Rice
v.
Comm'r of Internal Revenue

Tax Court of the United States.Mar 30, 1950
14 T.C. 503 (U.S.T.C. 1950)

Docket No. 21134.

1950-03-30

CHARLES C. RICE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Robert J. Hawkins, Esq., for the petitioner. Edward M. Woolf, Esq., for the respondent.


The petitioner, a pilot for Transcontinental & Western Air, Inc., was engaged chiefly in transporting passengers and cargo to foreign bases pursuant to a contract between his employer and the Army accepting such employment he moved his family, consisting of his wife and son, from his father's home in Anniston, Alabama, where they had an apartment, to Arlington, Virginia. In preparing his return he deducted $4,825.95 as representing cost of travel, foreign and domestic, and various amounts for uniforms, navigation equipment, dues, telephone, and the like; also amounts expended in travel between Anniston and Arlington. The deductions claimed were disallowed by the respondent and a determination was made that the resulting deficiency was due to fraud. Held, that the respondent has not shown that the deductions were fraudulently claimed with intent to evade tax.

2. Petitioner's return was not filed within the period prescribed by statute and respondent has determined a delinquency penalty of 15 per cent. Held, that the petitioner has failed to show that the delay in filing his return was due to reasonable cause and not due to willful neglect. Robert J. Hawkins, Esq., for the petitioner. Edward M. Woolf, Esq., for the respondent.

For the year 1945 the respondent determined against the petitioner a deficiency of $147.11 in income tax, a 50 per cent addition to tax for fraud, amounting to $517.70, and an addition of $22.07 to tax for the late filing of his return. The only errors alleged by petitioner in his petition are that the respondent erroneously determined (1) the 50 per cent addition for fraud, and (2) the 15 per cent addition for the late filing of the return.

FINDINGS OF FACT.

The petitioner is a copilot for Transcontinental & Western Air, Inc., referred to sometimes as T.W.A. He has been employed by T.W.A. since September of 1944. His present residence is Blue Springs, Missouri. After completion of 16 hours college credit work at State Teachers College, Jacksonville, Alabama, petitioner was employed by Graham Aviation Co. at Augusta, Georgia. While so employed in 1942 he was married. During all or a part of 1943 and up to September, 1944, he worked for Georgia Aero-Tech, also at Augusta. He and his wife have one child, a son.

Upon being employed by T.W.A. in September, 1944, petitioner was attached to the Intercontinental Division of that company, with Washington, D.C., as his base. The Intercontinental Division of T.W.A. was engaged in transporting passengers and cargo to foreign bases pursuant to a contract with the Army Air Transport Command. During most of his time on duty he acted as copilot on flights from Washington to foreign bases.

For a short period after petitioner's employment in Washington by T.W.A. his wife and son remained at the home of his father and mother in Anniston, Alabama, where they had an upstairs apartment. In December of 1944 his wife and son came to Washington and thereafter during the taxable year petitioner and his family occupied an apartment in Arlington, Virginia. During part of 1945, however, his wife and son were back in Anniston, Alabama, and petitioner made several trips between Washington and Anniston, one being by plane, one by train, and two by automobile. Some of these trips were made in connection with the moving of his family and their belongings from Anniston to Arlington. Anniston was regarded by petitioner as his legal residence.

A short time before March 15, 1946, as he was preparing to leave on a flight for T.W.A., petitioner realized that hin income tax return for 1945 had not been prepared and that it would be necessary to prepare and file it on or before that date. He had heard from various of his associates, pilots and copilots for T.W.A., that Bernard P. Nimro was an experienced income tax man and that through his preparation of their returns he had saved them substantial sums in taxes. He and his wife gathered together such data as they had in the apartment and his wife took the information to Nimro's office. Upon his return to Washington from the flight petitioner was shown an income tax return which Nimro had prepared after talking to petitioner's wife and going over the data which had been submitted. Attached to the return was the following schedule, showing income received by the petitioner and the items charged as deductions:

+-----------------------------------------------------------------------------+ ¦GROSS INCOME (Per Contract) ¦$7,091.40 ¦ +----------------------------------------------------------------+------------¦ ¦Partial Reimbursement (Per contract) ¦842.00 ¦ +----------------------------------------------------------------+------------¦ ¦ ¦ ¦ ¦ ¦ ¦$7,933.40 ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ +----------+----------------------------+--------------+---------+------------¦ ¦EXPENSES: ¦ ¦ ¦ ¦ ¦ +-----------------------------------------------------------------------------¦ ¦ ¦U. S. Travel—N. Y., N. H., Mass., Maine, N. J., Md., Vt., Pa., ¦ +----+------------------------------------------------------------------------¦ ¦ ¦W. Va., D. C., Va., Texas, Kans., Mo., N. M., Ala., Tenn., S. C., ¦ +----+------------------------------------------------------------------------¦ ¦ ¦N. C., Ky., Ga., Ill., Ohio, Neb., New Orleans, La. ¦ +----+------------------------------------------------------------------------¦ ¦ ¦ ¦Hotel ¦$3.50 ¦ ¦ ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦Meals ¦4.00 ¦ ¦ ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦Cabs to & fr ¦ ¦ ¦ ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦posts ¦2.00 ¦ ¦ ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦Telephone ¦ ¦ ¦ ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦reports ¦.50 ¦ ¦ ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦Tips, Misc ¦.75 ¦ ¦ ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ +----+-----+----------------------------+--------------+---------+------------¦ ¦ ¦ ¦204 days at ¦$10.75 ¦$2,193.00¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Plane & RR Travel ¦135.45 ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Comm Ration Travel ¦ ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦9250 mi at 5¢ ¦462.50 ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Uniforms & Navigation Equip ¦391.20 ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Equip Maintenance ¦156.00 ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Dues ¦56.00 ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Telephone Required by Co ¦102.80 ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Plane Liability Insurance ¦72.00 ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Foreign Travel — Greece, Scotland, France, Cairo,¦ ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Karachi, Casa Blanca, Bermuda, New Foundland, ¦ ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Santa Maria, Rome, Tripoli, Iceland, Labrador, ¦ ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦Iran, Switzerland, Palestine, Mexico, England. ¦ ¦ ¦ +----+-------------------------------------------------+---------+------------¦ ¦ ¦ ¦105 days at $12.00 ¦1,260.00 ¦ ¦ +----+-----+-------------------------------------------+---------+------------¦ ¦ ¦ ¦ ¦ ¦ ¦$4,828.95 ¦ +----+-----------------------------------------------------------+------------¦ ¦ ¦NET INCOME ¦$3,104.45 ¦ +-----------------------------------------------------------------------------+

Petitioner went over the return and discussed the various items with his wife. He questioned the amounts shown as covering U.S. traveling. His wife explained to him that the basis for the claimed deduction was that it represented living and traveling expenses away from home in the course of his employment by T.W.A., and that, since Alabama was their legal residence, Alabama was to be regarded as their home for the purpose of the deductions claimed. After some further examination of the data appearing on the return and after coming to the conclusion that the amounts covering the items shown as having been expended were in substantial accord with his total expenditures for the year, petitioner signed the return and either mailed it or had his wife take it back to Nimro so that the above schedule which was in pencil might be typed and the return might be filed. Petitioner understood that Nimro would file the return from his office.

The place and date of the first filing of the return is not clearly shown. Petitioner thought it was filed in Alabama and within the time required by statute. One stamp appearing on the face of the return reads, ‘Received May 28, 1946. Col. Int. Rev. Dist. Va.‘ Another shows, ‘Received Jul 15, 1946, Col. Int. Rev. Dist. Ala.‘ The record does not explain the occasion for sending the return back and forth.

Of the places shown in the above schedule under the heading, ‘U.S. Travel‘ petitioner did not land in either Nebraska or West Virginia. In some of the places where he did land he stopped at hotels, while in others he was on an Army base. At all times, however, he maintained his apartment in Arlington, Virginia.

The item of ‘Plane & RR Travel‘ in the amount of $135.45 represented one trip by plane and one by rail between Washington and Anniston, Alabama. The $462.50 described as ‘Comm Ration Travel‘ represented cost of operating petitioner's automobile. It covered trips from Washington to Anniston, Alabama, and return, as well as some driving between his apartment and the airport. The items covering ‘Uniforms & Navigation Equip‘ and ‘Equip maintenance‘ were substantially the amounts actually expended therefor. The item of $56 covered dues of petitioner in the Airline Pilot's Association. The item of $102.80 was the cost of the telephone at his apartment. The phone was used for personal uses and in the course of his employment. The item of $72 represented his portion of the premium on a policy of insurance required by the company, covering petitioner personally.

In traveling to and from the airport, both in Washington and at other places in the United States, the petitioner, some of the time but not all, used a taxicab.

According to T.W.A. records, petitioner was entitled to reimbursement for 116 days of foreign travel and 8 days of travel in the United States away from Washington. The rate of reimbursement was $8 per day for foreign travel and $6 per day for domestic travel. On both foreign and domestic travel for 1945 the petitioner received $976 as such reimbursement from T.W.A. Of that amount, $134 was not paid until 1946.

At some later date the petitioner was asked to call at the office of an internal revenue agent. He was asked numerous questions concerning his 1945 return and was advised that the Bureau of Internal Revenue was investigating Nimro and his clients. After that interview petitioner went to Nimro's office, told him what had happened, and asked what was the meaning of it; also, what he should do. He was assured by Nimro that the investigation was routine and that there was nothing to it. On the basis of what he saw and had heard he regarded Nimro as a qualified tax man.

According to the records of the District Court of the United States for the District of Columbia, Bernard P. Nimro was indicted for larceny and embezzlement on September 29, 1933, was found guilty as charged, and on December 15, 1933, was sentenced to serve a term from 15 to 18 months. On the basis of that conviction he was ordered disbarred from the practice of law by the United States District Court for the District of Columbia on October 27, 1937. Thereafter, on or before February 1, 1947, Nimro was again convicted of larceny and embezzlement and sentenced to serve a term of from 1 to 13 months for misappropriation of funds entrusted to him for tax purposes by Loy Henderson, an employee of the United States Department of State.

In determining the deficiency herein the respondent disallowed in full the deductions claimed by petitioner on his return, and in addition added as income received $210 of the amounts paid to petitioner by T.W.A. as reimbursement for foreign and domestic travel.

OPINION.

TURNER, Judge:

Since the petitioner has not alleged any error by respondent in the determination of the deficiency, our only questions here are as to the correctness of the respondent's determination of fraud and of petitioner's liability to a delinquency penalty for the late filing of his return. Deductions, comparatively substantial in amount and to which petitioner was not entitled, were claimed by him on his return. Further, the description of some of the items as they appear on the schedule attached to the return are admittedly not correct. It is the respondent's contention that the claims of the deductions under such circumstances not only were false, but were due to fraud with intent to evade tax, with the result that a part of the deficiency is due to fraud and the 50 per cent addition to tax therefore applies. It is the petitioner's contention that, while there was error in the setting up of the amounts and they were not in some instances accurately described, the total of the deductions claimed represents substantially the expenditures made by him, which, on the advice of what he regarded as competent counsel, were thought by him to be deductible, and there was at no time any intention to file a fraudulent return and no intent to evade his just tax.

The petitioner's difficulty here stems largely from a mistaken impression that for the purposes of the statute covering and allowing a deduction for living expenses while away from home on business, Anniston, Alabama, was to be regarded as his home during the taxable year and not Washington, D.C., which was his post of duty with his employer, T.W.A. That view, while in error, is not novel. The impression that a person away from his legal residence or domicile on was duty was absent from home for the purpose of allowing on income tax returns deductions for living expenses was widely prevalent, and there was and still is some difference of opinion as to the correctness of some of the decisions which have held that the post of duty in such employment is the home of the taxpayer for the purpose of determining his right to deductions such as those here claimed. We do not, therefore, find in the claim of the deductions covering petitioner's living expenses while in Arlington, Virginia, or while away from Washington on duty a sufficient basis for the respondent's determination of fraud. It is true that various items as described by petitioner on his return were not correctly described, but with respect to the various items shown, practically all of them do have some relation to petitioner's employment and possibly some of them in some small amounts might, if shown in greater detail, be the basis for a proper deduction. The bulk of the deductions, however, appear to be personal and not of a character which would permit their deductions in the face of the statutory prohibition against the deduction of persona expenses. It is also true that an arbitrary or fictitious formula was set up in the above schedule in arriving at the living expenses of petitioner, described under the heading, ‘U.S. Travel.‘ Some of those we have no doubt the petitioner knew to be incorrect. He has testified, however, that he regarded the total sum shown as being substantially what he did actually spend for hotels, meals, and the purposes indicated while in Virginia or away from Washington on duty. He did not keep detailed records of his expenses and there seems to be no question that such records or memoranda as he did keep were not nearly as complete as a person of his intelligence and education should have maintained or those he will keep and maintain in the future. During his testimony his demeanor and manner on the stand were given careful attention and, while it is our conclusion that certain of his expenditures were not correctly described, we do not believe that this petitioner at any time intended fraudulently to understate the amount of his tax. A charge of fraud is, of course, a serious matter and Congress has, by specific statutory provision, placed the burden of proving fraud upon the respondent. In this case we do not feel that the respondent has borne that burden. Accordingly, we find and hold that no part of the deficiency was due to fraud with intent to evade tax.

The matter of the delinquency penalty is somewhat different. There Congress has not placed the burden of proof on the respondent. It has placed the responsibility for filing the return on time squarely upon each and every taxpayer. So far as we have been able to determine, the return here in question was first filed with the collector of internal revenue for the district of Virginia on May 28, 1946, more than two months after it was due. It also appears from the evidence that the petitioner was fully aware of the necessity for filing the return on or before Mach 15, and further it is not shown that he did not have ample time to see that it was filed within the time prescribed even after his wife had consulted Nimro and Nimro had made out the return which he signed, We are unable to conclude, therefore, that the petitioner has shown that the return was filed within the time prescribed by the statute or that the failure to file the return within the time was due to reasonable cause and not due to willful neglect. The respondent's determination of the delinquency penalty is accordingly approved.

Reviewed by the Court.

Decision will be entered under Rule 50.

HILL and HARRON, JJ., dissent.