Edward L. Scheidenhelm Co. v. Commissioner

*866OPINION.

Graupner :

The taxpayer, in its petition, asserts error on the part of the Commissioner in the following details: (a) In affiliating the taxpayer and the Company for the taxable year 1918; (b) in holding that the taxpayer was not liable as a surety on the contract of the Company with the State of Connecticut; (c) in holding that the contracts entered into by the Company were intercompany transactions; and (d) in prorating the losses which the taxpayer contends that it suffered in completing the contracts over the period of time covered by said contracts, viz, over the years 1916, 1911, and 1918, instead of allocating the losses to the year 1918.

At the conclusion of the taxpayer’s offer of proofs on its behalf, the attorney for the Commissioner moved to dismiss the appeal on the ground that the taxpayer had failed to establish its allegations of error. On account of the suspicious conditions developed at the hearing, and not because of lack of merit in the motion, the Board here denies the motion in order that decision may be made on grounds which deserve our serious consideration and comment.

As we view this particular appeal, all of the contentions of the taxpayer may be determined without special analysis of each of the assignments of error. We are compelled to deny the appeal of the taxpayer because the conduct of its president and principal stockholder, who was the sole witness at the hearing, has been such as to cause this Board to doubt or disbelieve the major portion of the testimony given by him on the witness stand.

Section 900 of the Revenue Act of 1924 designates this Board as “ an independent agency in the executive branch of the Government.” Notwithstanding this description, the requirements of the section vest this Board with the main attributes of a court and make it a tribunal, entitled to respect and charged with great responsibilities. These responsibilities require the Board to mete out justice to the taxpayer and at the same time to protect and expedite the collection of the revenues. The Board can not exercise its functions if it is hampered by suspicion or confronted with deceit or chicanery. We have the right to expect and rely upon taxpayers seeking relief *867to fully, frankly, and honestly present all the facts relating to their assignments of error on appeal. Suppression of facts, distortion of testimony, falsification or alteration of documents or records, and perjury deter us from performing the duties with which we are charged and lead to injustice. Such acts constitute fraud on the Board and the Government, and we can not too strongly condemn them and the results flowing therefrom.

In this appeal the taxpayer first came before this Board without the. original books of account of the two corporations involved. Adjournment of the hearing was granted to enable it to produce its books before the division hearing the appeal. The books were present in the hearing room when the appeal was heard after the adjournment. None of the books of account were offered in evidence, the witness for the taxpayer was asked to and did read into the record only a part of the debit entries and none of the credit entries in one ledger account, and counsel for the Commissioner was permitted by the taxpayer to make only a restricted examination of the books brought into the hearing room.

The issues presented depended to a great degree upon proving the authority of the taxpayer to become a surety and, having apparently become a surety, its responsibility to complete contracts which could only be performed at a loss. The articles of incorporation of the taxpayer and the Company were not introduced to show their corporate powers, the accounts were not sufficiently disclosed to give the Board an adequate understanding of the transactions involved, and the minutes of the taxpayer were distorted or manufactured to the advantage of the taxpayer. Such a method of presentation does not encourage belief in the merits of the appeal.

The president of and sole witness for the taxpayer positively and unequivocally identified, as minutes of a purported meeting of the board of directors of the corporation, supposedly held on July 13, 1916, pages in the minute book of the taxpayer. The distinct difference in appearance between the pages of that book containing the purported minutes and the other pages excited the comment of the attorney for the Commissioner, who called the attention of the Members sitting at the hearing to the fact. The appearance of recent substitution or alteration was so evident to the Members on inspection of the book and their surprise was so manifest that, undoubtedly, Scheidenhelm was aware of the attention which the condition excited. The minute book had not been placed in evidence and the witness, after making positive identification of it, had read the purported minute into the record. Whether this method was employed to conceal the newness of the pages and the secretary’s signature, we can only surmise. But for the reference of Commissioner’s counsel to the book for purposes of cross-examination we would have remained in ignorance of the condition existing. It may be said, therefore, that what appears to be an attempted fraud upon the Board and an attempted perversion of justice was accidentally discovered and would not have been revealed to the Board had not Commissioner’s counsel called attention to the peculiar appearance of the pages which were read into the minutes.

From the circumstances surrounding the disclosure of the fact that the purported minutes were not written until after the adjournment of the first hearing of the appeal, when the taxpayer’s president had *868knowledge that he must produce original records, we are convinced that confession would not have been made of the addition to or alteration of the taxpayer’s minutes had he not been aware and convinced that the Members were confident that the record had been manufactured. With this unavoidable conception of the attitude of the taxpayer in testifying before the Board, we feel that the testimony contains sufficient other products of deceit to justify us in disregarding all the testimony of the witness, Scheidenhelm. As there was no other witness produced, we feel that there is no evidence before the Board to warrant us in disturbing the Commissioner’s determination.