Opinion
Docket No. 89647.
1962-05-11
EMANUEL HOLLMAN, INCOMPETENT, MARVIN LECHTMAN, SPECIAL GUARDIAN AD LITEM, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Bernard J. Long, Esq., and Richard P. Milloy, Esq., for the petitioner. John J. Madden, Esq., and Robert A. Trevisani, Esq., for the respondent.
Bernard J. Long, Esq., and Richard P. Milloy, Esq., for the petitioner. John J. Madden, Esq., and Robert A. Trevisani, Esq., for the respondent.
1. Held, fraud not proved by clear and convincing evidence in the circumstances of this case, where petitioner was suffering from a severe psychosis.
2. Years 1953, 1954, and 1955 held not barred by limitations where jeopardy assessments were made within the statutory period as extended by valid waivers for 1953 and as extended by omissions from gross income of amounts properly includible therein which were in excess of 25 percent of the amounts of gross income shown in petitioner's returns for 1954 and 1955.
3. Deposits of $1,261 and $1,000 in petitioner's brokerage account in 1953, which represented funds transferred from his bank account, held not to be unreported income. Deposit of $7,614 in that account from an unidentified source held to be income.
4. Petitioner held not entitled to business and itemized deductions for the years 1953, 1954, and 1955 in excess of those allowed by respondent.
5. Petitioner held entitled to an exemption for blindness for each of the years 1953, 1954, and 1955 where his visual acuity did not exceed 20/200, where his vision could not be improved by glasses, and where special type contact lenses which permitted him to have visual acuity in excess of 20/200 caused severe pain, infection, and ulcers and could be worn only for brief periods. Sec. 25(b)(1)(C), I.R.C. 1939; sec. 151(d), I.R.C. 1954.
6. Petitioner held not entitled to deduction of claimed casualty loss for failure to prove that it was not compensated by insurance or otherwise.
7. Respondent's determination that petitioner is liable for additions to tax relating to estimated tax for the years 1953, 1954, and 1955 sustained.
Respondent determined the following deficiencies in income tax and additions to tax:
+----------------------------------------------------------------+ ¦ ¦ ¦Additions to tax ¦ +----+----------+------------------------------------------------¦ ¦Year¦Deficiency¦I.R.C. 1954 ¦I.R.C. 1939 ¦ +----+----------+-------------------+----------------------------¦ ¦ ¦ ¦Sec. 6653¦Sec. 6654¦Sec. 293 ¦Sec. 294 ¦Sec. 294¦ +----+----------+---------+---------+---------+---------+--------¦ ¦ ¦ ¦(b) ¦(a) ¦(b) ¦(d)(1)(A)¦(d)(2) ¦ +----+----------+---------+---------+---------+---------+--------¦ ¦1951¦$4,001.80 ¦ ¦ ¦$2,000.90¦$473.15 ¦ ¦ +----+----------+---------+---------+---------+---------+--------¦ ¦1952¦2,950.08 ¦ ¦ ¦1,100.04 ¦297.83 ¦ ¦ +----+----------+---------+---------+---------+---------+--------¦ ¦1953¦4,678.11 ¦ ¦ ¦2,399.06 ¦497.01 ¦ ¦ +----+----------+---------+---------+---------+---------+--------¦ ¦1954¦3,012.62 ¦$1,506.31¦ ¦ ¦ ¦$296 ¦ +----+----------+---------+---------+---------+---------+--------¦ ¦1955¦1,076.35 ¦1,634.28 ¦$126.29 ¦ ¦ ¦ ¦ +----------------------------------------------------------------+
The issues presented for decision are:
(1) Were the understatements of income in petitioner's returns for the years 1951 through 1955 due to fraud with intent to evade tax?
(2) If not, is the assessment and collection of deficiencies for the years 1953, 1954, and 1955 barred by limitations?
(3) Did the respondent err in including in petitioner's income for 1953 three amounts totaling $9,875 deposited during that year in his brokerage account with Eisele & King Libaire, Stout & Co.?
(4) Is the petitioner entitled to business or other deductions in excess of those allowed by respondent?
(5) Is petitioner entitled to an exemption of $600 for blindness?
(6) Are dividends received with respect to securities held in ‘special subscription accounts' taxable income to petitioner for the years 1951 and 1952?
(7) Is petitioner entitled to deduct a casualty loss for the year 1954?
(8) Did the respondent err in his determination that petitioner was liable for the additions to tax relating to estimated taxes?
FINDINGS OF FACT.
Some of the facts have been stipulated, and, as stipulated, they are incorporated herein by reference.
Petitioner is a resident of New York City. His returns for the years 1951 through 1955 were filed with the collector or the district director of internal revenue for the 13th and 14th New York districts, Albany, New York, and Upper Manhattan, New York. He filed an amended tax return for the year 1955 on June 11, 1956.
Petitioner was born on September 16, 1911. He attended New York University and St. John's Law School. He is the holder of a New York State certified public accountant certificate No. 6032, dated June 17, 1937, and on May 8, 1952, he was licensed as a New York State insurance broker under the provisions of section 119 of the New York Insurance Law. In his income tax returns he reported the following receipts from services rendered as an accountant during 1951 and 1952 and from his insurance brokerage business during 1953, 1954, and 1955.
+------------------------------------------+ ¦ ¦Salary ¦Business ¦ +---------------------+---------+----------¦ ¦1951—Accountant ¦$4,494.40¦$4,786.53 ¦ +---------------------+---------+----------¦ ¦1952—Accountant ¦3,022.60 ¦4,765.00 ¦ +---------------------+---------+----------¦ ¦1953—Insurance broker¦ ¦4,853.21 ¦ +---------------------+---------+----------¦ ¦1954—Insurance broker¦ ¦4,965.51 ¦ +---------------------+---------+----------¦ ¦1955—Insurance broker¦ ¦17,950.10 ¦ +------------------------------------------+
During the years 1951 through 1955 petitioner dealt in securities as a trader and investor, and maintained brokerage accounts with the following brokers during the periods indicated:
+---------------------------------------------------------------------+ ¦ ¦Period during which ¦ +-------------------------------------+-------------------------------¦ ¦Name of broker ¦account was maintained ¦ +-------------------------------------+-------------------------------¦ ¦ ¦ ¦ +-------------------------------------+-------------------------------¦ ¦F. I. Dupont & Co ¦Nov. 8, 1948, to June 21, 1949 ¦ +-------------------------------------+-------------------------------¦ ¦Sartorius & Co ¦Nov. 3, 1950, to May 24, 1951 ¦ +-------------------------------------+-------------------------------¦ ¦Eisele & King Libaire, Stout & Co. ¦Feb. 2, 1951, to Sept. 25, 1953¦ +-------------------------------------+-------------------------------¦ ¦Newborg & Co ¦July 9, 1951, to Sept. 11, 1951¦ +-------------------------------------+-------------------------------¦ ¦Merrill Lynch, Pierce, Fenner & Beane¦Dec. 10, 1951, to Dec. 21, 1955¦ +-------------------------------------+-------------------------------¦ ¦Auchincloss, Parker & Redpath ¦Sept. 15, 1953, to June 2, 1954¦ +-------------------------------------+-------------------------------¦ ¦Dean Witter & Co ¦June 18, 1954, to July 11, 1955¦ +-------------------------------------+-------------------------------¦ ¦Gruntal & Co ¦July 29, 1954, to Dec. 30, 1955¦ +-------------------------------------+-------------------------------¦ ¦A. C. Allyn & Co ¦Nov. 1, 1955, to Dec. 23, 1955 ¦ +---------------------------------------------------------------------+
Petitioner had capital gains on sales of securities taxable to the extent of $4,841.01, $1,603.84, $8,965.93, and $8,436.10, for the respective taxable years 1951, 1952, 1954, and 1955. In his returns for the years 1951, 1952, and 1954, and in the original return filed by him for the year 1955, he did not report any gains from the sale or exchange of capital assets.
The amounts of dividends received by petitioner, or credited to his accounts during the years 1951 through 1955, and the amounts reported as dividends in his returns for those years were as follows:
+------------------------------+ ¦ ¦Received or ¦Reported ¦ +----+--------------+----------¦ ¦ ¦credited ¦ ¦ +----+--------------+----------¦ ¦1951¦$4,397.50 ¦$1,200.00 ¦ +----+--------------+----------¦ ¦1952¦5,289.75 ¦1,675.00 ¦ +----+--------------+----------¦ ¦1953¦6,540.76 ¦1,992.45 ¦ +----+--------------+----------¦ ¦1954¦7,663.73 ¦7,168.33 ¦ +----+--------------+----------¦ ¦1955¦11,100.80 ¦6,500.00 ¦ +------------------------------+
Of the amount received in 1953, $25 was nontaxable and of the amount received in 1955, $352.88 was nontaxable. Included in the amounts ‘received or credited’ to petitioner were the following distributions credited on securities purchased by him through special subscription accounts:
+------------+ ¦1951¦$1,095 ¦ +----+-------¦ ¦1952¦1,620 ¦ +----+-------¦ ¦1953¦2,275 ¦ +----+-------¦ ¦1954¦1,250 ¦ +----+-------¦ ¦1955¦352 ¦ +------------+
Through the use of special subscription accounts petitioner was able to purchase securities by paying 25 percent of the purchase price. Purchasing securities through a special subscription account involves the purchase of rights to buy securities which are used by the stockbroker to purchase the securities. The broker lends the buyer up to 75 percent of the value of the securities purchased and holds those securities as collateral for the loan. Any dividends paid with respect to the securities so held are retained by the broker in liquidation of the loan.
During the years 1951 through 1954 petitioner received and failed to report the following interest income:
+-------------+ ¦1951¦$666.31 ¦ +----+--------¦ ¦1952¦652.89 ¦ +----+--------¦ ¦1953¦650.00 ¦ +----+--------¦ ¦1954¦162.50 ¦ +-------------+
$650 of the interest income for each of the years 1951 and 1952 and all of the interest income for each of the years 1953 and 1954 are attributable to 2 1/2-percent Treasury coupon bonds. These bonds were deposited by petitioner at various times with the Prospect Park National Bank, Prospect Park, New Jersey, as collateral security for demand loans to petitioner. The bonds were delivered to Merrill Lynch, Pierce, Fenner & Beane for sale in April 1954.
Petitioner filed his income tax return for the year 1953 on March 15, 1954. On or about February 15, 1957, petitioner and a delegate of the Secretary of the Treasury executed a consent extending the period of limitations upon assessment and collection of any deficiency with respect to 1953 taxes to June 30, 1958. Subsequently, on March 3, 1958, and on April 3, 1959, petitioner and a delegate of the Secretary of the Treasury executed further consents extending the statutory period first to June 30, 1959, and then to June 30, 1960. Respondent made a jeopardy assessment of the deficiency for the taxable year 1953 on June 12, 1960.
Petitioner's income tax return for the year 1954 was filed on April 15, 1955. In that return he reported a total gross income of $12,133.84 composed of gross business income of $4,965.51 and gross dividend income of $7,118.33 (after subtraction of the $50 dividends received exclusion). Petitioner omitted from his 1954 return the following amounts of gross income properly includible therein:
+----------------------------+ ¦Net capital gains ¦$8,965.93¦ +------------------+---------¦ ¦Dividend income ¦495.40 ¦ +------------------+---------¦ ¦Interest income ¦162.50 ¦ +------------------+---------¦ ¦Total ¦9,623.83 ¦ +----------------------------+
These omissions constitute the omission of an amount properly includible in gross income which is in excess of 25 percent of the amount of gross income stated by petitioner in his 1954 return. Respondent made a jeopardy assessment of the deficiency for the taxable year 1954 on June 23, 1960, within 6 years after the return was filed.
Petitioner filed his income tax return for the year 1955 on April 12, 1956. In that return he reported a total gross income of $24,450.10 composed of gross business income of $17,950.10 and gross dividend income of $6,450 (after subtraction of the $50 dividends received exclusion). Petitioner omitted from his 1955 return the following amounts of gross income properly includible therein:
+----------------------------+ ¦Net capital gains ¦$8,436.10¦ +------------------+---------¦ ¦Dividend income ¦4,247.92 ¦ +------------------+---------¦ ¦Total ¦12,684.02¦ +----------------------------+
These omissions constitute the omission of an amount properly includible in gross income which is in excess of 25 percent of the amount of gross income stated by petitioner in his 1955 return. Respondent made a jeopardy assessment of the deficiency for the taxable year 1955 on June 23, 1960, within 6 years after the return was filed.
On June 4, 1956, a special agent of the Intelligence Division of the Internal Revenue Service, engaged in an investigation of petitioner's tax liability, went to the office of the brokerage firm of Gruntal & Company to obtain information regarding petitioner's stock account. His identity and the purpose of his visit were disclosed to a member of the brokerage firm. On June 11, 1956, respondent received with remittance from petitioner an amended return for the taxable year 1955 which was signed by him on June 7, 1956. In that return petitioner gains of $3,718.80, net long-term capital gains of $14,462.28, and dividend income of $9,652.
Petitioner claimed itemized business deductions from his business income on his return for 1951 as follows:
+----------------------------------------------------+ ¦Cost of using car: ¦ ¦ +-------------------------------------------+--------¦ ¦Gasoline (18,000 miles) 1,400 gallons ¦$350.00 ¦ +-------------------------------------------+--------¦ ¦Oil and grease ¦58.00 ¦ +-------------------------------------------+--------¦ ¦Repairs ¦61.57 ¦ +-------------------------------------------+--------¦ ¦Insurance ¦235.41 ¦ +-------------------------------------------+--------¦ ¦Garage of car ¦240.00 ¦ +-------------------------------------------+--------¦ ¦N.Y. State auto license ¦15.00 ¦ +-------------------------------------------+--------¦ ¦Total ¦959.98 ¦ +-------------------------------------------+--------¦ ¦3/4 for business use only ¦719.98 ¦ +-------------------------------------------+--------¦ ¦Rent ¦180.00 ¦ +-------------------------------------------+--------¦ ¦Entertaining clients & prospects ¦94.50 ¦ +-------------------------------------------+--------¦ ¦Gifts to bookkeepers & office girl ¦75.00 ¦ +-------------------------------------------+--------¦ ¦R.R. fares, buses, taxis when not using car¦49.20 ¦ +-------------------------------------------+--------¦ ¦Tolls between N.Y. and N.J ¦120.00 ¦ +-------------------------------------------+--------¦ ¦Telephone ¦47.51 ¦ +-------------------------------------------+--------¦ ¦Stationery, printing & postage ¦19.50 ¦ +-------------------------------------------+--------¦ ¦Total ¦1,305.69¦ +----------------------------------------------------+
In addition petitioner claimed as a deduction from gross business income three-fourths of $482.40 or $361.88 as depreciation for his automobile. Of the total business deductions of $1,667.57 claimed by petitioner respondent disallowed $1,150. Petitioner similarly claimed itemized business deductions for the years 1952-1955, inclusive. Petitioner claimed and the respondent disallowed business deductions for the years 1952-1955, inclusive, as follows:
+----------------------------------+ ¦Year¦Claimed ¦Disallowed¦Allowed ¦ +----+---------+----------+--------¦ ¦1952¦$1,793.20¦$1,200 ¦$593.20 ¦ +----+---------+----------+--------¦ ¦1953¦2,048.23 ¦1,300 ¦748.23 ¦ +----+---------+----------+--------¦ ¦1954¦2,082.05 ¦1,200 ¦882.05 ¦ +----+---------+----------+--------¦ ¦1955¦2,192.08 ¦1,000 ¦1,192.08¦ +----+---------+----------+--------¦ ¦ ¦8,115.56 ¦4,700 ¦3,415.56¦ +----------------------------------+
In arriving at the deficiencies determined in the statutory notice petitioner was allowed the following interest expense deductions under the provisions of section 23(b) of the 1939 Code and section 163(a) of the 1954 Code, none of which were claimed by petitioner in the original income tax returns filed by him:
+----------------------------------------------------------+ ¦ ¦1951 ¦1952 ¦1953 ¦1954 ¦1955 ¦ +------+-------+---------+---------+---------+-------------¦ ¦Amount¦$935.05¦$1,943.11¦$3,975.05¦$4,350.90¦1 $6,317.90¦ +------+-------+---------+---------+---------+-------------¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ +----------------------------------------------------------+ This finding has the effect of eliminating petitioner's liability for additions to tax for fraud determined for the years 1951 through 1955 and for any deficiencies in tax for the years 1951 and 1952. For this reason the remaining issues involve only petitioner's liability for the years 1953, 1954, and 1955. Thus, issue No. 6 relating to 1951 and 1952 dividends with respect to securities in ‘special subscription accounts' becomes moot.
1 $6,725 was claimed by petitioner on the amended return filed for 1955.
In addition, respondent allowed as ‘Itemized Deductions' the sum of $150 in each of the years 1951-1954, inclusive, and $250 for the year 1955.
During the year 1953 petitioner made three deposits in his brokerage account with Eisele & King Libaire, Stout & Co. in the amounts of $1,261, $7,614, and $1,000. Respondent included these deposits in his income for that year as income from an unidentified source. The deposits of $1,261 and $1,000 were made by checks drawn on petitioner's bank account at the Clinton Trust Company.
In the latter part of 1954, while driving his car, petitioner was involved in an automobile accident. The cost of petitioner's car was $2,412. For 1954 and previous years petitioner claimed depreciation in connection with the operation of his car in the amount of $1,448. Petitioner incurred towing costs in the amount of $35 as a result of the accident. The fair market value of the automobile after the accident was $100.
Petitioner paid a self-employment tax of $12.99 for the taxable year 1952, $63.11 for the taxable year 1953, $86.50 for the taxable year 1954, and $63.34 for the taxable year 1955. Petitioner was not liable for self-employment tax during the taxable year 1952 and the $12.99 paid for that year was refunded to him.
Petitioner, by check dated January 15, 1953, made a payment of $750 on his declaration of estimated tax for the taxable year 1952 and, by check dated April 4, 1956, made a payment of $1,000 on his declaration of estimated tax for the taxable year 1955.
Petitioner had during the taxable years, and still has severely impaired vision, caused by keratoconus. His vision without glasses was not better than 20/200 in either eye, and such vision could not be improved by glasses. It could be improved by a special type of contact lens to 20/60 in the right eye and 20/70 in the left eye.
With the aid of the contact lenses he could read and write, and he prepared his income tax returns for the taxable years. However, he could tolerate the wearing of such lenses only for brief periods (but not every day) because they produced severe pain and caused corneal ulcers and infection. Purulent material would accumulate in such lenses. At the close of each of the years 1951 through 1955, he was blind within the meaning of section 151(d)(3) of the Internal Revenue Code of 1954 and section 25(b)(1)(C)(iii) of the Internal Revenue Code of 1939. Petitioner has been abnormally preoccupied with his difficulties of vision. He suffered considerable pain in his eyes, and he was obsessional and delusional with respect to them. He has been emotionally disturbed and mentally ill for many years, including the years in controversy. He was psychotic, and did not have normal contact with reality; he had paranoid thoughts with regard to his own family. He had a schizophrenic personality.
Petitioner was indicted on charges of willful evasion of Federal income taxes for the years 1951, 1952, 1954, and 1955. A hearing was held on September 14, 1959, to determine petitioner's mental condition to understand the nature of the charge against him and to assist counsel in preparation of his defense. The United States District Court received evidence from certain psychiatrists, including a psychiatrist appointed by the court. It entered the following order:
that the Court finds the defendant EMANUEL HOLLMAN to be so mentally incompetent as to be unable to understand the nature of the proceedings against him or properly to assist counsel in the preparation of his defense, * * *
The criminal trial has been indefinitely postponed.
On April 18, 1961, the Commissioner filed a motion for continuance of the present case, calling attention to the proceedings in the criminal case and the order of the District Court in relation to petitioner's incompetency, and requested this Court to continue the present proceeding ‘until such time as a guardian ad litem can be properly appointed to represent the petitioner * * * and, furthermore, the Court should not hear this case unless and until such a guardian is appointed to properly represent petitioner Emanuel Hollman.’ This Court thereupon entered the following order of continuance:
After hearing, it appears that on September 14, 1959, the United States District Court, Southern District, New York, found the petitioner was ‘so mentally incompetent as to be unable to understand the nature of the proceedings against him or properly to assist counsel in the preparation of his defense’, to an indictment for wilful evasion of income taxes arising out of the transactions here involved, and further, that counsel for the petitioner admits that said incompetency exists today, it is
ORDERED: That this case be continued until such time as a proper representative be appointed to prosecute this case on behalf of the petitioner.
Thereafter, at a Special Term, Part I, of the Supreme Court of New York, County of Bronx, on August 2, 1961, the court entered an order appointing Marvin Lechtman special guardian of Emanuel Hollman in respect of the litigation pending in this Court.
Petitioner's returns for the years 1951 through 1955 were not false and fraudulent with intent to evade tax and no part of the deficiencies for those years was due to fraud with intent to evade tax.
OPINION.
RAUM, Judge:
1. Fraud.— The Commissioner has determined that petitioner's returns for the years 1951 through 1955 were false and fraudulent with intent to evade tax, and that part of the deficiency determined for each of these years was due to fraud with intent to evade tax. Not only is proof of fraud required to overcome the bar of the statute of limitations for 1951 and 1952, but it is also necessary in order to support the Commissioner's 50 percent addition to tax for fraud for all the years involved. And, of course, the Commissioner has the burden of establishing fraud by clear and convincing evidence.
The stipulated facts disclose that petitioner omitted substantial amounts of capital gains income in his returns for the years 1951, 1952, 1954, and 1955, of interest income in his returns for the years 1951 through 1954, and of dividend income in his returns for the years 1951 through 1955. Respondent urges that proof of these understatements of income is in and of itself sufficient to satisfy his burden of proving fraud. However, while it is true that consistently large understatements of income may well be strong evidence of fraud (cf. Holland v. United States, 348 U.S. 121; Schwarzkopf v. Commissioner, 246 F.2d 731, 734 (C.A. 3), affirming a Memorandum Opinion of this Court; Kurnick v. Commissioner, 232 F.2d 678, 681 (C.A. 6), affirming a Memorandum Opinion of this Court), there are other aspects of the record in the present case that prevent us from concluding that fraud has been established here.
Considerable psychiatric evidence was presented to us casting serious doubt upon the charge of fraud. The court in the criminal case even found that petitioner was so incompetent that he could not stand trial; and this Court, on the Government's motion, continued the trial herein, so that a guardian ad litem could be appointed. Moreover, one of the psychiatrists upon whom the District Court relied, and who also appeared before us, was an independent expert, appointed by the District Court.
The evidence before us indicated that petitioner was suffering from a severe psychosis, which is to be sharply distinguished from what is sometimes characterized as a neurosis or milder emotional disturbance. To be sure, we heard evidence that petitioner was engaged in intricate financial operations during the tax years that seem inconsistent with the present contention that his mental condition was such as to rule out fraud. Also, petitioner's own testimony before the Court displayed an astuteness and awareness of matters that make it difficult to say that his mental condition was responsible for the understatements of income. Yet, it must be remembered that fraud must be proved by clear and convincing evidence, and while we are not fully satisfied that the false returns were a product of mental disease, the psychiatric testimony leaves us with such troubling doubts that we cannot find that fraud has been proved in this case. Accordingly, in view of the burden of proof, we have made a finding as to the absence of fraud.
2. Statute of limitations for 1953, 1954, and 1955.— (a) As to 1953, the parties are in agreement that consents were signed by petitioner on February 15, 1957, March 3, 1958, and April 3, 1959, which extended the time for assessment of any income taxes due from petitioner for the years 1953 to June 30, 1960, and that prior to that date respondent made a jeopardy assessment and mailed a notice of deficiency for 1953 to petitioner. However, petitioner contends that the consents signed in 1957, 1958, and 1959, although regular upon their face, are invalid because of his mental incompetency during the years in which the consents were executed. He concedes that he has the burden of proving their invalidity.
We have discussed above the state of the record in relation to petitioner's competency. An although we have concluded, in the light of the Government's burden of proof in respect of fraud, that fraud had not been established, the question as to the validity of the waivers presents an entirely different matter. It is quite possible that both parties may fail in carrying their respective burdens of proof. Cf. Drieborg v. Commissioner, 225 F.2d 216, 218 (C.A. 6), affirming in part and reversing in part a Memorandum Opinion of this Court; Olinger v. Commissioner, 234 F.2d 823, 824 (C.A. 5), affirming in part and reversing in part a Memorandum Opinion of this Court; L. Schepp Co., 25 B.T.A. 419, 437. We think that such is the situation here. Moreover, the reasonable reliance by the Government upon these waivers, which were in all respects regular in form, should preclude any successful attack upon their validity, whether the situation be one calling for the application of estoppel or some cognate doctrine. Cf. Stearns Co. v. United States, 291 U.S. 54, 61.
(b) As to the years 1954 and 1955, section 6501(e)(1) of the 1954 Code provides that if the taxpayer omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 6 years after the return was filed. On June 23, 1960, within 6 years after petitioner filed his returns for the years 1954 and 1955, respondent made a jeopardy assessment of the deficiencies for those years, and on July 17, 1960, a notice of deficiencies for the years 1954 and 1955 was mailed to petitioner. The evidence discloses that petitioner omitted from his gross income for each of those years an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in his return for each year. In the circumstances, the jeopardy assessment made for the years 1954 and 1955 was not barred by limitations.
3. Deposits from unidentified sources.— Respondent included in petitioner's income for 1953 three deposits made in his brokerage account with Eisele & King Libaire, Stout & Co. in the amounts of $1,261, $7,614, and $1,000, totaling $9,875, on the ground that these deposits represented unreported income from unidentified sources.
The evidence establishes that the $1,261 and $1,000 items represent merely transfers of funds from a bank account of petitioner, and accordingly do not constitute unreported income. However, the $7,614 item remains unexplained on this record. In the circumstances, we have no alternative other than to hold that petitioner has not carried his burden of proof in relation thereto. Cf. William O'Dwyer, 28 T.C. 698, 705, affirmed 266 F.2d 575 (C.A. 4), certiorari denied 361 U.S. 862.
4. Deductions.— Petitioner contends that he is entitled to business deductions and ‘Itemized Deductions' for each of the years 1951 through 1955 of amounts in excess of those allowed by respondent. Inasmuch as we have decided that the deficiencies for the years 1951 and 1952 are barred by limitations, the deductions for those years need not be considered. In our findings we have stated the deductions claimed by petitioner in his returns for the years 1953, 1954, and 1955 and the amounts allowed by the respondent. Evidence presented by petitioner to establish that he is entitled to larger deductions than respondent allowed consists only of his unsupported and indefinite testimony as to business expenses, medical expenses, and charitable contributions. A careful consideration of his testimony does not convince us that he is entitled to deductions for the years 1953, 1954, and 1955 in excess of those allowed by the respondent.
5. Exemption for blindness.— Petitioner contends that he is entitled to an exemption for each of the taxable years 1953, 1954, and 1955 under section 25(b)(1)(C) of the 1939 Code and section 151(d)(1) of the 1954 Code. These sections provide an exemption (in the amount of $600) for a taxpayer who is blind at the close of the taxable year in addition to the usual personal exemption of $600. Section 151(d)(3) of the 1954 Code defines blindness:
For purposes of this subsection, an individual is blind only if his central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or if his visual acuity is greater than 20/200 but is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees.
Section 25(b)(1)(C)(iii) contains substantially the same definition.
We think that petitioner has established his right to this exemption. A qualified ophthalmologist, who had examined petitioner, appeared as a witness. The statutory definition was read to him, and he testified as a witness. The statutory definition was read to him, and he testified clearly that petitioner's eye condition met the requirements of the statute. The statute was obviously drafted in medical or technical terms, and while we are not bound by the conclusion of the witness, it is entitled to considerable weight. Moreover, if we were to reject his conclusion it would have to be on the ground that petitioner's vision could be corrected beyond the minimum statutory requirements by a special type of contact lens. However, the record shows that such lenses could be worn by petitioner only with severe pain and only for brief periods, and that they produced infection and ulcers. We think that when Congress used the term ‘correcting lenses' it referred to lenses that may be ordinarily and normally worn by the taxpayer, not to lenses of the character involved herein. We hold that petitioner is entitled to the exemption.
6. Casualty loss.— The parties have stipulated that in the latter part of 1954, petitioner was involved in an automobile accident; that the cost of his car was $2,412; that for 1954 and previous years he claimed depreciation in connection with the operation of the car in the amount of $1,448; that he incurred towing costs of $35 as a result of the accident' and that the fair market value of the car after the accident was $100. Petitioner contends that he sustained a deductible casualty loss of $864, representing the difference between $964 ($2,412 less $1,448 depreciation claimed) and $100, the fair market value of the car after the accident.
Section 165 of the 1954 Code provides that an individual is entitled to deduct casualty losses sustained during the taxable year ‘not compensated by insurance or otherwise.’ Even if it be assumed that the loss sustained by petitioner in 1954 as the result of the automobile accident amounted to $864, he is not entitled to the deduction on this record because he has not sustained his burden of proving that the claimed loss was not compensated by insurance or otherwise.
7. Additions to tax.— The remaining issue involves petitioner's liability for certain additions to tax. Respondent determined that petitioner was liable for additions to tax for the taxable year 1953 under section 294(d)(1)(A) of the 1939 Code for failure to file a declaration of estimated tax, for the taxable year 1954 under section 294(d)(2) of the 1939 Code for underestimation of estimated tax, and for the taxable year 1955 under section 6654(a) of the 1954 Code for underestimation of estimated tax. Since petitioner has introduced no evidence showing that such additions were in error, respondent's determinations must be sustained. However, the addition to tax for 1955 may be adjusted under Rule 50 to take into account the payment of $1,000 which respondent concedes petitioner made by check dated April 4, 1956, on his declaration of estimated tax for the year 1955.
Decision will be entered under Rule 50. 1. Although petitioner received such dividends during each of the years 1951-1955, the issue is raised only with respect to 1951 and 1952, which, according to petitioner, were not affected by a change in a ruling of the Commissioner relating to the taxation of such dividends. See Rev. Rul. 56-153, 1956-1 C.B. 166, revoking I.T. 1958, III-1 C.B. 111 (1924).