*2862 1. There being no assignment of error with regard to the correctness of the deficiency determined by the respondent for the year 1920, the determination of the respondent is approved.
2. Held that the record does not sustain the respondent's assertion of the fraud penalty for the years 1920 to 1923, inclusive.
*419 This is a proceeding for the redetermination of deficiencies in income taxes for the calendar years 1920 to 1923, inclusive. The amounts of deficiencies as computed by respondent and the penalties asserted for each of these years are as follows:
| Year | Deficiency | Penalty | Total |
| 1920 | $1,277.84 | $638.92 | $1,916.76 |
| 1921 | 2,412.38 | 1,206.19 | 3,618.57 |
| 1922 | 1,245.95 | 622.98 | 1,868.93 |
| 1923 | 882.90 | 441.45 | 1,324.35 |
The petitioner alleges that the respondent erred in finding that the petitioner filed false and fraudulent returns for the years 1920, 1921, 1922, and 1923.
*420 In addition the petition contains the following assignments of error:
(1) The respondent erred in*2863 finding that the petitioner's net income for the year 1922 was $18,267.55 and in asserting a deficiency in tax of $1,245.95.
(2) The respondent erred in finding that the petitioner's net income for the year 1923 was $17,965.23 and in asserting a deficiency in tax of $882.90.
FINDINGS OF FACT.
The petitioner is an individual with residence at Scranton, Pa.
Upon the occasion of an investigation by a revenue agent of the income of the petitioner for the years 1919 to 1923, inclusive, the agent failed to find any personal books of account of the petitioner. He did find a set of accounting records of the partnership of Solomon, Horowitz & Solomon, of which petitioner was a member. This partnership was engaged in the wholesale grocery business. The income of the partnership as found by the agent was very little different from the income reported on the partnership returns for the years 1921 and 1922. The agent found that at the end of 1923 there was no balance sheet so he prepared a balance sheet.
Since the revenue agent did not find any personal records of the petitioner, he computed the income upon a net worth basis. This method consisted in subtracting the petitioner's*2864 bank balance at the beginning of the year from the bank balance at the end of the year and adding living expenses to the difference. The living expense of the petitioner was increased because the petitioner admitted to the agent that he gave his wife $100 per week for living expenses.
The revenue agent prepared a report dated November 10, 1924, covering the years 1919 to 1923. He made a supplemental report dated May 28, 1925. The agent also submitted a report on November 10, 1924, covering an investigation of the partnership of Solomon, Horowitz & Solomon.
The petitioner was also a member of the partnership named the Anthracite Chemical Co. The agent attempted to make an investigation of this company, but found that they had no records.
Conferences were had between the petitioner and representatives of the respondent. At one of these conferences, held on August 26, 1924, the petitioner was questioned by representatives of the respondent.
Under date of March 16, 1925, the respondent received an affidavit executed by petitioner on March 11, 1925.
*421 The returns filed by petitioner showed the following income:
| 1920 | 1921 | 1922 | 1923 | |
| Gross income: | ||||
| Salaries | $2,700.00 | $2,417.10 | $3,481.10 | $3,672.00 |
| Partnership profits | 2,664.63 | 3,129.22 | 1,085.03 | 1,848.03 |
| Rents | None. | 732.00 | 1,575.00 | 1,200.00 |
| Interest | None. | None. | 2,004.00 | 1,904.00 |
| Total | 5,364.63 | 6,278.72 | 8,145.13 | 8,624.03 |
| Deductions: | ||||
| Taxes | 108.00 | 200.00 | 300.00 | 300.00 |
| Losses | 500.00 | 60.00 | 233.75 | None. |
| Contributions | 250.00 | 624.00 | 824.00 | |
| Others | 197.50 | |||
| 408.00 | ||||
| 608.00 | 510.00 | 1,355.25 | 1,532.00 | |
| Net income | 4,756.63 | 5,768.72 | 6,789.88 | 7,092.03 |
*2865 In the deficiency letter, dated July 24, 1926, the respondent determined the net income of petitioner for each of the years in controversy to be as follows:
| 1920 | $16,227.38 |
| 1921 | 23,515.66 |
| 1922 | 18,267.55 |
| 1923 | 17,965.23 |
Under date of September 22, 1926, the respondent wrote a letter to petitioner's counsel advising him that the petitioner's deficiency in tax and penalty for the year 1920 were $610.88 and $305.44, respectively. In this letter the net income was stated at $11,226.30.
OPINION.
SIEFKIN: At the hearing counsel for petitioner abandoned the claims as to the impropriety of the proposed additional tax for the years 1921, 1922, and 1923. The only evidence introduced with regard to the deficiency for the year 1920 was a letter from the respondent dated September 22, 1926, in which the respondent stated that the deficiency in tax for the year 1920 was $610.88. The deficiency letter had shown the deficiency to be $1,277.84. However, there is no assignment of error in the petition regarding the deficiency for the year 1920 and the question of the correctness of the deficiency is not before us. The respondent's determination of deficiencies for*2866 the years in question will not be disturbed.
The respondent has asserted the 50 per cent fraud penalty against the petitioner for each of the years 1920 to 1923, inclusive.
This proceeding was heard subsequent to the enactment of the Revenue Act of 1928.
*422 Section 907(a) of the Revenue Act of 1924, as amended by section 601 of the Revenue Act of 1928, provides in part as follows:
* * * In any proceeding involving the issue whether the petitioner has been guilty of fraud with intent to evade tax, where no hearing has been held before the enactment of the Revenue Act of 1928, the burden of proof in respect of such issue shall be upon the Commissioner. * * *
The record does not prove that the petitioner, in any of the years, was guilty of filing false and fraudulent returns with intent to evade the tax. The petitioner is, therefore, not liable for the penalties asserted by the respondent.
The deficiencies are $1,277.84 for the year 1920, $2,412.38 for the year 1921, $1,245.95 for the year 1922, and $882.90 for the year 1923.