Opinion
Docket No. 39678.
1957-05-8
ROY DIXON AND LOUISE DIXON, HUSBAND AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Lawrence R. Bloomenthal, Esq., for petitioner Roy Dixon. Douglas M. Haynes, Esq., for the petitioner Louise Dixon.
Lawrence R. Bloomenthal, Esq., for petitioner Roy Dixon. Douglas M. Haynes, Esq., for the petitioner Louise Dixon.
John K. Lynch, Esq., for the respondent.
During the taxable year 1950 the petitioners, who were then husband and wife, engaged in certain gambling and rental operations. By withholding information, they caused an accountant to prepare for them a joint income tax return for 1950 on which their income and their tax liability for the year were greatly understated. A duplicate copy of the return, unsigned by either petitioner, was filed with the collector on January 15, 1951, and the tax shown thereon as owing was paid then or shortly afterwards. Following an investigation of their tax liability for 1950, the respondent in December 1951 made a jeopardy assessment against the petitioners of the deficiency, addition to tax for fraud, and addition to tax for failure to file a declaration of estimated tax for 1950 involved herein. In January 1952, the respondent sent to petitioners a notice of his determination against them of the deficiency and additions to tax which had been previously assessed. In March 1952, and at a time when the petitioners had been separated for about a month and during which time they had not seen or communicated with each other, the petitioners swore to a petition, which they filed with this Court, in which they recited that they thereby confirmed and adopted the duplicate copy of the return as a joint return and requested this Court to consider it as such. Thereafter and until the trial of the case in October 1956 petitioner Louise Dixon was in the office of her then attorney, Lawrence R. Bloomenthal, on various occasions and discussed the case with him. Admittedly, she never on any occasion informed him that she had sworn to the petition under duress from petitioner Roy Dixon, even though she had been separated from the latter since about February 1952 and had been divorced from him since October 1952. Held, (1) that petitioner Louise Dixon has not established that in swearing to the petition in March 1952 she was acting under duress from petitioner Roy Dixon; (2) that since the duplicate copy of the return filed with the collector was not verified as required by section 51(a), I.R.C. 1939, it was not a joint return of petitioners or a separate return of either of them; (3) that the respondent did not err in determining the deficiency and additions to tax against the petitioners jointly; (4) that the petitioners are liable for an addition to tax for fraud; and (5) that the petitioners are liable for an addition to tax for failure to file a declaration of estimated tax.
The respondent determined a deficiency in the income tax of the petitioners and additions to tax as follows:
+-----------------------------------------------+ ¦ ¦ ¦Additions to tax, I. R. C. 1939¦ +----+----------+-------------------------------¦ ¦Year¦Deficiency¦ ¦ ¦ +----+----------+-------------+-----------------¦ ¦ ¦ ¦Sec. 293(b) ¦Sec. 294(d)(1) ¦ +----+----------+-------------+-----------------¦ ¦1950¦$55,615.70¦$27,807.85 ¦$9,095.06 ¦ +-----------------------------------------------+
By their joint petition filed herein on March 28, 1952, the petitioners placed in issue the deficiency in tax and additions thereto as set out above. By an amended petition filed by her at the hearing herein, petitioner Louise Dixon again placed in issue the deficiency in tax and additions thereto, but upon the ground that for the year 1950 she did not receive any taxable income and did not for that year file an individual income tax return for herself alone, or a joint individual income tax return with her then husband, petitioner Roy Dixon. At the hearing of this proceeding, both petitioners abandoned their pleaded contention that the deficiency in tax was in error and petitioner Louise Dixon did not contest the addition to tax under section 293(b) of the Code for fraud. As a result of the foregoing, the issues for decision are (1) whether the respondent erred in determining the deficiency and additions to tax against the petitioners jointly; (2) whether any part of the deficiency is due to fraud with intent to evade tax; and (3) whether the failure of the petitioners to file a declaration of estimated tax for 1950 was due to reasonable cause and not to willful neglect.
FINDINGS OF FACT.
During 1950 the petitioners were husband and wife and resided at 1177 East 98th Street, Cleveland, Ohio. They were married about 1935 and with the exception of a short separation in the 1940's they lived together continuously until during ‘the first part of 1951.’ Louise had been married previously. At the time of her marriage to Roy, Louise, who had completed 2 years of high school, was employed as an elevator operator and he was employed at a dress shop. Subsequently, Roy worked at a liquor store and about the beginning of World War II obtained employment at a manufacturing plant. Following that employment he was employed as a ‘pick-up’ man for a gambling business and continued that employment until 1948. In the meantime Louise had left her employment as an elevator operator for employment at a dress store where she continued to work until 1948.
During 1948 and 1949, Roy, Ernest Render, and Daniel Boone were partners in a gambling business in which they operated an establishment known as a ‘clearinghouse.’ Louise kept the records of the business. Render and Boone wished to have a ‘secret bookkeeper’ for the partnership business. Louise objected and Roy withdrew from the partnership.
During 1950, Roy and Louise engaged in the conduct of a gambling business similar in character to that which had been carried on by the partnership of which Roy had been a member. Roy occupied his time largely in soliciting for and otherwise promoting the gambling business. The keeping of the records of the business and the operation of the clearinghouse were handled by Louise and her brother, George Roberts. The latter was employed on a salary basis as ‘manager’ of the clearinghouse. He lived in the same house as Louise and Roy but occupied a different portion of it. At the beginning of 1950, Louise began working in the clearinghouse so as to get the business started and to get the clearinghouse set up in an ‘honest way.’ She continued working there throughout 1950 with the exception of part of the summer and possibly the early fall. Her work in the clearinghouse consisted of assisting with the adding machine work, checking the money that was brought in, checking the amounts which were paid on balances which were still owing, and in doing any other work needed to be done. In addition to the foregoing, Louise kept some of the books of the business, made bank deposits of some of the business receipts, issued checks to winners, and issued checks for some of the business expenses. As a result of her work in the business, Louise was more conversant with its detailed operations than was Roy.
During 1950, the petitioners received rental income from the following properties in Cleveland: 2193 East 100th Street and 2103 East 96th Street. The latter property, a residence which had been converted into a roominghouse, had been leased from the owner, Ben Spero, who lived in New York. Louise collected the rents from and paid most of the bills connected with the operation of the properties. She also sent monthly checks to Spero for the rent on the property owned by him. During 1950 and continuously since 1946, title to the property in which the petitioners resided, 1177 East 98th Street in Cleveland, stood in the name of Louise. George Roberts, the brother of Louise, occupied a portion of the house during 1950 and some rent was paid by him.
From January 1, 1950, until June 1, 1950, Louise maintained in her name a checking account in the Central National Bank of Cleveland. On June 1, 1950, the account was changed to a joint checking account in the name of Louise and Roy. Both prior to and after the change, receipts from the clearinghouse operation and from rents were deposited in the account and payments of expenses of the clearinghouse operation and expenses of the rental operation were made by checks drawn on the account. After the account was changed to a joint account, Louise wrote most of the checks drawn on it. In addition to the foregoing, a ‘bankroll’ consisting of a substantial amount of cash was maintained with respect to the clearinghouse operations. A small bankroll consisted of $5,000 or $6,000 and the largest bankroll they had during 1950 was between $20,000 and $25,000. When the bankroll reached the latter amount, they considered discontinuing the gambling business for something legitimate but did not.
Late in the fall of 1950 petitioners had a conversation with Milus J. Graham, an accountant, about installing a set of books and recording therein the data relative to the clearinghouse and rental operations for 1950, preparing an income tax return for 1950, and about Graham's charges for such services. Graham's services were engaged and thereafter he set up and maintained, until the end of 1950, books which purported to reflect the clearinghouse and rental operations for the entire year. The information as to rental operations used by Graham in setting up the books for the portion of 1950 prior to his employment as well as in keeping the books for the remainder of the year was furnished to him by Louise. The information as to the clearinghouse operations used by Graham in setting up and keeping the books was furnished by Roy. This information consisted of certain adding machine tapes relating to receipts and disbursements.
At the time of his first conversation with the petitioners, Graham understood that he was to prepare a joint income tax return for them. Later there were several discussions between them and him about whether separate income tax returns or a joint return should be prepared and filed. In these discussions, Graham informed them generally as to the difference in results between the filing of separate returns and the filing of a joint return and made clear to them that the split-income benefits of the Code would be available to them only if a joint return was filed. At the last of these discussions, Graham obtained the impression from Louise that she was agreeable to the preparation and filing of a joint return. Thereupon, Graham, from the books which had been set up and kept by him, prepared on Treasury Form 1040 a joint income tax return for the petitioners for 1950, and a duplicate copy thereof, sometimes hereinafter referred to as the document, and signed each of them under date of January 2, 1951, as the person who had prepared them. Graham delivered these to petitioners at their home. A discussion followed. Louise expressed a reluctance to sign the return on the ground that she did not know whether it was the right thing for her to do. She made no contention that she had not received any income during 1950. Graham left the return and the copy thereof with the petitioners so that they could decide what they wished to do and, if they decided to file a joint return, to sign and forward it with a check to the collector of internal revenue.
Neither before nor after Graham prepared the return did either of the petitioners submit to him the books which were kept for the clearinghouse operation nor did either of them inform him of the existence of those books.
On January 15, 1951, the document, duplicate copy of return, unsigned by either of petitioners, was received in the office of the collector in Cleveland, Ohio. Either on the foregoing date or by March 15, 1951, a payment of $1,228.46, the amount shown on the document as the tax due, was remitted to the collector. The person or persons filing the copy or making the remittance is not disclosed by the record.
On February 13, 1951, the clearinghouse, which was then operated in Pemberville, Ohio, was raided by law enforcement authorities and Roy was there arrested with six other persons. During the raid a deputy sheriff confiscated certain books and records which contained an account of receipts and payouts for ‘hits' of the clearinghouse operation in 1950. Roy attempted to obtain possession of the confiscated records by offering the officer $1,200 therefor shortly after the raid.
During ‘the first part of 1951’ Louise applied for a divorce from Roy. The application remained on file but unheard until August of that year when a reconciliation was effected between them. At that time Roy transferred to Louise his interest in the house and lot at 1177 East 98th Street, where they resided during 1950, and his interest in the house and lot at 2193 East 100th Street which was used for rental purposes in 1950. From the time of Louise's application for divorce until the reconciliation, she was separated from Roy. They again separated about February 1952 and in October of that year were divorced.
As a result of an investigation of the tax liability of the petitioners for 1950, including an examination of the records seized during the raid made on February 13, 1951, the respondent concluded that the income and the tax liability of petitioners for 1950 were greatly in excess of the amounts shown therefor on the unsigned document which had been received in the collector's office. Accordingly, on December 4, 1951, the respondent made a jeopardy assessment against them of the deficiency and additions to tax involved herein. Pursuant to that assessment, notices of liens were filed with the Recorder of Deeds of Cuyahoga County, Ohio, in which county the petitioners resided. Further, on December 6, 1951, $8,694.28 was seized under a levy from funds on deposit with the Central National Bank of Cleveland belonging to petitioners and, on December 20, 1951, $70.81 was seized by a levy against funds belonging to them which were on deposit with the Cleveland Trust Company.
On January 8, 1952, the respondent sent the petitioners a notice of deficiency addressed as follows: ‘Mr. Roy Dixon and Mrs. Louise Dixon, Husband and Wife, 1177 East 98th Street, Cleveland, Ohio,‘ advising them of his determination of the deficiency and additions to tax which he had theretofore assessed against them.
On February 25, 1952, Louise, unaccompanied, delivered to the revenue agent who had made the investigation of her and Roy's operations during 1950, two books of account maintained with respect to the clearinghouse operation in 1950, stating that she had found one of them in the linen closet of her home and had found the other in a dresser drawer filled with Christmas cards. She gave no explanation at that time as to the purpose for which the books had been maintained. Louise had made about one-half of the entries in one of the books and all of the entries in the other.
Thereafter, on March 28, 1952, the petitioners filed with this Court a joint petition respecting the respondent's determinations as set out in the notice of deficiency. The petition was sworn to by each of them on March 25, 1952, and contains, among others, the following recital:
An individual income tax return on Form 1040 was prepared in the name of both Petitioners for the taxable year ended December 31, 1950 by Milus J. Graham, a qualified public accountant practicing in the City of Cleveland, Ohio. Through inadvertence, a carbon copy of said return was filed on or about January 15, 1951 with the Collector of Internal Revenue for the 18th District of Ohio without the signatures of either Petitioner being affixed thereto prior to the filing thereof. The Petitioners hereby confirm and adopt said return as a joint return and request the Court to accept it as such in all respects.
With respect to the foregoing recital, the respondent's answer contains the following:
It is further admitted that the individual income tax return, Form 1040, prepared in the name of both petitioners for the taxable year ended December 31, 1950, by Milus J. Graham and filed on or about January 15, 1951, with the Collector of Internal Revenue for the 18th District of Ohio without the signature of either petitioner being affixed thereto has been confirmed and adopted as a joint return by the petitioners. * * *
On April 2, 1952, Louise voluntarily made a written statement under oath to representatives of the respondent and on April 30, 1952, signed and swore to the statement. In her statement, she explained in considerable detail the operation of the clearinghouse in 1950 and the manner in which the books for the operation were kept. Also, in response to the following questions, she gave the indicated answers:
Q. We have here before us the Roy and Louise Dixon income tax return which has been assigned serial No. 131700860 for the year 1950 and which, at the bottom, is signed by Milus J. Graham, but which bears the signature of neither you nor Mr. Dixon. Is that your tax return as well as Mr. Dixon's?
A. Yes, I imagine it is.
Q. Are you sure it is your joint tax return with him?
A. Yes, it is.
Q. Who prepared the return?
A. Mr. Graham.
The petitioners on December 10, 1951, gave Lawrence R. Bloomenthal a power of attorney to act for them with respect to their Federal tax liabilities for the years 1948 through 1950. From the time she swore to the joint petition on March 25, 1952, until about a month prior to the hearing herein in October 1956, Louise was in Bloomenthal's office on various occasions and discussed the instant case with him. Although she had been separated from Roy since about February 1952 and had been divorced from him since October of that year, she never on any occasion told Bloomenthal that she had sworn to the petition under duress from Roy.
On several occasions, beginning as early as 1949, while Louise was living with Roy, he inflicted personal violence upon her, usually while under the influence of intoxicants. He was an enthusiastic hunter and kept four or five hunting firearms in the home. Upon occasions when intoxicated, he fired some of the firearms in the home and sometimes as near to Louise as the chair in which she was sitting.
On the several occasions that Graham discussed with them the matter of their filing a joint return, and in particular the last occasion noted herein, the attitude of Roy and Louise toward each other was that of the ordinary husband and wife. Graham observed no other attitude on the part of Roy toward Louise than the ordinary attitude of a husband toward his wife.
The deficiency determined by the respondent was due to the fraud of petitioners with intent to evade the income tax upon the true amount of their income.
OPINION.
WITHEY, Judge:
The respondent takes the position that although the document prepared by Graham for the petitioners for 1950 and received in the collector's office on January 15, 1951, was not signed and verified by either of them, the omission was rectified by their confirmation and adoption of the copy as a joint return in their petition filed herein on March 28, 1952. He contends that in view of such confirmation and adoption and in view of the statement made by Louise on April 2, 1952, and sworn to by her that the document was her joint return with Roy for 1950, we should conclude that petitioners intended to and did file a joint income tax return for 1950 and that it was proper for him to determine against them jointly the deficiency and additions to tax herein involved. Taking the position that she received no taxable income in 1950, that she was not liable for and did not file an income tax return for that year, that she had no knowledge of a joint income tax return having been prepared for her and Roy for that year, that she did not intend to and did not file a joint income tax return with Roy for that year, and that under duress from Roy she swore to the petition filed on March 28, 1952, in which it was recited that the copy of the document was confirmed and adopted as a joint return, Louise contends we should conclude that she is not liable for any portion of the deficiency and the additions to tax.
The above-stated position of Louise stems from an amended petition which, at the hearing herein in October 1956, she was granted leave to file and from the evidence submitted by her at the hearing. Despite her position to the contrary, we are satisfied that Louise knew that Graham prepared a joint income tax return for her and Roy for 1950, of which the document involved herein is a copy. We are also satisfied that she not only participated in furnishing him with the information which he used in preparing the return but also discussed with him the matter of signing it.
Although the record shows that, beginning as early as 1949, on occasions when under the influence of intoxicants, Roy inflicted personal violence upon Louise and, in the home, discharged firearms in her direction, we are unable to conclude that those acts, or her anticipation that such acts might be repeated, influenced her in her relationship to the clearinghouse and rental operations during 1950 or in her conduct with respect to any income tax matter relating to that year. The record shows that in 1949 Roy withdrew from a partnership of which he was a member and which engaged in the gambling business. His action resulted from the objection by Louise, who kept the records of the firm, to a change in the firm's bookkeeping arrangement proposed by the other members of the firm. At the several times Graham discussed with them the matter of their filing a joint income tax return, the attitude of petitioners toward each other was that of the ordinary husband and wife.
At the time petitioners swore to the joint petition, they had been separated for about a month and had not seen nor communicated with each other during that time. From the time she swore to the joint petition until about a month prior to the hearing herein, or for a period of about 4 1/2 years, during approximately 4 years of which she was divorced from Roy, Louise was in Bloomenthal's office on various occasions and discussed the instant case with him, but at no time did she tell him that she had sworn to the petition under duress from Roy. In the foregoing situation, we are of the opinion that the contention of Louise as to duress is without merit.
The next question for consideration is whether the document which was not signed by either of the petitioners is to be regarded as their return for that year. Pertinent portions of the Internal Revenue Code of 1939 are set out below.
Under section 51(a) of the Code every individual having a gross income of $600 or more for the taxable year is required to make a return. Further, the section requires that the return ‘shall contain or be verified by a written declaration that it is made under the penalties of perjury.’ Section 51(b)(1) provides that a husband and wife may make a single return jointly and that if a joint return is made, the tax shall be computed on the aggregate income and the liability with respect to the tax shall be joint and several. From the language of section 51(a) and (b)(1), it is clear that the verification of the return and the method thereof are mandatory while the making by a husband and wife of a single return jointly is merely permissive.
SEC. 51. INDIVIDUAL RETURNS.(a) REQUIREMENT.— Every individual having for the taxable year a gross income of $600 or more shall make a return, which shall contain or be verified by a written declaration that it is made under the penalties of perjury. * * *(b) HUSBAND AND WIFE.—(1) IN GENERAL.— A husband and wife may make a single return jointly. Such a return may be made even though one of the spouses has neither gross income nor deductions. If a joint return is made the tax shall be computed on the aggregate income and the liability with respect to the tax shall be joint and several.
Lucas v. Pilliod Lumber Co., 281 U.S. 245, affirming 7 B.T.A. 591, arose under the Revenue Act of 1918. Section 239 of that Act provided that every corporation subject to taxation under the title there involved should make a return and that ‘(t)he return shall be sworn to by the president, vice president or other principal officer and by the treasurer or assistant treasurer.’ The taxpayer in that case filed with the collector in May 1919 what purported to be a return for 1918 which was not signed or sworn to by anyone. More than 4 years afterwards and in September 1923 and pursuant to a request from the Commissioner, the taxpayer's president and treasurer swore to and filed with him an affidavit concerning the purported return. In the affidavit, they stated that they affirmed that their names should have appeared on the taxpayer's purported return for 1918 which to the best of their knowledge and belief was correct. Thereafter, in October 1925, the Commissioner determined a deficiency in tax for 1918. The taxpayer contended that the period of limitations for assessment began to run in May 1919 when the unverified purported return was received by the collector and that, although it was not supported by oath, the defect was cured or became immaterial since the tax officers accepted and held it for several years and in 1923 requested and obtained an adequate verification thereof by the proper corporate officers. In holding adversely to the taxpayer, the Supreme Court said that the running of the statute was conditioned upon the presentation of a return sworn to, that no tax officer had power to substitute something else for the thing specified, and that so long as the purported return remained unverified by oath of the proper corporate officers it did not meet the requirements of section 239.
Section 51 of the Revenue Act of 1934 required that the returns of individuals be verified under oath. In Theodore R. Plunkett, 41 B.T.A. 700, affd. 118 F.2d 644, the taxpayer through inadvertence failed to sign and swear to his purported return for 1934 which he mailed from Adams, Massachusetts, on March 15, 1935, to the collector in Boston and which was received by the collector on March 18, 1935. In April 1936, the entire amount of tax shown due on the purported return and paid by the taxpayer was refunded. Thereafter, on March 5, 1938, the respondent determined a deficiency for 1934 greatly in excess of the amount of tax shown on the purported return and asserted an addition to tax for delinquency because of failure to file a return as required by section 51 of the Revenue Act of 1934 within the time required by that Act. After a petition had been filed with the Board and issues joined, the taxpayer prepared and properly executed a return for 1934 which was filed with the collector on October 8, 1938. In holding that the taxpayer was liable for the addition to tax for delinquency, the Board said (p. 711):
The purported income tax return of the petitioner for 1934 mailed by the petitioner from Adams, Massachusetts, on March 15, 1935, was not a return required by the statute. It was no return at all. The first return which was filed was filed on October 10, 1938. That return was filed after all the pleadings in this case had been filed and issue joined. It was filed too late to avoid the attachment of a penalty. * * * [Emphasis supplied.]
Although it is true that the Pilliod Lumber Co. case involved the question of the expiration of the period of limitations and the Plunkett case involved the question of liability for an addition to tax for delinquency, the clear import of those cases is that a document which is not verified in accordance with the requirements of the statute is not the return required by the statute. Further, the Pilliod Lumber Co. case makes clear that no tax officer has power to substitute something else for the verification specified by the statute.
As heretofore observed, section 51(a) of the Code requires that the return made by an individual ‘shall contain or be verified by a written declaration that it is made under the penalties of perjury.’ The document here involved contains, immediately preceding spaces for signature, the following:
I declare under the penalties of perjury that this return (including any accompanying schedules and statements) has been examined by me and to the best of my knowledge and belief is a true, correct, and complete return.
But the document was not signed by either Roy or Louise and the record does not disclose that they, or either of them, ever executed in any form a verification of it. Although the joint petition sworn to and filed by them contains the recital that they thereby confirmed and adopted the document ‘as a joint return and request the Court to accept it as such in all respects,‘ it is to be observed that that recital does not purport to be a verification of the document under ‘the penalties of perjury.’ Nor are we able to find elsewhere in the petition anything purporting to be such a verification. Obviously the statement of Louise on April 2, 1952, to representatives of the respondent that the document was the joint return of herself and Roy does not purport to be a verification.
The respondent does not cite any decision where, in a situation like or similar to that presented here, it was held that an unsigned and otherwise unverified duplicate copy of a purported income tax return was held to be the return required by statute and was to be given effect as such. Nor have we found any such decision. Accordingly, in the situation presented we are of the opinion that the unsigned document here involved was neither a joint return of Roy and Louise nor a separate return of either of them within the purview of section 51(a) and (b)(1) and that they therefore are to be regarded as not having made any income tax return for 1950.
The next question for determination is whether the respondent may properly determine a deficiency and an addition to tax for fraud against an individual for a year for which he has not made a return. That question has been answered in the affirmative in a number of cases including Fred N. Acker, 26 T.C. 107, and Joseph Calafato, 42 B.T.A. 881, affd. 124 F.2d 187. In the Calafato case, the taxpayers, husband and wife, filed no returns of income for a number of years. The Commissioner determined that they had received substantial amounts of income, some of which had been deposited in accounts standing in the name of one or both, and that there had been a commingling of funds and payments of the obligations of one out of the account of the other. Since the Commissioner was unable to obtain any information from the taxpayers as to the source and ownership of such funds, he treated the deposits in the banks as joint income of taxpayers and mailed one notice of deficiency to both of them advising them of his determination of deficiencies and additions to tax for fraud. The taxpayers joined in a petition to the Board for a redetermination of the deficiencies and additions to tax. The taxpayers contended that a joint deficiency might properly be determined against a husband and wife only for years for which they had filed joint returns but cited no authority for their contention. Since the taxpayers had filed no returns, had kept their books and records in such a manner that it was impossible for the Commissioner to determine the separate income of either, and had not attempted to furnish the Board any information from which such determination could be made, the Board sustained the Commissioner's determination of the joint deficiency. Being satisfied that the taxpayers had received substantial amounts of income during each of the years in question and since the taxpayers had not filed any returns for those years, the Board sustained the additions to tax for fraud.
The respondent has determined that the taxable net income from the clearinghouse and rental operations was in excess of $113,000 for 1950. Neither of the petitioners contests the correctness of that determination. The record is clear that each of them was active in the production of that income. For a portion of that year, Louise maintained in her name a checking account which during the year was changed to a joint checking account in the name of her and Roy. Both before and after the change, receipts from the clearinghouse as well as from rents were deposited in the account and payments of expenses of the clearinghouse and rental operations were made from that account. The petitioners have not shown what portion of the net income determined by respondent might properly be regarded as the income of Roy or Louise. On the record presented we think the entire taxable net income determined by respondent may properly be regarded as the joint income of the petitioners and under the rule of the Calafato case taxed to them jointly. Accordingly, we sustain the respondent's act.on in determining the deficiency jointly against the petitioners.
The document prepared for the petitioners by Graham shows total net income of $8,732.95 received by petitioners from their clearinghouse and rental operations and a taxable net income of $7,859.65 for 1950. Those amounts were arrived at by Graham solely on the basis of information furnished him by the petitioners, who never made available to him the books kept for the clearinghouse operation and never informed him of the existence of those books. In the investigation of the tax liability of the petitioners for 1950, the respondent, through the use of the seized records of the clearinghouse operation and information otherwise obtained, determined that the petitioners had received from the clearinghouse and rental operations income of $105,282.09 in excess of that shown on the document.
From the evidence submitted we are satisfied that the petitioners received in 1950 a much greater amount of income than indicated by the document which was filed with the collector. We think it obvious from the conduct of the petitioners in keeping a double set of books for the clearinghouse operation, in causing a document to be prepared from the set which was false, in filing the document or in causing it to be filed with the collector, and in not filing a proper return disclosing their actual income as required by law, the petitioners intended not only to conceal their true income but also intended to mislead respondent as to the amount of their true tax liability. Such conduct is evidence of fraud with intent to evade tax. Spies v. United States, 317 U.S. 492. The respondent's determination against the petitioners of the addition to tax for fraud is sustained.
Admittedly, the petitioners failed to file a declaration of estimated tax for 1950. They have not submitted any evidence from which we can find that such failure was due to reasonable cause and not to willful neglect. Accordingly, the respondent's determination against them of an addition to tax on account of their failure to file a declaration of estimated tax is sustained.
Decision will be entered for the respondent.