*1339 The return filed by petitioner on March 15, 1933, for the year 1932 did not give the required information as to items of income and deduction and a letter attached discloses that petitioner did not regard it as a completed return, but indicates that an amended return was contemplated. Subsequently, with the assistance of a deputy collector, petitioner prepared an amended return which so far as the record shows reflected an attempt to make full disclosure of all his income for the year in question. Held, that respondent has not shown that any part of the deficiency was due to fraud with intent to evade tax; held, further, that respondent has shown negligence and intentional disregard on the part of petitioner with respect to the rules and regulations covering the filing of returns and reporting of income and under an alternative allegation contained in his answer, is entitled to the penalties prescribed therefor in section 293(a) of the Revenue Act of 1932.
*374 The respondent has determined a deficiency*1340 in income tax against this petitioner for the year 1932 in the amount of $610.92. He has also determined a fraud penalty for the same year in the amount of $2,664.55. The petitioner concedes the deficiency, but denies the charge of fraud.
FINDINGS OF FACT.
The petitioner is an individual and resides in Ames, Iowa. He is a native of Cedar Rapids, Iowa, and, except for a short period spent in Nevada in 1933, lived there until he moved to Ames in 1934.
Petitioner graduated from the Sheffield Scientific School of Yale University, where he studied chemistry in preparation for work in metallurgy. He did not pursue that work, however, and about 1907 became an employee of the Aetna Life Insurance Co. in its farm loan office for the State of Iowa, which office was managed by petitioner's father. The work of that office consisted of making and servicing loans secured by mortgages on land. Upon the death of his father in 1914, petitioner and J. B. Moore, another employee in the office, became co-managers. The Aetna Life Insurance Co. closed its office in Iowa in May 1930. About November of the same year petitioner was employed by the National Life Insurance Co. of Montpelier, *1341 Vermont, to set up an office similar to that which had been operated by Aetna. He continued as an employee of that company through most, if not all, of 1931. Since that time he has had no regular employment.
Petitioner and his mother had inherited jointly from his father a building known as the Wilcox Building, which was located in Cedar Rapids and was occupied by a department store. Effective as of January 1, 1932, the petitioner exchanged his interest in the Wilcox Building with his mother in return for certain securities. The details of the transaction were not completely settled, however, until a considerable time thereafter, the exact date of which has not been shown. On that transaction the petitioner realized capital net gain in the amount of $44,170.94.
*375 Petitioner's income tax returns for 1930 and for a considerable number of years prior thereto were prepared by the accounting firm of Billings, Prouty, Tompkins & McGladrey, the work apparently having been done by or under the supervision of McGladrey. During those years a set of books was maintained for the petitioner in the Aetna office. For 1931 petitioner prepared his own return from books which*1342 had been kept for him by a young woman employed by petitioner and the National Life Insurance Co. In the returns for 1931 and prior years, the petitioner reported as income the rents received on the Wilcox Building and claimed deductions with respect to depreciation sustained thereon. All of the above returns were filed in the Cedar Rapids office of the collector of internal revenue for the State of Iowa. Since 1931 petitioner has kept no books of account, his only records being check stubs and limited memoranda.
On March 15, 1933, petitioner appeared at the office of the collector of internal revenue in Des Moines and consulted with or was interviewed by Deputy Collector Joseph R. Wild with respect to his income tax return for the year 1932. Wild, using a blank income tax return form from the desk, filled in petitioner's name and address and, from information given by the petitioner, the answers to the preliminary questions appearing thereon. The petitioner furnished no information as to the details of income or deductions, but presented a letter directed to the collector of internal revenue, together with a check for $10, asking that the letter be attached to the income tax*1343 form which had been prepared as just described. The letter was attached to the form by Deputy Collector Wild as requested and the form was subscribed and sworn to by the petitioner before Wild as deputy collector. The letter in question reads as follows:
Altho an investigation of your records would show that each year since the establishment of the federal income tax I have filed a return, only once I believe has my net income necessitated the payment of a tax.
Due to not being employed or engaged in business during 1932 my income (gross or net) has been less than ever. I have kept no books since December 31, 1931, and have not felt that I could afford to employ a book-keeper to do it for me, or an auditor to make out a tax return as heretofore.
If the purpose of the income tax is to raise revenue for the Federal Government as I suppose then I tender herewith my check for $10 as evidence that I am not trying to evade payment of any possible tax. This amount is about four times as great as the one income tax payment made on a previous occasion. If on the other hand the purpose of the tax in my case is merely inquisition I invite all the investigation necessary but will*1344 be damned if I'll keep books for myself or anybody else, even if I have to go to jail for my failure to do so.
In the not distant future I expect to establish a residence in Nevada or some other such state in order to seek a divorce. If successful in this I'll be willing to try and make an amended return later from such limited data of income as *376 I have, otherwise I'll continue to prefer federal to domestic incarceration. If it is a crime not to keep books then I suppose I am guilty.
Thereafter the petitioner and his mother, in connection with the preparation of her return, discussed the details of petitioner's exchange of interest in the Wilcox Building for securities with a deputy collector in the Cedar Rapids office.
The petitioner and his wife had been having domestic difficulties for a considerable period of time. Petitioner had asked his wife for a divorce but this had been refused, and petitioner had decided to go to Nevada and institute proceedings for a divorce when both his son and daughter began attending school away from home. This occurred in 1933. On April 21 and May 12, 1933, the petitioner transferred substantial portions of his property to*1345 the Merchants National Bank of Cedar Rapids under deeds of trust in favor of his son, Wallace Hamilton Wilcox, and his daughter, Elizabeth Wilcox, respectively. Shortly after the execution of the trust in favor of his daughter on May 12, 1933, the petitioner went to Reno, Nevada, and in due time filed a suit for divorce. His wife filed a cross-complaint, which was not contested, and a divorce was subsequently granted to her on the cross-complaint.
In August prior to the entry of the decree of divorce, the petitioner made a property settlement with his wife. This settlement involved the transfer to her of substantially all of his remaining property. His only property thereafter remaining consisted of an equity, or equities, in real estate having little or no value and some securities commonly referred to as "cats and dogs."
Petitioner returned to Iowa in November 1933 and shortly thereafter began the preparation of a statement showing the details of the exchange of his interest in the Wilcox Building for securities.
Sometime in March 1934, George Koehn, deputy collector of internal revenue, to whom the 1932 income tax return of petitioner had been assigned for investigation, *1346 sent a notice to petitioner to appear at the office of the collector for the purpose of discussing his income tax liability for 1932. At that conference petitioner advised Koehn of the transaction with his mother with respect to the Wilcox Building. As a result of this conference a return for 1932, designated "Amended" return, was prepared for petitioner showing income and deductions as computed by Koehn. According to Koehn's figures, the net capital gain upon the exchange of petitioner's interest in the Wilcox Building for securities was $41,010.55. The petitioner was of the opinion that this amount should be approximately $200 less, but he adopted Koehn's figures in making the amended return. The return so made disclosed a total income tax liability of $5,126.37. Subsequently upon audit of that return in the collector's office, resulting in the disallowance of a deduction claimed for contributions *377 and a reduction in the amount shown as capital net gain, a tax in the amount of $4,724.17 was computed and assessed, due allowance being made for the $10 previously assessed and paid on March 15, 1933.
Thereafter on December 14, 1934, Deputy Collector Guy E. Hanson*1347 served a warrant for distraint on petitioner with respect to the income tax assessed against him for 1932. Petitioner advised him that he had no assets and was unable to pay the amount of the tax at that time. He gave to Hanson a copy of the statement he had previously prepared showing the details of the transaction with his mother being the exchange of his interest in the Wilcox Building for securities. Hanson was also advised as to the disposition of petitioner's assets. Up to the date of the hearing in this proceeding no part of the tax assessed had been paid with the exception of the $10 paid on March 15, 1933.
Under date of March 13, 1935, the respondent mailed to petitioner a notice of deficiency in income tax and penalty in a total amount of $3,275.47. Of this amount, $610.92 was designated as a deficiency and $2,664.55 as penalty. Attached to the notice so mailed was a statement showing a determination of the tax liability amounting to $5,339.09. Excluding the $10 paid on March 15, 1933, the entire amount of the tax so determined was treated as the deficiency for the purpose of computing the 50 percint fraud penalty. The notice of deficiency and the statement attached*1348 contained no explanation whatever as to the basis for the determination of fraud, the only statement being "50% Penalty provided by Section 293(b), Revenue Act of 1932 - $2,664.55." Some adjustments were made in several of the minor items of income deduction and an addition to income or $1,375.83, described as "Unidentified deposits and insurance refund", was also shown.
OPINION.
TURNER: The petitioner concedes the deficiency as determined by the respondent, but denies that any part thereof was due to fraud with intent to evade tax. The burden is accordingly on the respondent to prove fraud. The notice of deficiency did not state any basis for the determination of fraud. The allegations contained in the respondent's answer to support his charge of fraud are little if any more revealing. They read as follows:
(a) Petitioner filed a Federal income tax return for the taxable year 1932 with the Collector of Internal Revenue for the District of Iowa on March 15, 1933, and showed no ordinary net income and no capital net gain, whereas his ordinary net loss was $1,450.25 and his capital net gain was $44,170.94.
(b) Petitioner, fraudulently and with intent to evade tax, failed*1349 to report the receipt of his capital net gain in the amount of $44,170.94.
(c) Respondent, for further facts in this case, refers to the deficiency letter, a copy of which is affixed to the petition, and the same is hereby adopted in this answer as fully as if incorporated herein.
*378 Apparently the respondent has treated the return of March 15, 1933, as the petitioner's return herein and rests his claim of fraud upon the failure of the petitioner to disclose in that return the exchange of his interest in the Wilcox Building to his mother for securities, on which exchange it appears that petitioner realized a capital net gain in the amount of $44,170.94. Such a claim on the part of the respondent is clearly without merit. The petitioner's letter definitely indicates that he did not regard the document filed on the return form on March 15, 1933, as a completed income tax return. He did not give any of the details with respect to items of income or deduction but concluded with statements clearly indicating that a further and complete return was contemplated. It is apparent that the petitioner was and is bitter and resentful over his lot in life, but that alone is not*1350 sufficient basis to charge him with fraud. It is true that the amended return in which he did attempt to disclose, so far as this record shows, all items of income and deduction was made at the office of the collector of internal revenue in Cedar Rapids, upon a visit by petitioner at the request of the deputy collector. It further appears, however, that the petitioner had upon his return from Nevada in November preceding set about the preparation of the schedule showing all of the details concerning the exchange of his interest in the Wilcox Building for securities and the information shown on the amended return so filed was volunteered to the deputy collector by the petitioner. The record contains nothing whatever to indicate that in making the amended return the petitioner did not offer and give full and complete cooperation to the deputy collector. We accordingly conclude that the respondent has failed to sustain his burden of showing fraud on the part of petitioner.
In the alternative, the respondent has pleaded in his answer that in the event this Board should find that the petitioner was not guilty of fraud, it should find that part of the deficiency was due to negligence*1351 or intentional disregard for rules and regulations and that our decision should include the appropriate penalty therefor. In our opinion the record amply shows intentional and more or less willful disregard of the requirements of the income tax statutes and regulations with respect to the time of filing returns and the keeping of the necessary records for properly reflecting income. The respondent is accordingly sustained in his request for the imposition of an appropriate penalty with respect thereto and our decision will include the penalty provided therefor in section 293(a) of the Revenue Act of 1932; but the computation of said penalty shall be limited to the deficiency of $610.92, as determined by the respondent and agreed to by the petitioner.
Decision will be entered under Rule 50.