinois. During this period, the business was furnished gas, electricity, and telephone service under applications to public service companies made by petitioner in his own name.
In 1939, petitioner hired Leon Bondurant, who was in charge of Royal's place of business when petitioner was absent.
In July 1941, petitioner applied for renewal of his aforementioned annual license from the State of Illinois. On or about September 1, 1941, his application was denied because petitioner had filed certain false reports with Federal officials regarding sales of liquor made through Royal. Royal did not operate for approximately the next 90 days, and made no sales or purchases of liquor during that period.
In the fall of 1941, the business of Royal could not have been sold and could not have been operated successfully without petitioner. The business had no goodwill or going concern value. Its customers had bought liquor from Royal because of the friendship between them and petitioner. It employed no salesmen. Royal's only assets were a few cases of liquor worth approximately $500 to $700. Most of these were in the possession of the Lawrence Warehouse Company as security for loans Royal had made from the Security National Bank, Cairo, Illinois, to pay the cost of the liquor.
In the fall of 1941, petitioner discussed the possibility of continuing the business with one of his daughters, Anne Davis. They agreed orally at that time that the business of Royal would be continued under the name of ‘Anne Davis, doing business as Royal Distillers Products' and that petitioner would continue to operate the business and furnish capital and make arrangements for credit. They never had a written agreement with respect to the operation of Royal.
Anne was unfamiliar with the liquor business and unable to operate such a business. She resided with her husband in Chicago, Illinois, in the fall of 1941 and subsequent years. Her husband is employed as a teacher in the Chicago public schools. They have one son born in 1934. During the years 1942 and 1943 she was employed by the Lenore Shoppe in Chicago. In her income tax returns for the fiscal years ended November 30, 1942, and November 30, 1943, she reported wages from this source in the respective amounts of $760 and $360. She is now employed as a saleslady in a dress shop in Chicago. In the fall of 1941, Anne Davis had no money other than approximately $1,000 which she and her husband had in a joint savings account in the Continental-Illinois National Bank and Trust Company, Chicago, Illinois. She did not invest any of the funds in this account in Royal.
In the fall of 1941, petitioner issued his check payable to Anne Davis in the sum of $5,000. She then opened a checking account in the Continental-Illinois National Bank and Trust Company, Chicago, Illinois, and deposited the check to this account. She drew $4,000 from this account and deposited it in the Security National Bank, Cairo, Illinois, to be used as capital in the operation of Royal. She drew other sums from this account to pay for the following items: Attorney's fees in connection with obtaining a wholesale liquor dealer's license issued in her name by the State of Illinois; the cost of Federal stamps issued in her name for the taxes imposed on wholesale and retail liquor dealers; an amount due the Lawrence Warehouse Company; and the cost of a round trip between Chicago, Illinois, and Cairo, Illinois, in connection with the resumption of the business of Royal. Anne Davis gave no note or other evidence of indebtedness to petitioner for the aforementioned $5,000 check. Royal repaid petitioner the $5,000.
In November 1941, the State of Illinois issued the aforementioned wholesale liquor dealer's license in the name of ‘Anne Davis, doing business as Royal Distillers Products.’ Petitioner, Anne Davis, and an attorney went to Springfield, Illinois, to obtain this license.
In November 1941, petitioner made arrangements with the Security National Bank, Cairo, Illinois, and the Lawrence Warehouse Company under which the latter organizations would continue to finance purchases of liquor by Royal in the same way as they had previously.
On December 10, 1941, Anne Davis filed an application with the Alcohol Tax Unit of the then Bureau of Internal Revenue for a basic permit to engage in the wholesale liquor business as ‘Anne Davis, doing business as Royal Distillers Products.’ After a hearing, the application was denied on October 1, 1942, by the district supervisor of the Alcohol Tax Unit, on the ground that she had failed to establish a real ownership in the business conducted under the name of Royal and was therefore not entitled to operate under a basic permit. On an administrative appeal by Anne Davis to the Deputy Commissioner of the Bureau of Internal Revenue in charge of such matters, the Deputy Commissioner affirmed the action of the district supervisor. Anne Davis then took an appeal to the Court of Appeals for the Seventh Circuit for review of the denial of her application. On her motion, this appeal was dismissed in February 1944. Petitioner was then under investigation by the Office of Price Administration.
Under the provisions of the Federal Alcohol Administration Act, Royal was permitted to operate while Anne Davis' application for a basic permit was pending.
After Royal resumed its activities, on or about December 1, 1941, when Anne Davis purportedly became the owner of Royal, petitioner continued to operate the business in the same manner as he had before that date. The business continued to have the same employees. Petitioner and Leon Bondurant did all the purchasing and selling for the business. The business employed no other salesmen. Anne Davis never made any suggestion to petitioner or Leon Bondurant about the operation of the business or the employment of any personnel.
The public service companies which furnished gas, electricity, and telephone service to Royal were never notified of the purported transfer of Royal's business to Anne Davis.
Both before the after December 1, 1941, Anne Davis made occasional round trips on weekends between Chicago, Illinois, and Cairo, Illinois, staying in Cairo at the home of her parents.
For a brief time after December 1, 1941, withdrawals from the bank account of the business could be made on Anne Davis' signature alone. Thereafter such withdrawals required her signature and that of Leon Bondurant. She followed a practice of signing blank checks drawn on this account for use in the business. These checks were kept at Royal's place of business.
In May 1942, petitioner pleaded guilty in a United States District Court to an indictment charging him with violations of the Liquor Enforcement Act of 1936. The indictment charged petitioner with filing certain false reports with Federal officials regarding sales of liquor made through Royal. The reports were the same ones which had caused the State of Illinois in 1941 to refuse petitioner's application for renewal of his State license as a wholesaler of liquor. Petitioner was sentenced and confined at the Federal penitentiary at Leavenworth, Kansas, for approximately 9 months.
While petitioner was in prison, Leon Bondurant performed many of the tasks which petitioner had done formerly for Royal. Petitioner's wife visited him at prison every month and brought him reports relating to Royal's operations. On several occasions, an attorney visited petitioner at prison, brought him reports, and conferred with him about the operation of the business. The attorney also conferred with petitioner about obtaining merchandise for Royal. On a number of occasions while petitioner was in the penitentiary, the attorney obtained merchandise for Royal. Anne Davis visited petitioner at prison once or twice. While petitioner was in prison, payments were made to his wife by Royal and charged on its books as salary to petitioner.
During the period in 1942, 1943, and 1944 in which Royal operated, it only had three employees, Leon Bondurant and two bookkeepers. It had furniture and fixtures which had cost $56.18.
In February or March 1943, when he was released from prison, petitioner fully resumed his position as operator of Royal and continued as such until February 1944, when the business of Royal ended. In 1943 there was a growing scarcity of whiskey. After March 1943, petitioner, through his contacts in the liquor industry, obtained for Royal the liquor which it sold.
In July 1943, petitioner, acting for Royal, agreed with Sam Eastman, one of two principal stockholders of the Paramount Liquor Co., Inc., of St. Louis, Missouri, to purchase for Royal 1,700 cases of whiskey and to pay therefor not only the maximum price permitted under regulations issued by the Office of Price Administration (hereinafter referred to as the ceiling price) but also a certain amount per case in addition thereto. Royal purchased this whiskey and entered the ceiling price on its books and records as the cost of this whiskey.
In July 1943, petitioner, acting for Royal, agreed to sell the aforementioned 1,700 cases of whiskey at the ceiling price, plus an amount per case in addition thereto, to a person named Spears, whose place of business was located in the State of Mississippi. The ceiling price was shown on the invoice and paid by sight draft, and Royal entered this price on its books as the amount received from Spears on this transaction. Spears, in accordance with the agreement, paid petitioner, in addition to the invoice price, cash amounting to approximately $15,000, a portion of which was turned over by petitioner to the Paramount Liquor Company in St. Louis in part payment for the whiskey purchased from it. The portion retained by petitioner, and not reported for Federal income tax purposes for 1943 either by him or Anne Davis, amounted to at least $5,000.
Prior to September 10, 1943, petitioner, acting for Royal, agreed with Sam Eastman and Harry Moll, the other principal stockholder of Paramount Liquor Company, to purchase from that company for Royal a quantity of whiskey in barrels at the ceiling price, plus an additional amount for each gallon purchased. During the period between September 10, 1943, and November 22, 1943, Royal purchased 675 barrels of whiskey from Paramount Liquor Company and entered the ceiling prices shown on the invoices on its books and records as cost of merchandise.
When the 675 barrels of whiskey purchased by Royal had been filled originally, each of them contained between 46 and 48 gallons of whiskey. At the time Royal purchased them, each of them contained between 12 per cent and 20 per cent less whiskey because of losses due to evaporation. Royal had the 675 barrels of whiskey bottled in cases of fifths. It took approximately 2.4 gallons for each case. After bottling, the total number of cases of fifths which Royal obtained from the 675 barrels was approximately 10,350.
Prior to September 10, 1943, petitioner, acting for Royal, agreed to sell the aforementioned liquor after it had been bottled in cases of fifths to three persons whose last names were Pearson, Hayes, and Castleman at the ceiling prices, which prices were to be shown on the invoices, plus amounts which varied from $12 to $20 per case, which were to be paid in cash to petitioner. In 1943, the whiskey was sold for the agreed prices. Petitioner received in 1943 the overpayments due in cash on each case. The total of the overpayments was not less than $124,000. Royal entered the invoice prices on its books as income, but did not reflect the cash overpayments on its books in any way. A portion of these overpayments was paid to Paramount Liquor Company in part payment for the whiskey purchased from it. The portion retained by petitioner, and not reported for Federal income tax purposes for 1943 either by him or Anne Davis, amounted to at least $40,000.
On or about November 1, 1943, petitioner, acting for Royal, purchased 1,098 cases of Pride of Anderson whiskey from Louis Blumenthal of Chicago, Illinois, and agreed to pay therefor the ceiling price, plus an additional amount per case in cash in addition thereto. Royal entered the ceiling price on its books and records as the cost of this whiskey.
In 1943, petitioner, acting for Royal, sold the 1,098 cases of whiskey at the ceiling price permitted under regulations issued by the Office of Price Administration, which price was shown on the invoices, plus $14 per case, or $15,372 which was paid in cash to petitioner in 1943. Royal entered the invoice prices on its books as income, but did not reflect the cash overpayment on its books in any way. After delivery, petitioner paid the ceiling price and a portion of the cash overpayment to Blumenthal in accordance with their agreement. The portion of the cash overpayment retained by petitioner, and not reported for Federal income tax purposes for 1943 by either him or Anne Davis, amounted to at least $5,000.
Under regulations issued by the Office of Price Administration in effect in 1943 and 1944, there was a spread of 15 per cent between the ceiling prices at which Royal could buy and sell liquor.
After December 1, 1941, profits of Royal, as reflected by its books and records, were not used in its business but were accumulated in its bank account in the Security National Bank, Cairo, Illinois. Anne Davis' income taxes for the fiscal years ended November 30, 1942, November 30, 1943, and November 30, 1944, were paid with funds withdrawn from this bank account. In August 1943, a downpayment of $6,500 on the purchase of a house for her was made with funds withdrawn from this bank account. No other amounts were withdrawn from Royal for the personal use of Anne Davis.
Anne Davis had no knowledge of the cash payments in addition to invoice prices which were received in 1943 and 1944 on Royal's sales of liquor in these years. These cash payments were kept in a safe on the premises of Royal.
In February 1944, when Royal ceased operating, it had accumulated profits in its bank account of about $70,000 more than the amount estimated as needed to pay Anne Davis' income tax for the fiscal year ending November 30, 1944. This $70,000 was withdrawn from the bank account and turned over to petitioner. In February 1944, Anne Davis had an unpaid mortgage on her home.
Shortly thereafter petitioner invested, for his own account, approximately $50,000 of the $70,000 in a joint venture with Louis Blumenthal to sell liquor by the case. Petitioner's total investment in the venture was $85,000. Blumenthal invested no capital and was not experienced in the business of selling liquor by the case. Petitioner and Blumenthal shared equally in the profits of the joint venture. It lasted approximately one year. At its conclusion, petitioner had received back his investment of $85,000 plus one-half the profits. Anne Davis did not know of this joint venture and did not share in its profits.
In 1946, petitioner invested about $16,000 of the $70,000 in shares of stock of a corporation known as National Distillers Products Corporation. The shares purchased were issued in the name of Anne Davis. Petitioner sold this stock in 1950. In the same year he purchased bonds of a corporation known as the Brownsville Shrimp Exchange. The funds invested in these bonds, which were issued in the name of Anne Davis, were approximately $70,000, and had their origin in the distributions made by Royal in February 1944. Petitioner and his wife owned 50 per cent of the stock of the Brownsville Shrimp Exchange. Anne Davis never received any interest on the bonds.
In March 1944, petitioner and Leon Bondurant were indicted for violations of the Emergency Price Control Act of 1942 for sales made by them for Royal. They pleaded guilty and were convicted. Petitioner was sentenced and fined $5,000. Leon Bondurant was sentenced and fined $2,500. Both sentences were suspended and petitioner and Leon Bondurant were placed on probation.
On March 7, 1950, petitioner was indicted in the United States District Court for the Southern District of Illinois, for the fraudulent evasion of income and Victory tax for the year 1943 and income tax for the year 1944. In the indictment each year was made the basis of a separate count. On May 17, 1950, petitioner entered a plea of guilty to the second count of the indictment, which charged fraudulent evasion of income tax for the year 1944, was convicted, and fined $10,000. The first count of the indictment was dismissed.
The petitioner reported on his Federal income tax returns the following amounts as salary from Royal:
+---------------+ ¦1942¦$7,670.00 ¦ +----+----------¦ ¦1943¦16,873.58 ¦ +----+----------¦ ¦1944¦2,000.00 ¦ +---------------+
Anne Davis, in her income tax returns for the fiscal years ended November 30, 1942, November 30, 1943, and November 30, 1944, reported the net profit of Royal, computed on the basis of those fiscal years, and as recorded on its books and records after deduction of amounts paid petitioner purportedly as salary.
In the notice of deficiency, respondent determined that under section 22(a) of the Internal Revenue Code the net profit of Royal, computed on a calendar year basis for the years 1942, 1943, and 1944, was includible in petitioner's gross income for these taxable years in lieu of the amounts reported by petitioner as salary from Royal. In the notice of deficiency respondent determined the net profit of Royal to be as follows:
+-----------------------------------------------------------------------------+ ¦ ¦1942 ¦1943 ¦1944 ¦ +-------------------------------------------+----------+-----------+----------¦ ¦Net profit recorded on the books and ¦$27,433.70¦$97,638.37 ¦$27,300.65¦ ¦records of Royal ¦ ¦ ¦ ¦ +-------------------------------------------+----------+-----------+----------¦ ¦Net profit not recorded on the books and ¦ ¦174,063.65 ¦7,706.75 ¦ ¦records of Royal ¦ ¦ ¦ ¦ +-------------------------------------------+----------+-----------+----------¦ ¦Total net profit determined in the notice ¦$27,433.70¦$271,702.02¦$35,007.40¦ ¦of deficiency ¦ ¦ ¦ ¦ +-----------------------------------------------------------------------------+
During the years 1942, 1943, and 1944, petitioner was the owner of the business, assets, and income of Royal. Petitioner's total net income from his whiskey business was $27,433.70 for the calendar year 1942, $147,638.37 for the calendar year 1943, and $32,300.65 for the calendar year 1944.
A part of the deficiency for each of the years 1943 and 1944 is due to fraud with intent to evade tax.
OPINION.
RAUM, Judge:
1. The first question is whether the entire net income of Royal, computed on a calendar year basis for the years 1942, 1943, and 1944, is includible in petitioner's gross income for the taxable years 1942, 1943, and 1944. The petitioner contends that it is not and urges that his daughter, Anne Davis, was the legal and true owner of the business of Royal during the taxable years and that no part of its income is chargeable to him.
We are convinced that the business of Royal, which was clearly the business of petitioner before he was denied a wholesale liquor license in September 1941, continued to be his business when 90 days later its operations were resumed under the name ‘Anne Davis, doing business as Royal Distillers Products.’ The change of name did not result in any real change in operation or in the ownership of assets, and we are satisfied that the alleged change in ownership was a sham. Petitioner continued to control and dominate Royal as he had done theretofore, and even while he was in prison, during the 9-month period beginning in May 1942, he kept in touch with and exercised control over its activities insofar as he could. The success of its business depended upon his experience, ability, business acumen, and contacts in the liquor industry. When it resumed activities on December 1, 1941, he operated it in the same manner, in the same location, and with the same employees as theretofore. His daughter, Anne Davis, was unfamiliar with the liquor business and her participation in its affairs was confined largely to the signing of blank checks which were kept at Royal's place of business. All that she ever received from Royal as a distribution of its profits was $6,500 in August 1943, to make a downpayment on a house. This so-called $6,500 distribution, however, was in substance nothing more than a gift from father to daughter. After December 1, 1941, petitioner retained control of Royal's income and used it for his own benefit; he was the true owner of such income. To the extent that Anne Davis' name appeared in connection with any of the investments made out of the profits of the business, we are satisfied that it merely represented an effort to keep up the pretense that she was the owner. The income realized from the operation of Royal during the calendar years 1942, 1943, and 1944 belonged to petitioner and must be charged to him.
2. The parties have stipulated that the respondent correctly determined on a calendar year basis, for the years 1942, 1943, and 1944, that part of the net profit of Royal for those years which was reflected on its books and records. The petitioner contends, however, that the respondent erred in determining that either he or Royal received in cash and failed to report for Federal income tax purposes $174,063.65 in the year 1943 and $7,706.75 in the year 1944, representing profit realized over and above the invoice prices on sales made in those years.
At the hearing petitioner admitted that cash over and above the invoice prices was received on sales by Royal in the years 1943 and 1944 and did not establish that these receipts were less than the amounts determined by the respondent. He urges, however, that they were offset by overceiling payments to suppliers, and that no taxable income accrued. Cf. Lela Sullenger, 11 T. C. 1076.
There is a sharp conflict between the testimony of petitioner and of witnesses for the respondent, Sam Eastman, Harry Moll, and Louis Blumenthal, as to overceiling payments for merchandise by Royal. Petitioner testified that the entire amounts of the overceiling payments received in cash on sales by Royal were used by him in turn to make cash payments in excess of invoice prices on purchases. Respondent's witnesses, who sold the whiskey to Royal, denied that they ever received such cash payments. If petitioner told the truth, then Eastman, Moll, and Blumenthal lied; and if they told the truth, then petitioner's testimony was false. The credibility of these four witnesses, therefore, becomes of crucial importance. We have heard and observed them, and have used our best judgment in evaluating their testimony. Eastman, Moll, and Blumenthal controlled supplies of scarce whiskey. Our appraisal of them on the witness stand leads us to conclude that their testimony was not truthful, and that they exacted everything that the traffic would bear. They were in the ‘driver's seat,’ and we have no doubt that they attempted to take full advantage of that fact. We are satisfied that the greater portion of the overceiling receipts found its way to the suppliers and was not retained by petitioner. On the other hand, we do not believe petitioner's testimony that he did not retain any of the overceiling receipts. Substantial risks, entailing criminal penalties, were involved in selling on the black market, and we do not believe on this record that petitioner incurred such risks without expectation of profiting from such sales to a greater degree than the rather modest legal markup would permit. In this posture of the case, we cannot find, in accordance with petitioner's contention, that he did not have the benefit of any of the overceiling payments, nor can we find, in accordance with the Government's contention, that petitioner had the benefit of all of such payments. No records were kept of the overceiling aspects of these transactions, and the situation calls for the exercise of practical judgment based on such meager evidence as the record discloses. Cf. Cohan v. Commissioner, 39 F. 2d 540, 544 (C. A. 2). Our findings reflect our conclusion that the greater portion of such payments represented additional cost of merchandise exacted by the suppliers, and the remainder represented additional income received by petitioner. Accordingly, we do not agree with the respondent that there was unreported income in the amount of $174,063.65 in 1943 and $7,706.75 in 1944. Our best judgment is that the net profit, representing the portion of unreported overceiling receipts retained by petitioner amounted to $50,000 for the year 1943, and $5,000 for the year 1944.
3. As to the fraud issue, the burden was on the respondent. We think he sustained his burden. In each of the years 1943 and 1944 petitioner received cash in excess of the invoice prices on sales of Royal, and paid part of this excess to those from whom whisky was purchased. His daughter, Anne, knew nothing about these receipts and disbursements and did not report them in her returns. The petitioner who knew about them and the profit which resulted therefrom failed to report the profit realized by him in his income tax returns for 1943 and 1944. His failure to report this profit in such returns is clear and convincing evidence of his fraudulent purpose. We have, therefore, found as a fact that a part of the deficiency for each of the years 1943 and 1944 is due to fraud with intent to evade tax. Moreover, it has clearly been shown that the attempt to ascribe Royal's profits to Anne Davis was a sham, and it is plain that petitioner's failure to report such profits was deliberate and fraudulent.
Decision will be entered under Rule 50.