Decision will be entered under Rule 50.
1. In his income tax returns for each of the years 1942, 1943, 1945, 1946, and 1947, and with intent to evade tax, petitioner failed to report substantial portions of the income received by him in the practice of his profession. Held, that the return for each such year was false and fraudulent with intent to evade tax and there is no limitation against the assessment and collection of deficiencies in tax for those years. Held, further, that an unsigned return form filed for 1944 was not an income tax return within the meaning of the statute even though it did reflect items of income and deductions, and that it did not start the running of the statute of limitations against the respondent for that year.
2. For each of the years 1942 through 1947, substantial portions of petitioner's taxable income were omitted from and not recorded in such accounts and records as were maintained by petitioner, and the books and records which were maintained were wholly inadequate to reflect his true and correct income, and for each such year the respondent, by an analysis of petitioner's bank deposits and expenditures, determined deficiencies in income tax. *8 Held, subject to adjustments required on the basis of facts found herein, that the respondent's determinations of deficiencies are approved.
3. A part of the deficiency for each such year was due to fraud with intent to evade tax. Held, that petitioner is liable for additions to tax for fraud, under section 293 (b) of the 1939 Code.
4. Since petitioner failed to file an income tax return as required by the statute for 1944, and such failure to file was not due to reasonable cause, the respondent's determination of an addition to tax for such year, under section 291 (a) of the 1939 Code, is approved.
*691 The respondent determined deficiencies in income tax and additions to tax against the petitioner for the years 1942 through 1947, as follows:
| Additions to tax | |||
| Year | Deficiency | ||
| Sec. 291(a) | Sec. 293(b) | ||
| 1942 | $ 4,279.98 | $ 2,139.99 | |
| 1943 | 15,807.59 | 7,903.80 | |
| 1944 | 22,723.16 | $ 5,227.87 | 11,361.58 |
| 1945 | 18,625.63 | 10,210.18 | |
| 1946 | 11,186.46 | 5,593.23 | |
| 1947 | 13,756.21 | 6,878.11 |
The issues as raised by the pleadings are whether (1) the period within which the respondent may assess and collect deficiencies *9 for the taxable years has run; (2) petitioner had income during the taxable years which he failed to report in his income tax returns for the said years; (3) the respondent erred in his adjustment of claimed depreciation deductions; (4) the gain realized in 1944 on the sale of property located at 2008 Gorgas Street, Mobile, Alabama, was the gain of petitioner; (5) a part of the deficiency for each of the taxable years was due to fraud with intent to evade tax; and (6) petitioner is liable for an addition to tax for the year 1944 for failure to file a timely income tax return for such year.
FINDINGS OF FACT.
Some of the facts have been stipulated and are found as stipulated.
The petitioner is a resident of Mobile, Alabama. He filed individual income tax returns for the years 1942, 1943, 1945, 1946, and 1947 with the collector of internal revenue for Alabama. For the year 1944, he filed an unsigned income tax return form, on which income and deduction items had been entered.
The petitioner was born in Anniston, Alabama, on July 30, 1885. After completing his grade school and high school work in the Anniston schools, he attended North Georgia College and the University of Chattanooga. *10 In 1908 he received the degree of Doctor of Medicine from Tulane University, and after serving an internship of 1 year, he was employed by the McCall Lumber Company at Woodbine, Alabama. At intervals from 1907 to 1933, he did postgraduate work at medical and surgical schools in the United States and studied in both Vienna, Austria, and Berne, Switzerland.
In 1910, the petitioner moved to Mobile, where, except for the period from October 1918 to April 1919, during which he was serving in the United States Army, and the periods he was away from Mobile pursuing his studies, he has since that time specialized in the practice of urology. He is a member of various medical associations, including *692 the Mobile County Medical Society, Alabama State Medical Association, American Medical Association, American Urological Association, and the International College of Surgeons. He has been called on to deliver lectures, and has written and had published in recognized medical journals articles dealing with various aspects of his specialized field of medicine.
On October 19, 1910, petitioner married Nell LeCompte. She likewise was a doctor, having received the degree of Doctor of Medicine from the *11 Iowa State University in 1909, and had practiced her profession for about a year and a half. She has not engaged in active practice since her marriage to petitioner, but she has served as president of some of the women's auxiliaries to the medical associations to which petitioner belongs and, as a general rule, has accompanied petitioner to the medical conventions he has attended. She has been a member of the Library Board of Alabama, having been appointed in 1944. During the years herein, she was a member of the Board of the Red Cross and chairman of the Dietetic Committee. During World War II, she served as chairman of the Women's Committee of the United States War Bond Drive in Mobile.
In 1910 or 1911, petitioner built a home in Mobile at 259 South Georgia Avenue. He and his wife lived at that address until February 1927, at which time they moved into their present home at 1862 Government Street. The lot at 1862 Government Street had been acquired at a cost of $ 5,000. The house was built for $ 25,000, plus a fee of $ 2,000 for the architect or builder.
After petitioner and his wife moved to the new home on Government Street, the house on Georgia Avenue was rented. It was *12 ultimately sold in 1947.
Prior to entering the Army in 1918, petitioner had acquired some Liberty Loan bonds by purchase and in payment for services rendered. For some indefinite period after his return from Army service in April of 1919, he made some further acquisitions of such bonds.
After the death of her father in 1919, Nell LeCompte Reaves received $ 6,000 under his will and $ 511 in life insurance. She turned this money over to petitioner, but, except for the portion later expended by her to visit her brother in Iowa, who was sick, the disposition of the money is not known.
On July 19, 1920, petitioner gave his demand note for $ 1,400 to the First National Bank in Mobile. The note was secured by "Two (2) U.S. 4th 4 1/4% L. L. Bonds par value -- $ 1,000.00." The final payment on this note was made on August 30, 1920. On September 14, 1920, petitioner gave his demand note for $ 6,100, also to the First National Bank, which note was secured by the deposit of 8 United States 2d Issue Liberty Loan bonds of a par value of $ 1,000 each. The final payment on this note was made on February 1, 1922.
*693 According to the recollection of the petitioner, the following represented a complete *13 list of the securities owned by him at October 5, 1921: 1
| 2nd Liberty Loan bonds | |
| 13 $ 1,000 | |
| 3 $ 100 | |
| 2 $ 50 | |
| Total | $ 13,400 |
| 3rd Liberty Loan bonds | |
| 1 $ 500 | |
| 2 $ 100 | |
| 1 $ 50 | |
| Total | $ 750 |
| 4th Liberty Loan bonds | |
| 10 $ 1,000 | |
| 3 $ 100 | |
| 7 $ 50 | |
| Total | 10,650 |
| Grand Trunk Pacific -- 1962 bonds | |
| 10 # 100 equals | 4,860 |
| French 7 1/2's -- 1941 bonds | |
| 5 $ 1,000 | 5,000 |
| Uruguay 8's bonds | |
| 5 $ 1,000 | 5,000 |
| Savings stamps | 455 |
| Investment Banking Company | 25 |
| Southeastern Express Company (3 shares) 7 per cent | 300 |
| Physicians Radium Association (quarterly) | 1,500 |
| First mortgage: | |
| M. E. Reaves | 2,510 |
| Mrs. Belle Vickers | 2,100 |
| Total | 46,550 |
Throughout the taxable years petitioner still owned the above Grand Trunk Pacific bonds and the 5 Republic of Uruguay bonds. The savings stamps were cashed on some undisclosed date, and the Southeastern Express Company was dissolved, but the disposition of any liquidation proceeds received or of the money received for the savings stamps is not known. On some undisclosed date, the $ 1,500 interest in or stock of the Physicians Radium Association was sold for less than $ 100. The disposition *14 of the Vickers' mortgage and of any proceeds therefrom is not known. M. E. Reaves was petitioner's brother. He "didn't get much proceeds from that first mortgage."
On or about May 15, 1923, petitioner sold Liberty Loan bonds having a face value of $ 15,000, for which he received $ 14,616.76. Including the proceeds of the bonds sold, he thereupon loaned $ 15,000 to J. J. Barry, receiving a mortgage on property located on Dauphin Street in Mobile as security therefor.
*694 On September 16, 1924, petitioner executed a demand note in favor of the First National Bank for $ 2,100, and as collateral security therefor deposited 4 $ 1,000 City of Tuscumbia Street Improvement bonds. This note was subsequently paid in full. 2
The Barry loan was repaid in 1928, and with the proceeds petitioner purchased 5 $ 1,000 Detroit and Canada Tunnel Corporation First Mortgage 6 Per Cent bonds, 5 $ 1,000 Alabama By-Products Corporation bonds, *15 and $ 5,000 of Indiana Limestone Company bonds. The Detroit and Canada Tunnel Corporation bonds were exchanged in a reorganization in 1942 for $ 1,500 of the corporation's first mortgage 5 per cent bonds, due November 1, 1966, and 60 shares of its common stock. The bonds and stock so received were still owned by petitioner at January 1, 1942. The Indiana Limestone Company bonds were exchanged in a reorganization of the company, and subsequently became almost wholly worthless. All 5 Alabama By-Products Corporation bonds were still owned by petitioner at January 1, 1942.
On some undisclosed date, possibly in the 1920's, and for an undisclosed consideration, petitioner bought a house in Birmingham, Alabama, for his brother, Ernest, and Ernest's family. Ernest was to pay petitioner for the house at the rate of $ 20 per month, payable every 6 months. The payments agreed upon were made for possibly 2 or 3 years, after which petitioner received no payments from Ernest, 3 or anyone, prior to the taxable years herein.
On or about March 20, 1930, petitioner *16 acquired a $ 11,000 mortgage on property located on Fulton Road in Mobile from the First Securities Company. In 1939, payments of principal and interest under the mortgage were in default, and petitioner, under powers contained in the mortgage, obtained an order for public sale of the property and at the sale, held on August 8, 1939, bid the property in for $ 2,750.66, the amount bid being credited against the indebtedness due under the mortgage. 4
On September 21, 1934, the petitioner executed a demand note in favor of the First National Bank for $ 850, and as collateral security therefor deposited $ 7,000-par-value United States 4th Liberty Loan bonds. On the face of the note, it is stated that these Liberty Loan bonds were "the same collateral as *17 described on my demand note for *695 $ 4500.00 dated April 12, 1934." The note dated September 21, 1934, was paid in full not later than May 27, 1935.
Under date of April 15, 1937, the petitioner executed a promissory note in favor of the First National Bank for $ 900, payable 4 months after date, and as collateral security therefor deposited $ 3,000-par-value United States Treasury 2 7/8 per cent bonds, due March 15, 1960. 5 The final payment on this note was made August 16, 1937, its due date. The said $ 3,000 of Treasury 2 7/8 per cent bonds was redeemed March 22, 1938.
On some undisclosed date and for an undisclosed consideration, petitioner became the owner of a house on Wellsworth Street in Toulminville. In 1938, he sold the house to H. R. Kennedy at a price of $ 3,300, the first payment thereon being made by Kennedy on March 7, 1938. At January 1, 1942, a balance of $ 1,369.08 was still owing.
On some undisclosed date and for an undisclosed consideration, but prior *18 to January 1, 1942, petitioner acquired a parcel of property 48 feet wide by approximately 148 feet deep located on Randolph Street.
Also prior to January 1, 1942, and for an undisclosed consideration, petitioner had acquired property in Crichton, Alabama, and on Hague Street in Mobile. At January 1, 1942, these properties had been sold, or were being sold, to Eugene Gill and Alfred L. Craig, respectively, the amount then owing by Gill being $ 2,400, and the amount then owing by Craig $ 2,376.
Prior to January 1, 1942, petitioner had also purchased 5 $ 1,000 County of Mobile 4 3/4 Per Cent Road and Bridge bonds. 6
As early at least as November 1932, petitioner and his wife had rented in their joint names a safe-deposit box at the First National Bank. Prior to January 1, 1942, petitioner, from time to time, would place varying amounts of currency in the said box, and by that date he had accumulated in the box as much as $ 20,000. 7 In whole or in part, the currency so placed in the box could have been from proceeds from the redemption or sale of securities, including Liberty Loan bonds. On August *19 17, 1943, a larger box was rented in place of the box rented theretofore, and the contents of the old box were transferred to the new.
In the conduct of his office the petitioner employed a nurse-secretary, which position has been held by Violet Marshall since about 1928.
For recording the treatment of patients, petitioner used what is referred to as the McCaskey System. The use of the McCaskey System *696 assumes the preparation and maintenance of a separate card for each patient and a recording thereon of such information as diagnosis of ailment, the treatments given, the charges therefor, and the payments the patients have made. The cards were in different colors to denote specified types of disease or ailment. It appears that the McCaskey System was a copyrighted system. Included therein, in addition to the cards, was a specially designed type of desk and summary sheets for recording daily, by months, the amounts of daily credit business, daily cash business, total of daily business, amounts received on account, and total daily cash receipts. *20 The desk, which was located in petitioner's private office, had three separate sections, referred to in the trial herein as first, second, and third drawers, or top, middle, and bottom drawers. The cards in the first or top drawer were cards of patients currently undergoing treatment. The cards in the second or middle drawer were of patients whose treatment had been concluded, but who still owed money. The third or bottom drawer was used for cards of patients who were delinquent in their payments and whose accounts had been referred for collection to a collection agency, known as the Physicians and Dentists Credit Bureau, Inc. Cards of patients not currently receiving treatment but who had paid their accounts in full were removed from the McCaskey desk and filed in petitioner's outer office in separate file drawers. The cards so removed and filed in the outer office were filed alphabetically for the entire period of petitioner's practice and without regard to the days, months, or years when the various patients had been treated.
In certain instances, petitioner would make examinations and give treatments for which it was the practice not to make McCaskey cards. These included *21 the examination of candidates for life insurance; examinations for the Railroad Retirement Board; examinations for the Government of civil service personnel, usually post office employees; and cases where transient patients would have a reference from doctors in other areas. This latter category would include cases where the patient's regular doctor had prescribed some particular shot or treatment. In such instances, the patient would be required to pay cash, and as indicated, no McCaskey card was made. In certain of the other categories, the patient would also be required to pay cash. In the case of examinations for an insurance company, remittance would be made by the insurance company on some later date, usually by check.
Under certain circumstances, ledger sheets were also prepared for patients. 8 The preparation and maintenance of ledger sheets was *697 limited to patients who had not paid the charges when the examinations were made and treatments given, or at least had not paid them in full, and who at the end of the month in which the services were rendered owed a balance thereon. The ledger sheets contained columns for entry of the date of service and the charge therefor, followed *22 by columns for the entry of payments received and the date of such receipt, also a further column for entry of the balance, if any, owing after a payment had been made.
Generally, the routine followed in petitioner's office with respect to the treatment of patients, the collection of fees, and the recording of charges and payments would begin with the pulling of the McCaskey cards for the patients who had appointments for treatment during the day and the placing of them on the petitioner's desk. In the outer office, Violet Marshall would record the name of an arriving patient on a prescription blank appropriated for that use. A patient at times would pay all or a part of petitioner's fee, or the entire fee might be charged. The payments made were at times to Violet Marshall and at times to petitioner. If the payment was made to Violet Marshall, *23 she would note the amount of the payment on the prescription blank and would write a receipt therefor. If the charge was a standard charge, she would know the amount and would note it also on the prescription blank. Where she did not know the amount, she would, if she had the opportunity, ask petitioner, and would make the entry on the prescription blank on the basis of the information received from him. If she received a payment on account from a patient not undergoing treatment that day, she would note that payment on the prescription blank. Thereafter, usually upon her return from lunch, she would transfer the data from the prescription blank to the McCaskey cards of the various patients. Where she did not have the information necessary therefor, she would at times leave blank spaces for petitioner to fill in. Also after lunch, she would check the data on her morning prescription blank with petitioner. She would call off the figures and he would put them down. He would make totals purporting to cover the morning's business, including both the fees received by Violet Marshall and by him, and would enter them on his desk calendar. The desk calendar was a loose-leaf type of calendar, *24 with a separate sheet for each day. The totals entered on the desk calendar were supposed to represent the data specified for the five columns on the monthly summary record sheets of the McCaskey System, namely, the daily credit business, daily cash business, total daily business, amounts received on account, and total cash receipts. Petitioner personally made all of the computations and entries of the data on his desk calendar. Violet Marshall had nothing to do with the making of the entries. She did not understand the figures entered thereon, and never checked them to see whether they corresponded with those on the patients' McCaskey *698 cards. For the afternoon business, the routine followed was the same, except as to time, which was usually before the opening of business on the succeeding day.
At a time or times not shown, the petitioner purported to total the various categories for each day as shown on his desk calendar, and would enter the results, by days, on a McCaskey monthly summary record sheet. The gross receipts from his practice as reported by him in his income tax returns would be taken after the end of the year from a set of monthly summary record sheets purporting to *25 reflect the gross receipts from his practice for such year. Violet Marshall had nothing to do with the making of the monthly summaries, and it does not appear that she knew of their existence. For the purposes of making the returns, there was no audit or check of the receipts as shown by the McCaskey cards.
The prescription blanks used by Violet Marshall in recording the daily business which cleared through her and the desk calendars used as indicated by petitioner were not kept as a part of petitioner's permanent records, and were discarded or thrown away.
For the years 1943 and 1944, petitioner made up two different sets of monthly summary sheets, each of which on its face purported to show the amount of his total business for each day and month of the indicated year and his total receipts from his practice for the year. The total receipts shown on one set of summary sheets for each such year sometimes referred to as the high summary sheets, were substantially greater than the total receipts shown on the other set of summary sheets for such year, sometimes referred to as the low summary sheets. For each of these years the total receipts reported by petitioner in his income tax *26 return corresponded with the receipts shown on the low summary sheets.
For the year 1945, petitioner similarly maintained two sets of records, each of which purported to show the amounts of his total business and his total receipts from his practice during the year. For that year, the high figures were entered not on McCaskey form summary sheets, but in a loose-leaf memorandum book showing consecutively the days and months of the year. The pages were approximately 5 by 8 inches, and in most instances each page was divided between 2 days. For the purposes here, the said calendar memorandum book may sometimes be referred to as the high summary sheets for 1945. As for 1943 and 1944, the amounts reported by petitioner in his 1945 return as total receipts from his medical practice for the year corresponded with the amounts shown on the low summary sheets for that year.
For the years 1943, 1944, and 1945, the total receipts shown on the high summary sheets, the amounts shown on the low summary sheets and the differences between the two, are as follows: *699
| High summary | Low summary | Difference | |
| 1943 | $ 53,395.00 | $ 22,555.20 | $ 30,839.50 |
| 1944 | 65,975.00 | 1*27 *28 28,247.50 | 1 37,727.50 |
| 1945 | 63,574.50 | 27,090.50 | 36,484.00 |
There were occasions when a payment received by petitioner from one patient alone greatly exceeded the amount shown as his total receipts from all patients on the same date by the monthly summary sheets, from which the amounts reported by him as his income from his medical practice were taken. Under date of May 17, 1942, the amount shown by the said summary sheets and reported by petitioner as his total receipts from all patients on that date was $ 30, whereas the ledger sheet of Cecil Phillips reflects a payment of $ 150 by Phillips on that date. Similarly, the amount shown on the summary sheets and carried into income for July 10, 1942, was $ 73, as contrasted with $ 125 shown by the ledger sheet of Mrs. N. E. Stallworth as having been paid by her on that date. For February 27, 1943, $ 72 was the amount reported as the total receipts from medical practice, whereas the ledger sheet of Earl Palmer shows a payment of $ 147 on that date and the high summary sheets show total receipts of $ 360. For March 3, 1943, the total receipts, according *29 to the low summary sheets and as reported, were $ 96, in contrast with a payment of $ 175 by Mrs. Joe Sasser and $ 936 shown by the high summary sheets for that date. On April 12, 1943, Earl Palmer made a payment of $ 141 and the high summary sheets show total receipts of $ 810, as contrasted with $ 94 shown as total receipts by the low summary sheets and as reported by petitioner in his returns. For April 17, 1943, the amount shown as total receipts by the low summary sheets and reported in the 1943 return was $ 74, whereas Leo Hammonds made a payment of $ 150 on that date and the total receipts shown by the high summary sheets were $ 474. On July 14, 1943, O. L. Smith paid petitioner $ 100 and the total receipts for that date were shown by the high summary sheets at $ 520, as against $ 40 shown by the low summary sheets and reported as income for that date. For April 15, 1944, the total receipts shown *700 by the low summary sheets and reported as income for that date were $ 60, as against a payment of $ 135 by J. J. Mertzweiller and an entry of $ 296 on the high summary sheets as the total receipts from all patients on that date. For June 16, 1946, the total receipts from all patients *30 as shown by the low summary sheets, from which the amounts reported on the 1946 return were taken, were $ 50, whereas $ 100 was shown as received on that date from Charles Bailey alone. On July 9, 1946, and again on August 1, 1946, W. E. Bugg paid $ 150, whereas for July 9 total receipts from all patients were shown by the summary sheets at $ 91, and for August 1, $ 139. For December 2, 1946, the amount shown as total receipts from all patients and reported on the 1946 return was $ 71, whereas $ 150 was paid on that date by Mrs. Frank J. Byrd alone. On December 6, 1946, Mrs. J. F. Barkley, according to her ledger sheet, made a payment of $ 300, whereas the amount shown on the summary sheets and reported on the 1946 return as total receipts for that date was $ 266. 9*31
In addition to the McCaskey System records, petitioner also used a bound record book denominated Greenwood's Approved Business and *32 Income Tax Records for Professional Men. On the left-hand page of an open Greenwood book are columns designed for the daily recording of charges for professional service rendered; the daily cash receipts and from whom received, including cash and charge accounts; a column for the entry of "All Other Cash Receipts"; a column for bank deposits; and columns for recording daily payments, both by cash and by check. On the right-hand page, headed "Daily Purchases and Expenses for Month," are columns for the entry of the details of the daily expenditures, whether for cash or credit. Included are columns for entry of payments or charges for supplies; express and parcel post; automobile expense; telephone, telegraph; salaries; rent; insurance and taxes; light, water, and fuel; charitable contributions; technical books and instruments and other equipment; and for personal withdrawals from the business.
*701 In the keeping of petitioner's accounts, the left-hand pages of the Greenwood book were only partially utilized. There was no recording of petitioner's patients or of the individual charges for the services rendered to them, and the columns provided therefor remained blank for all years. *33 In the columns for recording daily cash receipts, entries were made of petitioner's receipts of his nonprofessional income, such as interest and rent. There was no recording in those columns of payments received from patients. Beginning with the month of October 1942 and running through December 1944, and beginning again with May of 1945 and running through December of that year, a lump-sum entry was made for each month in the column headed "All Other Cash Receipts," except that for the months of March, July, and September of 1943, the lump-sum amounts were entered in the adjoining column, designed for entry of amounts received from charge accounts. In the column headed "Bank Deposits," entries were made for 1942 only. The column designed for the recording of "Daily Payments" was utilized solely for the recording of personal expenditures by petitioner for utility bills and the like. The amounts entered in the column "All Other Cash Receipts" from October 1942 through December 1944 and from May 1945 through December 1945, including the entries for March, July, and September of 1943 in the "Received From Charge Accounts" column, were as follows:
| Month | 1942 | 1943 | 1944 | 1945 | 1946 | 1947 |
| January | $ 3,220 | $ 2,126 | ||||
| February | 2,868 | 2,190 | ||||
| March | 1*34 2,777 | 2,462 | ||||
| April | 3,824 | 2,008 | ||||
| May | 2,169 | 2,278 | $ 2,260.50 | |||
| June | 1,690 | 2,142 | 2,239.50 | |||
| July | 1 3,291 | 2,630 | 3,186.50 | |||
| August | 5,622 | 2,922 | 2,391.00 | |||
| September | 1 6,320 | 2,816 | 2,120.50 | |||
| October | $ 2,462 | 2,326 | 3,112 | 2,180.00 | ||
| November | 3,128 | 4,920 | 3,565 | 2,201.00 | ||
| December | 2,656 | 3,254 | 2,837 | 2,216.00 | ||
| Total | 8,246 | 42,281 | 31,088 | 18,795.00 | (2) | (2) |
Most of the entries in the Greenwood book and, so far as appears, all of the entries on the right-hand pages, headed "Daily Purchases and Expenses for Month," were made by Violet Marshall. The purpose for which the right-hand pages were utilized was the entry of expenditures incidental to petitioner's medical practice, personal withdrawals by petitioner, and personal expenditures other than personal utility bills, which latter expenditures were entered, as above indicated, on the left-hand pages. Where the expenditures had been made by check, the entry would be made in the expense column indicated by the explanatory notation on the check stub, if the check stub carried such a notation. Violet Marshall drew most of the *702 checks and made most of the entries on the check stubs. Where the name of the payee of the check was sufficient to indicate to her the purpose of the payment, she normally made no explanatory notation. Similarly, in such instances, the name of the payee would indicate to her the column for entry of the payment in the Greenwood book. The recorded expenditures not made by check were entered by Violet Marshall in *35 the amounts and according to the explanations given to her by petitioner.
At the end of the year, Violet Marshall would add the figures which had been entered in the various columns on the right-hand pages of the Greenwood book and would give the totals to petitioner for use in making up his income tax return.
Where a payment was made by a patient whose account had been referred to the Physicians and Dentists Credit Bureau, Inc., for collection, the bureau received a commission whether or not it had collected the amount or the payment had been made at petitioner's office. When a payment on such an account was made at petitioner's office, the receipt thereof would be reported to the bureau. At the end of each month, the bureau would report the results of its collection activities to petitioner. The report form was divided into three parts: One, headed "Our Collections"; a second, "Paid Direct to You"; and the third, "Recapitulation." The collections, whether by petitioner or by the bureau, were entered according to the individual patients. The individual payments and the commissions thereon were entered in appropriate columns. In the recapitulation, the columns were consolidated and *36 the amount due petitioner and the amount due the bureau were shown. At times, it would happen that most of the payments had been made at petitioner's office, and the aggregate of the payments received by the bureau was not sufficient to cover its commissions for the month. In that case, the balance of the commissions due would be covered by a remittance from petitioner to the bureau. In the reverse situation, the bureau, in making its remittance to the petitioner, would retain the full amount of commissions due it and would send a check to petitioner for the net amount only. When a check was received from the bureau Violet Marshall would enter the payment on the prescription blank being used for recording that day's business, and when she checked her entries therefrom with petitioner for the morning or afternoon business, she would report the payment from the bureau. The amount of the bureau's commissions she would enter on the Greenwood book in the column for the recording of other office expense. 10*37
*703 At January 1, 1942, petitioner had two bank accounts, both with the First National Bank in Mobile. One was a checking account and the other a savings account, designated No. XXXX. Most of the deposits in the checking account were made by Violet Marshall, but petitioner, unless he was away from Mobile on a trip, would make up the deposits and the deposit slips and hand them to Violet Marshall for deposit. Except possibly for items of rent, interest, and the like, which were entered by her in the Greenwood books, the only source of money going into the deposits of which she had knowledge was petitioner's medical practice. Violet Marshall had authority to draw checks on the account.
Throughout the years herein, savings account No. XXXX was inactive except for the crediting of interest earned. The balances at the beginning and end of the year and the credits to the account, from December 31, 1941, to December 31, 1947, were as follows:
| Balance | |||
| Balance | Interest | December | |
| January 1 | credited | 31 | |
| 1941 | $ 254.64 | ||
| 1942 | $ 254.64 | $ 1.90 | 256.54 |
| 1943 | 256.54 | 3.42 | 259.96 |
| 1944 | 259.96 | 2.59 | 262.55 |
| 1945 | 262.55 | 3.62 | 266.17 |
| 1946 | 266.17 | 2.66 | 268.83 |
| 1947 | 268.83 | 2.69 | 271.52 |
In *38 December of 1942, and with the American National Bank in Mobile, petitioner opened a second savings account, hereafter referred to as the active savings account. In this account petitioner would deposit his dividends, rental income, interest "from outside investments," and receipts from the sale of real estate, and at times would make other deposits "so it wouldn't be boosting up [his] checking account too high."
In addition to the receipts from his medical practice, the petitioner in each of the years 1942 through 1947 received numerous payments which in the aggregate were relatively substantial, some or parts of which were either nontaxable or nonincome items, such as interest on county bonds, proceeds and repayments of loans, and capital sums recovered through the sale of real estate and in the redemption of bonds.
During each of the years 1942 through 1947, petitioner received nontaxable interest of $ 237.50 on the 5 County of Mobile 4 3/4 Per Cent Road and Bridge bonds.
In each of the years 1942 through 1947, petitioner received $ 270 from Eugene Gill in payment for the property in Crichton, previously sold to Gill.
In 1942, 1943, 1944, and 1945, petitioner received $ 300, $ 325, *39 $ 600, and $ 713.96, respectively, from H. R. Kennedy in payment on the *704 purchase price of the property in Toulminville. The property was deeded by petitioner and his wife to Kennedy and his wife under date of August 13, 1945.
In consideration of a downpayment of $ 550 and a note for $ 2,200, petitioner and his wife, by deed dated March 1, 1944, conveyed their Randolph Street property to August Demouy for life and the remainder to his granddaughter, Adelaide Broadus. Petitioner received $ 121.04 in 1944, $ 118.23 in 1945, $ 239.82 in 1946, and $ 97.94 in 1947, as payments on the purchase price of that property.
In 1934, Marshall Wallace, a patient of petitioner, offered a lot, located at 2008 Gorgas Street, in payment of his account with petitioner, and under date of December 10, 1934, Wallace and his wife deeded the lot to Nell LeCompte Reaves, wife of petitioner. For $ 1,500 in cash and a further sum of $ 5,000, evidenced by a promissory note, Nell LeCompte Reaves and "her husband, J. U. Reaves," by warranty deed dated July 1, 1944, sold and conveyed the Gorgas Street property to Gaudin A. Olsen and his wife, Mildred Olsen. The note was payable in monthly installments of $ 60, *40 and was payable to Nell LeCompte Reaves. At the time of sale, the property was improved by a building thereon, which the purchasers agreed to keep in good repair and insured against loss in some solvent and reliable insurance company satisfactory to the grantor. Payments of $ 360 in 1944, $ 720 in 1945, $ 720 in 1946, and $ 480 in 1947, not including interest, were received on the note. After payment of $ 60 on July 29, 1947, the balance due and owing was $ 2,720.
In 1945, petitioner agreed to sell the house he had purchased for his brother Ernest to his nephew, Ernest's son and petitioner's namesake, for $ 1,000. 11*41 The nephew cashed some war bonds and on December 28, 1945, paid petitioner the $ 1,000 agreed upon.
On February 17, 1945, petitioner received $ 1,019.50 in redemption of one of his Alabama By-Products Company bonds, and on December 10, 1947, he received $ 1,036.50 in redemption of a second of such bonds. 12
In 1946, petitioner made loans, amounting in the aggregate to $ 2,245.49, to the sister of Violet Marshall, of which amount $ 1,010 had been repaid by December 31, 1947.
*705 In 1947, petitioner received $ 75 from Jasper Barnett in repayment of a loan.
Also in 1947, petitioner and his wife sold the house at 259 South Georgia Avenue, their home from 1911 to 1927 and which had been rented thereafter. *42 The sale was to John and Rowena Vanhoof, for $ 8,750 in cash.
In 1946 and 1947, petitioner paid out in satisfaction of bank loans $ 2,521.41 and $ 10,800, respectively, which expenditures are not identified as having been made from any of his bank accounts.
In January of 1942, and in each and every month during the years 1942 through 1947, except December of 1946 and April of 1947, petitioner purchased one or more United States bonds. All of the bonds were either Series E or Series G. The cost of Series E bonds was 75 per cent of the amount payable at maturity, whereas the cost of the Series G bonds was the same as the face amount of the bonds. The cost of the E bonds purchased ranged from $ 75 to $ 750, whereas the denomination of the G bonds was either $ 500 or $ 1,000, and the cost was the same. All of the bonds purchased after February 1945 were E bonds, and none of the E bonds purchased after April of 1945 cost in excess of $ 150. For all months in which bonds were purchased after January of 1943, at least 2 E bonds at $ 75 or 1 at $ 150 were purchased.
Most of the bond purchases made during the taxable years were with checks drawn on petitioner's regular checking account *43 at the First National Bank. The other purchases were by cash. The amounts so expended for bonds, the amounts expended by check, and the amounts by cash, in each of the years 1942 through 1947, were as follows:
| Year | Total cost | By check | By cash |
| 1942 | $ 8,975 | $ 7,500 | $ 1,475 |
| 1943 | 18,725 | 16,290 | 2,435 |
| 1944 | 29,000 | 26,450 | 2,550 |
| 1945 | 12,500 | 11,000 | 1,500 |
| 1946 | 1,725 | 150 | 1,575 |
| 1947 | 1,800 | 450 | 1,350 |
| All years | 72,725 | 61,840 | 10,885 |
Of the $ 72,725 representing the total expenditures for Government bonds in the said years $ 22,725 represented the amount expended for E bonds, the remainder being the amount expended for G bonds.
On September 23, 1943, petitioner purchased property located at the northeast corner of Government Street Road and Sage Avenue for $ 6,500. This purchase was financed in part by a bank loan of $ 3,000.
On September 25, 1944, petitioner purchased a duplex apartment property, containing 4 apartments, at 257 St. Anthony Street in *706 Mobile, for $ 9,000. After renting the apartments as acquired for several months, he engaged an architect, who drew up plans for converting the property into an apartment building containing a greater number of apartments. When the new construction was completed in 1947, the total *44 cost of the St. Anthony apartment project, including the initial cost and the cost of improvements, was approximately $ 82,000. Except for the initial expenditure for the property and some other comparatively small expenditures, the costs of the St. Anthony Street property as completed were paid through a special checking account opened by petitioner for that purpose with the First National Bank in September of 1945.
On September 9, 1946, petitioner purchased a parcel of property located on Fowl River, near Mobile, for $ 100, which was paid in cash. Also for cash, he purchased an additional parcel of property on Fowl River on March 4, 1947, for $ 200.
The total deposits made to petitioner's checking account, 13*45 to his active savings account, and to his special checking account, for the taxable years herein, were as follows:
| Checking | Active | Special | |
| Year | account | savings | checking |
| account | account | ||
| 1942 | $ 22,795.60 | $ 206.37 | |
| 1943 | 38,925.64 | 4,944.46 | |
| 1944 | 49,446.55 | 7,182.23 | |
| 1945 | 42,612.78 | 17,275.44 | $ 17,500.00 |
| 1946 | 37,548.20 | 6,676.57 | 50,728.82 |
| 1947 | 29,905.11 | 12,080.05 |
In 1945, petitioner transferred $ 10,000 from his checking account to his active savings account. In 1945 and 1946, respectively, he transferred $ 12,000 and $ 4,000 from his savings account to the special checking account. In 1944 and 1946, he transferred $ 2,080 and $ 2,500, respectively, from his savings account to his checking account, and in 1945 and 1946, transferred $ 4,500 and $ 11,750, respectively, from his checking account to his special checking account. In 1943, 1946, and 1947, he deposited the proceeds of bank loans to his checking account in the respective amounts of $ 2,973.75, $ 2,500, and $ 600.
The records of the First National Bank14*46 show the following number of loans made to petitioner, and the opening and closing *707 balances and maximum and minimum balances of his total debt to the bank, in each of the years 1927 through 1947:
| Year | Number | Opening | Closing | Maximum | Minimum |
| of loans 1 | balance | balance | owed | owed | |
| 1927 2*47 | 1 | $ 6,600.00 | $ 5,321.98 | $ 6,600.00 | $ 5,321.98 |
| 1928 | 10 | 5,321.98 | 5,600.00 | 7,010.33 | 1,818.00 |
| 1929 | 5 | 5,600.00 | 3,200.00 | 6,000.00 | 2,000.00 |
| 1930 | 11 | 3,200.00 | 11,110.00 | 12,100.00 | 3,200.00 |
| 1931 | 12 | 11,100.00 | 10,050.00 | 11,700.00 | 9,850.00 |
| 1932 | 16 | 10,050.00 | 9,100.00 | 10,375.00 | 8,600.00 |
| 1933 | 14 | 9,100.00 | 8,012.28 | 9,100.00 | 8,012.28 |
| 1934 | 13 | 8,012.28 | 2,900.00 | 8,012.28 | 2,900.00 |
| 1935 | 6 | 2,900.00 | 1,545.75 | 3,500.00 | 1,545.75 |
| 1936 | 20 | 1,545.75 | 2,927.30 | 2,927.30 | 927.30 |
| 1937 | 13 | 2,927.30 | 1,300.00 | 3,177.00 | 1,300.00 |
| 1938 | 19 | 1,300.00 | 1,419.17 | 2,900.00 | 502.74 |
| 1939 | 9 | 1,419.17 | 609.00 | 1,419.17 | 609.00 |
| 1940 3 | 9 | 609.00 | 2,121.24 | 2,121.24 | |
| 1941 4 | 3 | 2,121.24 | 2,121.24 | ||
| 1942 4 | |||||
| 1943 5 | 1 | 3,000.00 | |||
| 1944 5 | |||||
| 1945 5 | |||||
| 1946 5 | 28 | 32,000.00 | 37,500.00 | ||
| 1947 | 12 | 32,000.00 | 6,000.00 | 32,000.00 | 6,000.00 |
Except for a $ 1,000 bill used in 1947 as the final payment to the contractor on the St. Anthony Street project and possibly other small amounts of currency as so applied to the said project, the currency in the safe-deposit box was removed periodically by petitioner's wife and given to petitioner for use in the United States bond purchases which were made during the years 1942 through 1947. By the end of 1947, all of the currency had been removed.
With the exception of 2 visits, 1 in January and 1 in February of 1942, which were made by petitioner, all of the visits to the safe-deposit box during the years 1942 through 1947 were by petitioner's wife. The visits to the box in 1942 and in subsequent years were rather regularly spaced between the months. In 1942, there *48 were 31 visits, ranging from none in April to 5 in August and October. In 1943, the box was entered 38 times; for each of 5 months 2 visits were made, for 4 there were 3 each, and for the remaining 3 months 4, 5, and 6 visits were made. In 1944, 49 visits were made to the box, ranging from 2 to 7 per month. In 1945, the box was entered 59 times, with the number of visits ranging from 3 in November to 7 in February. In 1946, 26 visits were made to the box, with 1 in each of 4 months, 2 in each of 5 months, 3 each in 2 months, and 5 for 1 month. In 1947, the box was entered only 13 times, with no visits for 5 months, 1 visit for each of 4 months, 2 visits for 1 month, 3 for another, and 4 in December.
Petitioner's personal living expenses for the years 1942 through 1947 did not exceed $ 6,000 in each such year.
*708 In the preparation of his 1942 return, petitioner had the assistance of R. S. Cartledge, who at one time had been a deputy collector of internal revenue in Mobile. Cartledge prepared the return from figures which had been given to him by petitioner. He did not examine petitioner's books or records. Petitioner typed his own returns for 1943, 1944, and the original return *49 for 1945. He was assisted in the preparation of a second amended return for 1945, and in the preparation of his 1947 return, by Fred M. Kroner, Jr. Kroner at that time was a deputy collector of internal revenue. Petitioner's 1947 return was prepared by Kroner from information he received from petitioner. Petitioner gave him a list of his deductions and the various sales and transactions covered in the exhibits. He did not examine petitioner's books and records.
Petitioner's income tax returns for the years 1942 through 1947 reflected the following:
| 1942 | 1943 | 1944 | |
| Gross medical receipts | $ 19,272.00 | $ 22,491.00 | $ 28,246.00 |
| Gross rental income | 1,745.00 | 1,465.00 | 1,227.00 |
| Dividends and interest receipts | 1,168.50 | 1,145,43 | 606.50 |
| Capital gains (losses) | (1,520.00) | ||
| Total gross income | 22,185.50 | 25,101.43 | 28,559.50 |
| Medical expenses | 12,663.42 | 14,030.96 | 17,587.65 |
| Rental expenses | 132.25 | ||
| Rental depreciation | 649.44 | ||
| Total expenses | 13,312.86 | 14,163.21 | 17,587.65 |
| Total net income | 8,872.64 | 10,938.22 | 10,971.85 |
| Itemized deductions | 1,403.42 | 1,805.71 | 3,195.87 |
| Adjusted gross income | 7,469.22 | 9,132.51 | 7,775.98 |
| Portion of medical expenses | |||
| claimed as depreciation | 2,969.04 | 2 4,523.00 |
| 1945 1*50 | 1946 | 1947 | |
| Gross medical receipts | $ 27,088.00 | $ 27,460.00 | $ 25,819.50 |
| Gross rental income | 1,965.20 | 1,795.37 | 8,021.10 |
| Dividends and interest receipts | 1,867.24 | 500.00 | 1,782.00 |
| Capital gains (losses) | 819.68 | ||
| Total gross income | 30,920.44 | 29,755.37 | 36,442.28 |
| Medical expenses | 15,333.02 | 16,152.14 | 17,944.86 |
| Rental expenses | 960.00 | 1,286.16 | |
| Rental depreciation | 408.33 | 775.00 | 3,805.33 |
| Total expenses | 15,741.35 | 17,887.14 | 23,036.35 |
| Total net income | 15,179.09 | 11,868.23 | 13,405.93 |
| Itemized deductions | 2,617.52 | 3,036.93 | 978.67 |
| Adjusted gross income | 12,561.57 | 8,831.30 | 12,427.26 |
| Portion of medical expenses | |||
| claimed as depreciation | 2,372.92 | 2,159.00 | 1,407.34 |
Early in February of 1948, a revenue agent was assigned to make a check of the petitioner's income tax return for 1944. The investigation was later expanded to include all years from 1942 to 1947, inclusive.
On February 16, 1948, in the course of the above investigation, the petitioner, with two revenue agents, checked the contents of his safe-deposit box at the First National Bank of Mobile. The box was opened and an inventory was taken of its contents. The box contained securities only. It contained no cash. The securities were as follows:
United States savings bonds, which had cost a total of $ 72,181.25.
5 Republic of Uruguay bonds, of $ 1,000 face value per bond.
10 Grand Trunk Pacific Railroad bonds, each having a face value of
# 100 sterling.
3 $ 1,000 Alabama By-Products Corporation bonds.
5 $ 1,000 Mobile County 4 3/4 Per Cent Road and Bridge bonds.
*709 2 $ 50 bonds of Local Division No. 770, Amalgamated Association of Street and Electric Employees of America.
200 shares of stock and 2 bonds of the *51 Mobile Gas Service Corporation.
2 shares of the capital stock of Stonewall Insurance Company.
60 shares of common stock of Detroit & Canada Tunnel Corporation.
In May of 1948, petitioner received a letter from the United States Department of Justice, advising him that criminal prosecution was being contemplated against him for income tax evasion for the years 1945 and 1946 and offering the opportunity of a conference in Washington, D. C., within 30 days. Petitioner thereafter employed counsel, and with counsel and one or more accountants attended two conferences in the Department of Justice in Washington.
On October 10, 1951, petitioner was indicted on three counts, charging that he had unlawfully and knowingly attempted to defeat and evade a large part of his Federal income taxes for the years 1945, 1946, and 1947, by filing false and fraudulent income tax returns for each of those years. Petitioner entered a plea of not guilty.
In 1951 or 1952, and in the course of the work done preparatory to petitioner's defense against the criminal charges, one of the accountants employed in the case summarized petitioner's professional receipts from McCaskey cards and "Ledger Sheets (Hospital)" *52 in petitioner's office for the years 1944 through 1947, as follows:
| 1944 | 1945 | 1946 | 1947 | |
| Total per cards drawer files | 18,755.77 | $ 19,245.50 | $ 13,588.59 | $ 8,878.00 |
| Total per cards desk | 1,213.25 | 1,737.50 | 932.00 | 1,831.16 |
| Total per "Ledger Sheets | ||||
| (Hospital)" | 8,950.77 | 14,416.50 | 17,321.50 | |
| Total receipts | 29,933.77 | 28,937.09 | 28,020.66 |
As the date of the trial on the criminal charges approached, petitioner's counsel in that case recommended and urged that he change his plea from not guilty to guilty. The attorney representing petitioner in the present case was called into the conference, and advised petitioner not to plead guilty. He did not, however, join in or participate in the defense of petitioner on the criminal charges. After further conferences and thought, petitioner, on the advice of his original counsel, changed his plea from not guilty to guilty, and on December 20, 1953, on the said plea of guilty, was fined $ 7,500 and placed on probation for 3 years.
The existence of the monthly summary record sheets, from which the figures reported on his returns were taken, and of the so-called high summary sheets for the years 1943, 1944, and 1945 was not disclosed by petitioner to the revenue agents, to the attorneys *53 and accountants representing him in the criminal proceeding, nor to *710 anyone else, until a comparatively short time before the trial herein. And not only was the existence of the said summary sheets not disclosed, but in a signed statement presented to the Attorney General of the United States at one of the above conferences, petitioner stated that except for 1946 and 1947, the totals entered on his desk calendar as the receipts from his medical practice were thereafter carried into his "office books" which he kept "on the Greenwood system," but as to 1946 and 1947, "the total receipts were not entered in the Greenwood book," but were "taken directly from [his] calendar to [his] tax returns." Similarly, Violet Marshall, in an affidavit subscribed and sworn to by her on October 31, 1949, stated that for all years except 1946 and 1947, the amounts collected from patients were shown for each month in the Greenwood books. 15*54
For the calendar years 1921 to 1941, inclusive, the Federal income taxes paid by petitioner were as follows:
| Year | Amount |
| 1921 | $ 141.78 |
| 1922 | 141.93 |
| 1923 | (1) |
| 1924 | 46.24 |
| 1925 | 79.70 |
| 1926 | 83.13 |
| 1927 | 84.93 |
| 1928 | 109.95 |
| 1929 | 11.79 |
| 1930 | 2.56 |
| 1931 | 4.21 |
| 1932 | (2) |
| 1933 | (2) |
| 1934 | (2) |
| 1935 | (2) |
| 1936 | (1) |
| 1937 | $ 21.91 |
| 1938 | (2) |
| 1939 | 14.36 |
| 1940 | 59.25 |
| 1941 | 376.73 |
In his determination of deficiencies in income tax and additions thereto for the years 1942 through 1947, statutory notice of which was mailed March 2, 1955, the respondent, having first concluded and determined that the petitioner's accounts and records were inadequate to reflect and did not reflect petitioner's correct income, determined petitioner's taxable and net income by an analysis of his bank deposits and expenditures. He arrived at and determined the amounts of unreported income for *55 the years herein as follows: *711
| 1942 | 1943 | 1944 | |
| Deposits to bank accounts: | |||
| Regular checking account | $ 23,021.50 | $ 38,925.64 | $ 49,446.55 |
| Special checking account | |||
| Savings account No. XXXX | 206.37 | 4,944.46 | 7,182.23 |
| Interest credited to savings | |||
| account No. XXXX | 1.90 | 3.42 | 2.59 |
| Interest on U. S. tax bonds | 3.84 | 11.52 | |
| Undeposited receipts | 10,397.75 | 11,846.13 | 16,894.41 |
| Total above | 33,627.52 | 55,723.49 | 73,537.30 |
| Less: Items eliminated | 1,182.05 | 4,322.25 | 8,455.50 |
| Total receipts as corrected | 32,455.47 | 51,401.24 | 65,081.80 |
| Total receipts per original returns: | |||
| Profession | 19,272.00 | 22,491.00 | 1*56 28,246.00 |
| Rents | 1,745.00 | 1,465.00 | 1 1,227.00 |
| Dividends | 120.00 | 1 606.50 | |
| Interest | 1,168.50 | 1,025.43 | |
| Total | 22,185.50 | 25,101.43 | 1 30,079.50 |
| Total unreported receipts | 10,259.97 | 26,299.81 | 35,002.30 |
| 1945 | 1946 | 1947 | |
| Deposits to bank accounts: | |||
| Regular checking account | $ 42,612.78 | $ 37,653.20 | $ 29,905.11 |
| Special checking account | 17,500.00 | 50,728.82 | |
| Savings account No. XXXX | 17,275.44 | 6,676.57 | 12,080.05 |
| Interest credited to savings | |||
| account No. XXXX | 3.62 | 2.66 | 2.69 |
| Interest on U. S. tax bonds | |||
| Undeposited receipts | 12,745.38 | 14,873.92 | 20,639.34 |
| Total above | 90,137.22 | 109,935.17 | 62,627.19 |
| Less: Items eliminated | 29,741.46 | 57,256.32 | 4,992.50 |
| Total receipts as corrected | 60,395.76 | 52,678.85 | 57,634.69 |
| Total receipts per original returns: | |||
| Profession | 27,088.00 | 27,460.00 | 25,819.50 |
| Rents | 1,965.20 | 1,795.37 | 8,021.10 |
| Dividends | 188.60 | ||
| Interest | 1,867.24 | 500.00 | 1,593.40 |
| Total | 30,920.44 | 29,755.37 | 35,622.50 |
| Total unreported receipts | 29,475.32 | 22,923.48 | 22,012.09 |
As determined by respondent, the items making up the amounts determined by him as petitioner's undeposited receipts for the years 1942 through 1947, were as follows:
| Undeposited receipts | 1942 | 1943 | 1944 |
| applied to -- | |||
| Purchase of U. S. tax bonds | $ 300.00 | $ 400.00 | |
| Payment of deductions | |||
| claimed on return | 4,288.94 | 4,136.22 | 10,765.90 |
| Payment of ordinary personal | |||
| living expense | 4,315.06 | 4,874.91 | 4,478.51 |
| Purchase of war bonds | 1,493.75 | 2,435.00 | 1,650.00 |
| Repayment of bank loans | |||
| Purchase of real estate | |||
| 10,397.75 | 11,846.13 | 16,894.41 |
| Undeposited receipts | 1945 | 1946 | 1947 |
| applied to -- | |||
| Purchase of U. S. tax bonds | |||
| Payment of deductions | |||
| claimed on return | $ 5,897.54 | $ 5,277.90 | $ 5,117.60 |
| Payment of ordinary personal | |||
| living expense | 4,372.84 | 4,420.61 | 3,621.74 |
| Purchase of war bonds | 2,475.00 | 2,550.00 | 900.00 |
| Repayment of bank loans | 2,525.41 | 10,800.00 | |
| Purchase of real estate | 100.00 | 200.00 | |
| 12,745.38 | 14,873.92 | 20,639.34 |
In arriving at the amount of deductions claimed on the returns which were paid from undeposited receipts, the respondent first reduced the deductions as claimed by the amounts deducted for depreciation, and after so doing, arrived at the deductions paid from undeposited receipts, as follows:
| 1942 | 1943 | 1944 | |
| Deductions claimed on return, | |||
| less depreciation deductions | $ 11,097.80 | $ 11,445.62 | $ 20,793.52 |
| Cash outlay deductions: | |||
| Paid by check from regular | |||
| account | 6,808.86 | 7,283.15 | 10,027.62 |
| Paid by check from special | |||
| account | |||
| Paid by cashier check No. | |||
| 70264 dated Dec. 18, 1947 | |||
| Discount on notes | 26.25 | ||
| Total | 6,808.86 | 7,309.40 | 10,027.62 |
| Cash outlay deductions paid | |||
| from undeposited receipts | 4,288.94 | 4,136.22 | 10,765.90 |
| 1945 1 | 1946 | 1947 | |
| Deductions claimed on return, | |||
| less depreciation deductions | $ 15,577.62 | $ 17,990.07 | $ 18,822.35 |
| Cash outlay deductions: | |||
| Paid by check from regular | |||
| account | 9,680.08 | 12,195.71 | 12,798.54 |
| Paid by check from special | |||
| account | 469.87 | ||
| Paid by cashier check No. | |||
| 70264 dated Dec. 18, 1947 | 906.21 | ||
| Discount on notes | 46.59 | ||
| Total | 9,680.08 | 12,712.17 | 13,704.75 |
| Cash outlay deductions paid | |||
| from undeposited receipts | 5,897.54 | 5,277.90 | 5,117.60 |
*712 The amounts determined by the respondent as having been paid from undeposited receipts for personal living expenses for the years 1942 through 1947, were determined as follows:
| 1942 | 1943 | 1944 | |
| Disbursements for ordinary personal and | |||
| family living expense and funds available | |||
| for that purpose from the following | |||
| sources: | |||
| (a) Regular checking account: | |||
| Utilities | $ 303.32 | $ 301.12 | $ 324.38 |
| Other | 2,181.62 | 2,323.97 | 1,627.11 |
| Unidentified application of | |||
| funds considered as available | |||
| for personal expense: | |||
| (1) Check No. 11048 dated | |||
| 9/1/42 -- First National | |||
| Bank | 700.00 | ||
| (2) Check No. 12030 dated | |||
| 12/29/44 -- First National | |||
| Bank | 200.00 | ||
| (3) Check No. 12380 dated | |||
| 11/10/45 -- J. U. Reaves | |||
| (4) Check No. 13264 dated | |||
| 12/18/47 -- First National | |||
| Bank | |||
| Repairs to boat motor -- | |||
| Check No. 13019 dated | |||
| 4/30/47 | |||
| Total above | 3,184.94 | 2,625.09 | 2,151.49 |
| (b) Savings account No. XXXX: | |||
| Unidentified application of | |||
| withdrawals | 870.00 | ||
| (c) Special checking account: | |||
| Unidentified application of | |||
| checks dated 12/4/46 in closing | |||
| of the account | |||
| Total | 3,184.94 | 2,625.09 | 3,021.49 |
| Estimated ordinary personal and family | |||
| living expense | 7,500.00 | 7,500.00 | 7,500.00 |
| Undeposited receipts expenses for personal | |||
| and family living expense | 4,315.06 | 4,874.91 | 4,478.51 |
| 1945 | 1946 | 1947 | |
| Disbursements for ordinary personal and | |||
| family living expense and funds available | |||
| for that purpose from the following | |||
| sources: | |||
| (a) Regular checking account: | |||
| Utilities | $ 320.03 | $ 310.10 | $ 339.57 |
| Other | 2,357.13 | 2,051.71 | 2,666.19 |
| Unidentified application of | |||
| funds considered as available | |||
| for personal expense: | |||
| (1) Check No. 11048 dated | |||
| 9/1/42 -- First National | |||
| Bank | |||
| (2) Check No. 12030 dated | |||
| 12/29/44 -- First National | |||
| Bank | |||
| (3) Check No. 12380 dated | |||
| 11/10/45 -- J. U. Reaves | 400.00 | ||
| (4) Check No. 13264 dated | |||
| 12/18/47 -- First National | |||
| Bank | 150.00 | ||
| Repairs to boat motor -- | |||
| Check No. 13019 dated | |||
| 4/30/47 | 77.50 | ||
| Total above | 3,077.16 | 2,361.81 | 3,233.26 |
| (b) Savings account No. XXXX: | |||
| Unidentified application of | |||
| withdrawals | 50.00 | 327.00 | 645.00 |
| (c) Special checking account: | |||
| Unidentified application of | |||
| checks dated 12/4/46 in closing | |||
| of the account | 390.58 | ||
| Total | 3,127.16 | 3,079.39 | 3,878.26 |
| Estimated ordinary personal and family | |||
| living expense | 7,500.00 | 7,500.00 | 7,500.00 |
| Undeposited receipts expenses for personal | |||
| and family living expense | 4,372.84 | 4,420.61 | 3,621.74 |
As determined by the respondent, the detail of the items eliminated by him in his determination of petitioner's unreported receipts is made up as follows:
| 1942 | 1943 | 1944 | |
| Transfer of funds from regular | |||
| account to: | |||
| Savings account No. XXXX | |||
| Special account | |||
| Transfer of funds from savings | |||
| account to: | |||
| Regular checking account | $ 2,080.00 | ||
| Special checking account | |||
| Proceeds of bank loans deposited to | |||
| following accounts: | |||
| Regular checking account | $ 2,973.75 | ||
| Special checking account | |||
| Proceeds and collections from real | |||
| estate sold | $ 944.55 | 1,111.00 | 4,638.00 |
| Proceeds from redemption of Detroit | |||
| Canada Tunnel Corporation | |||
| bonds | 1,500.00 | ||
| Interest received from County of | |||
| Mobile 4 3/4% Road and Bridge | |||
| bonds due 6/1/50 -- nontaxable | 237.50 | 237.50 | 237.50 |
| Repayment of loan by Jasper | |||
| Barnett | |||
| Total eliminations | 1,182.05 | 4,322.25 | 8,455.50 |
| 1945 | 1946 | 1947 | |
| Transfer of funds from regular | |||
| account to: | |||
| Savings account No. 4889 | $ 10,000.00 | ||
| Special account | 4,500.00 | $ 11,750.00 | |
| Transfer of funds from savings | |||
| account to: | |||
| Regular checking account | 2,500.00 | ||
| Special checking account | 12,000.00 | 4,000.00 | |
| Proceeds of bank loans deposited to | |||
| following accounts: | |||
| Regular checking account | 2,500.00 | $ 600.00 | |
| Special checking account | 34,978.82 | ||
| Proceeds and collections from real | |||
| estate sold | 3,003.96 | 1,290.00 | 4,080.00 |
| Proceeds from redemption of Detroit | |||
| Canada Tunnel Corporation | |||
| bonds | |||
| Interest received from County of | |||
| Mobile 4 3/4% Road and Bridge | |||
| bonds due 6/1/50 -- nontaxable | 237.50 | 237.50 | 237.50 |
| Repayment of loan by Jasper | |||
| Barnett | 75.00 | ||
| Total eliminations | 29,741.46 | 57,256.32 | 4,992.50 |
*59 *713 For each of the years 1942 through 1947, substantial portions of petitioner's taxable income were omitted from and not recorded in such accounts and records as were maintained by the petitioner, and the books and records which were maintained were wholly inadequate to reflect petitioner's true and correct income for each such year.
For each of the years 1942 through 1947, the petitioner, knowingly and with intent to evade tax, omitted from and did not report in his income tax returns substantial amounts of the taxable income received by him, and the income tax returns filed by him for the years 1942, 1943, 1945, 1946, and 1947 were false and fraudulent with intent to evade tax.
For 1944, the petitioner failed to make and file an income tax return as required by the statute, and his failure to so make and file a return was not due to reasonable cause.
For each of the years 1942 through 1947, a part of the deficiency in petitioner's income tax was due to fraud with intent to evade tax.
OPINION.
As to all years, the petitioner has pleaded the statute of limitations, and as to all years, except 1944, it is agreed that the statute has run, unless the returns filed by the petitioner for the *60 said years were false and fraudulent with intent to evade tax. For 1944, the petitioner did file an unsigned income tax return form on which income and deduction items had been entered and the tax had been computed, but no return complete with his signature has ever been filed for such year. On comparable facts, the Supreme Court, in Lucas v. Pilliod Lumber Co., 281 U.S. 245">281 U.S. 245, held that the filing of an unsigned return form, even though it did contain various statements in respect of gross income, deductions, credits, etc., was not the filing of an income tax return within the meaning of the statute and did not start the running of the statute of limitations against the respondent. The Pilliod Lumber Co. case is directly in point, and is controlling here. See also Roy Dixon, 28 T. C. 338, and Theodore R. Plunkett, 41 B. T. A. 700, affd. 118 F.2d 644">118 F. 2d 644.
For the remaining years 1942, 1943, 1945, 1946, and 1947, the record convincingly shows that petitioner omitted from his returns as filed a substantial portion of his income for each such year, and on the evidence, we are not in doubt that such omission was with intent to evade tax and that the return filed for each such year was false *61 and fraudulent with intent to evade tax.
Theoretically, the McCaskey accounting forms used by petitioner, if properly kept, would have reflected the services rendered by him for each and every patient, the charges therefor, and the collections made, and the aggregate of such collections for each day of the year, *714 by months, would have been reflected on the monthly summary record sheets, the total receipts from his medical practice for the year being the aggregate of the monthly totals. Violet Marshall, petitioner's nurse-secretary, purported to keep and maintain the individual patient cards, but in the case of payments made by patients directly to petitioner, she would either enter the amounts related to her by petitioner or leave the recording of the payments on the patients cards to petitioner. Admittedly, however, McCaskey cards were not made out for certain patients examined or treated by petitioner, and no permanent record was ever made and kept to reflect the payment made by them. Where the payments by these patients were made to Violet Marshall, she would enter such payments on a prescription blank used as a memorandum sheet for the day, along with the payments received by *62 her from patients for whom McCaskey cards were maintained. After lunch each day, she would report her receipts to petitioner, and purportedly he would enter the total of the payments she reported, plus the total of the payments he had received, on the sheet of his desk calendar for the said day to reflect the total receipts from his medical practice for the forenoon of such day. The same procedure would be followed with respect to the afternoon business, and the total of amounts he had entered as the morning receipts and as the afternoon receipts was supposed to represent the total receipts for the day.
Thereafter, and, according to petitioner, within a few days, he purported to transfer the total figures for each day as reflected by his desk calendar to the proper line and sheet of McCaskey monthly summary record sheets. The only disclosed use of the sheets was that in making his returns, the collections as shown by the sheets for the year in question represented the amount he reported on his return as his total receipts for the year. In the meantime, Violet Marshall had destroyed her prescription blank memorandum sheets, and petitioner likewise discarded or destroyed his desk *63 calendar from which the figures appearing on the monthly summary sheets purportedly had been taken. In tabulating the amounts reported as his total receipts on his income tax returns, no effort was ever made to check or verify the figures as taken from the above summary record sheets by reference to the McCaskey cards or any other records.
However the petitioner may have arrived at the amounts entered as his daily receipts on the monthly summary sheets and reported by him in his returns as the total receipts from his medical practice, we are satisfied that they were not authentic and represented substantial understatements of income. For instance, the duplication of entries on the summary sheet for March 1944 on the sheet for April is so noticeable as to leave no doubt that the entries on one or the other of the sheets, or both, were purely artificial, whatever the correct figures *715 may have been. We also know that from time to time, throughout the years herein, the petitioner received a payment from a single patient greatly in excess of the amount shown for the same day on his monthly summary sheet as the total receipts from all of his patients for that day. It is thus apparent *64 that whatever Violet Marshall may have reported to petitioner as the payments she had received on any such day, the amount ultimately entered by petitioner on the summary record sheets as his total receipts for the day, and carried therefrom into his income tax returns, was substantially less than the amount actually received.
The record also shows that in 1950 or 1951, in connection with the preparation of petitioner's defense against criminal charges, his counsel caused an accountant to make a check of the McCaskey cards in petitioner's office showing payments received for the years 1945, 1946, and 1947, and the amounts shown by this accountant's report indicated that the recorded receipts on the McCaskey cards and the "Ledger Sheets (Hospital)" for the year 1945 were $ 2,843.27 more than the total receipts reported by petitioner on his return for that year; that for 1946, the records disclosed receipts $ 1,475.59 in excess of the total receipts reported; and for 1947, $ 2,201.66 greater than the total receipts reported. And even if we accept as true that all of the McCaskey cards for the years herein were available at the time the above check was made, and even if it be assumed *65 that petitioner had recorded in full the collections he personally received from patients for whom McCaskey cards were made, an assumption we are unable to make, the proof shows that petitioner had patients for whom McCaskey cards were not prepared and who were not "Hospital" patients, and his receipts from those patients would obviously be in addition to the receipts shown by the records which were so checked in 1950 or 1951.
It is thus apparent that there are not now and never have been any records from which the receipts from petitioner's medical practice could be verified or correctly determined, and petitioner alone was in position to know the extent to which such receipts were understated on his returns, and he alone was responsible for such understatements. Violet Marshall regularly accounted for and reported her collections to petitioner. But except for what petitioner told her, she knew nothing of his collections, and though she did assume that as entered by petitioner the figures on his desk calendar correctly reflected the receipts from his medical practice, she had nothing to do with the adding or entry of the figures on the desk calendar, and in fact did not understand *66 them. As for the summary sheets, from which the amounts reported on the returns were taken, it does not appear that she or anyone other than petitioner, who made them, knew of their existence. Such being the case, we are asked to accept as true the testimony of the petitioner, to the effect that the entries made twice daily on his desk *716 calendar were bona fide intended and thought to be a correct recording of the receipts from his medical practice, and that they were honestly transferred to the monthly summary record sheets, and thence to his returns.
For the years 1943, 1944, and 1945, however, petitioner not only maintained the monthly summary sheets used in making his returns, but, privately, also kept a second set of monthly summary records showing as his receipts from medical practice amounts more than twice the amounts reported as such on his returns, and as disclosed on the low summary sheets. With respect to this second set of records, we are asked to believe petitioner's testimony to the effect that they do not mean what they say; that they were set up and maintained for the purpose of keeping a record of the cash taken, from time to time, from the safe-deposit box, but *67 in making such records the cash in question was scrambled, so to speak, with actual receipts from medical practice, so that the resulting totals would appear in their entirety to represent receipts from medical practice. It was petitioner's testimony that he made his entries as he did to prevent any employee from learning of his personal affairs and passing such information on to others, in that the two sets of monthly summary records, the high and the low, would "confuse them." Having examined the said records, we can readily agree that they would be confusing to anyone who saw and undertook to reconcile them, but we are equally certain that they would incite, not discourage, gossip, and we are also certain that petitioner's real reason for setting up the two sets of records and in the form he did was not the reason given.
With respect to the years 1945, 1946, and 1947, we are asked to disregard petitioner's plea of guilty in 1953 to the charge that he unlawfully and knowingly attempted to defeat and evade a large part of his income taxes for those years by filing false and fraudulent returns, and to believe his current testimony to the effect that he was not guilty of the said charges *68 of fraud, but entered the plea of guilty because of the continued pressure from the attorneys who were representing him and because of their assurances that his punishment, in the end, would amount to no more than a $ 2,500 fine.
It is unnecessary, we think, to undertake a discussion of all the conflicts between petitioner's present testimony and his prior representations, some under oath, to the revenue agents and other Government representatives, or to review various of his recitations and explanations, which were to us vague or equivocal, and others which we have found incredible. We listened to petitioner's testimony attentively and carefully. We observed his demeanor on the witness stand. We have since examined and reexamined the transcript of his testimony, the testimony of the other witnesses, and the documentary evidence of record, and we are convinced that his current testimony as to the *717 receipt, the recording, and his reporting of his income for the years herein does not represent the truth.
We are satisfied that Violet Marshall, from day to day, conscientiously reported to petitioner the fees received by her from patients in payment for services which petitioner had *69 rendered to them. We are also satisfied that petitioner did regularly make entries, twice each day, on his desk calendar, which purported to represent the total of his receipts for the day. But whether they did or did not correctly reflect his medical income, is of no particular importance, since the amounts reported on his returns as his receipts from medical practice were not taken from the desk calendar, but from the so-called low summary sheets, and, as heretofore noted, these sheets were not authentic and the amounts shown thereon as his receipts from medical practice were substantially less than his actual receipts for each and every year. The omissions in recording and reporting his income were accordingly the acts of the petitioner himself, and we are satisfied that they were deliberate and knowing. In short, we are convinced that for all of the years herein, petitioner set up and maintained false records with respect to his income from medical practice, that he did so for the purpose of using them in the preparation of his income tax returns, and based on the said records and with intent to evade tax, he fraudulently omitted substantial portions of his income from his *70 returns for the said years. We are satisfied that he pleaded guilty to the criminal charges for the years 1945, 1946, and 1947 because he was guilty and thought that by so pleading his punishment would be lighter. In our opinion, the evidence clearly and convincingly shows that for each of the years 1942, 1943, 1945, 1946, and 1947, petitioner's income tax return was false and fraudulent with intent to evade tax, 16 and we so hold. As a consequence, there is no limitation on the time within which the respondent may assess and collect any deficiencies which may be due and owing for the said years. Sec. 276 (a), I. R. C. 1939.
Where a taxpayer has failed to keep adequate books of account as required by the statute and the regulations thereunder, the Commissioner must determine or verify the income from the records or sources that are available, and his determination of income by analysis of bank deposits and expenditures has been approved in numerous cases. Goe v. Commissioner, 198 F. 2d 851, certiorari denied 344 U.S. 897">344 U.S. 897; Halle v. Commissioner, 175 F. 2d 500; *71 Hague Estate v. Commissioner, 132 F. 2d 775, certiorari denied 318 U.S. 787">318 U.S. 787, affirming 45 B. T. A. 104; Hoefle v. Commissioner, 114 F. 2d 713; Mauch v. Commissioner, 113 F. 2d 555; Herman J. Romer, 28 T. C. 1228; and Joseph Calafato, 42 B. T. A. 881. See also Carmack v. Commissioner, 183 F. 2d 1. It is, *718 of course, true that the existence of bank deposits, even though not explained or accounted for in a satisfactory manner, does not of itself show that the sums deposited were or were not income. But where the Commissioner, in the absence of adequate records, has determined that they were, the taxpayer has the burden of showing that the determination was wrong.
The facts show that for each of the taxable years the deposits to the petitioner's checking account with the First National Bank, the account in which deposits of his medical income were regularly made, were substantially in excess of his reported income, even after allowance for transfers from other bank accounts, deposits of loan proceeds, and the like. It was petitioner's own testimony that most, if not all, of his receipts from nonprofessional sources, such as proceeds from the sale of real estate, interest, rents, and dividends, *72 were deposited in his savings account with the American National Bank. According to the facts, however, the deposits in the checking account at the First National Bank are not accounted for or explained even to the extent of the reported income, since for each of the taxable years petitioner expended substantial portions of his income without deposit in any of his bank accounts, and taking into account only the expenditures admittedly so made, such expenditures included amounts paid out for such items as oil and gas, office uniforms, and petty office expenses; petitioner's personal out-of-pocket expenditures; most, if not all, of the $ 50 per week, or $ 2,600 a year, paid to Violet Marshall; and at least $ 25 per week, or $ 1,300 a year, admittedly given by petitioner to his wife for household and other personal expenses.
In explanation of the deposits, it was the testimony of the petitioner that he had been accumulating currency in his safe-deposit box for an indefinite number of years prior to January 1, 1942; that at and after World War I, he had made substantial purchases of Liberty Loan bonds; that in addition to other purchases of such bonds, he purchased in one block bonds of *73 the face amount of $ 50,000, borrowing $ 35,000 from the First National Bank to make the purchase; that all of the Liberty Loan bonds had been redeemed prior to 1942 and the proceeds therefrom placed in the box, accounting for the major portion of the currency accumulated therein; that though he had never counted the money and had no record of the amount, he "must" have had in excess of $ 100,000 in the box at January 1, 1942; and that during the taxable years, and pursuant to a United States bond-purchasing program started during World War II, the currency had been taken from the box, from time to time, by his wife and handed over to him and the major portion thereof had been deposited in his bank account and used in his bond-purchasing program.
To the extent that currency accumulated prior to 1942 did account for funds included in the said deposits and the respondent in his *719 deficiency determinations did not make allowance therefor, his determinations were in error.
Although we are unable to put any credence in any self-serving testimony of petitioner, we are of the opinion, based on the testimony of his wife, that he did have some substantial amount of currency in his safe-deposit *74 box at January 1, 1942, and we have so found. We are also of the view that his wife was telling the truth when she testified that she withdrew sums of money from the box periodically for the purpose of buying United States bonds and that by the end of 1947 the money in the box had been exhausted for such use and in payment of some amounts on the St. Anthony Street property.
The evidence shows, and we have found, that following World War I petitioner did acquire some quantity of Liberty Loan bonds of various issues, and it may well be that most, if not all, of the currency in the lockbox at January 1, 1942, was from the redemption of such bonds. Petitioner disavows having kept any record of the bonds purchased and, aside from broad generalities, did not profess to remember the extent thereof or the amounts received in redemption. In his signed statement to the Attorney General, in connection with the criminal charges, he stated that in the fall of 1920, and at the instigation of a vice president of the First National Bank, a loan of $ 35,000, evidenced by his note in that amount, was procured and used in the purchase of a single block of $ 50,000 face value of such bonds, and that *75 these were in addition to some $ 25,000 to $ 30,000 worth of bonds already acquired. He also stated that the bonds so owned and thereafter redeemed amounted to at least $ 65,000 face value. As to the execution of a note for $ 35,000 for the purpose stated, there is some corroboration in his wife's testimony. No one was called from the bank to produce records or give testimony with respect to the alleged loan, however, and it was petitioner's statement in the course of his testimony that the bank had no record thereof. And though petitioner did retain and produce two canceled notes made in 1920, one for $ 1,400 and another for $ 6,100, which do appear to have been given in connection with the purchase of Liberty Loan bonds, he professed to having no recollection of the fate of the said $ 35,000 note.
In contrast with the above, however, the evidence rather conclusively shows that at October 5, 1921, approximately 1 year later, the total face value of all Liberty Loan bonds then belonging to petitioner was $ 24,800, which with certain foreign and domestic bonds, some few shares of stock, small amounts of savings stamps, and two mortgages brought his holdings of securities as of that *76 date to $ 46,500. Upon production at the trial herein of this list of securities as at October 5, 1921, petitioner professed to remember that the claimed $ 35,000 loan and the purchase of bonds therewith was subsequent to October 5, 1921, and may have been in 1923. It was in May of 1923, however, *720 that he was regarding a mortgage on Mobile real estate as a more attractive investment than Liberty Loan bonds, since on May 15 of that year he sold $ 15,000 face value of the bonds he then owned to procure funds for buying such a mortgage.
Beyond the recollection that the making of the payments on the claimed $ 35,000 loan was quite difficult but were all made as soon as possible, petitioner's records and memory of payment were no better than with respect to the date of the loan itself. It is obvious, we think, that his medical practice would have had to have been the source of most of the funds for making the payments, and we do not understand petitioner to contend otherwise. 17 And certainly the amounts shown as petitioner's income tax payments supply no basis for the conclusion that in any of the indicated years any very substantial overplus of such income could have been available *77 for that purpose, a fact which becomes even more graphic when it is noted that on some undisclosed date in that period he was able to buy 4 $ 1,000 City of Tuscumbia Street Improvement bonds and at a cost of $ 5,000 to acquire the property on Government Street for his new home and by February of 1927 was able to complete the new home at a cost of $ 25,000 for construction and $ 2,000 for the architect's fee. And not without significance, we think, is the fact petitioner was from September 14, 1920, to February 1, 1922, in completing payment of the above $ 6,100 note.
Thereafter, in March of 1930, with money from some source, whether from Liberty Loan bonds or otherwise, he was able to pay $ 11,000 for a mortgage, secured by Mobile property. Also, even though he sustained losses, the extent of which he did not remember, during the depression, and after 1928 and through 1938, except *78 possibly for 1937, in respect of which there is no record, his medical receipts and other taxable income were purportedly such as to require the payment of income tax for only 4 years and in the aggregate amount of only $ 40.47, he was able to buy, with funds from some source, 5 $ 1,000 County of Mobile Road and Bridge bonds, a parcel of real estate on Wellsworth Street in Toulminville, another in Crichton, and two in Mobile. We also note that for 1939, 1940, and 1941, his medical income and other taxable income purportedly was such as to require payments of income tax of only $ 14.36 for 1939 and $ 59.25 for 1940, although he did pay $ 376.73 for 1941.
The facts show that various securities and other assets acquired by petitioner, beginning back in the 1920's, were still on hand at January 1, 1942, and could not have been the source of any of the currency in the box. The facts also show that losses were sustained on certain *721 investments, and it was petitioner's testimony that though he did not remember the extent thereof, he had sustained investment losses during the depression. Excluding the above items and taking into account the Liberty Loan bonds which we know from the evidence *79 he did acquire, the possibility that he may have had some other such bonds not definitely shown, and other possible or probable sources of currency as indicated by the evidence and as set out in our Findings of Fact, we are persuaded that petitioner did have in his lockbox as of January 1, 1942, as much as $ 20,000 in currency, and we have so found. When that is said, we have gone as far as the evidence, in our opinion, will justify. Cohan v. Commissioner, 39 F. 2d 540. Also, we are satisfied that this accumulated sum was taken from the box, from time to time, and over the years herein fairly evenly used in the purchase of United States bonds, most likely Series E bonds, and effect should be given thereto in the recomputation of the deficiencies herein.
Although directed to the fraud issue, and not to the correctness of the deficiency determinations, the petitioner, on brief, does argue that the amounts of deductible expenditures determined by the respondent as having been made from undeposited receipts were excessive. From the deficiency notice, it appears that the respondent, in arriving at net income, did not disallow and add back to income any part of the amounts petitioner had *80 claimed as deductions in his returns. After examination of the Greenwood books and the canceled checks, he did find that the deductible items which had been paid by check were, in the aggregate, substantially less than the total deductions claimed, and in his determination he allowed the claimed deductions to stand, but treated the difference between the two as amounts paid with undeposited receipts, in arriving at total unreported receipts. It is petitioner's contention that among the deductions claimed on the returns were various nondeductible items, such as living expenses and capital expenditures, which were paid by check, and as a consequence, that if respondent had disallowed and eliminated those deductions in arriving at the deductions paid from undeposited receipts, the amount of the deductions determined to have been so paid from undeposited receipts would have been considerably smaller and the total of both the undeposited receipts and the unreported income would have been smaller than respondent has determined. Granted that such would have been the case, this does not establish error in respondent's determination of net income and the deficiencies. The actual disallowance *81 of and elimination of capital items and living expenses from the deductions claimed would have required, by the method of computation followed by respondent, the adding back thereof to income in arriving at net income. Since they were not so disallowed and added back, they still absorb, in arriving at net income, the amounts of which petitioner complains. In this respect, petitioner has not shown error in the *722 deficiencies determined, and actually, it is not clear from his brief that he so claims.
Although there is no expressed concession of the depreciation issue, no argument is advanced on brief, and no evidence showing error in respondent's determination has been called to our attention. The respondent's determination is sustained.
As to the Gorgas Street property, the facts show that in 1934, when petitioner agreed to accept it on account from one of his patients, he had the property deeded to his wife, and when it was sold in 1944 his wife was made payee on the note given in payment of the purchase price. It is true that petitioner, at the trial herein, did make some reference to the property as if it were his property and proof as to ownership might have been more definite, *82 but we are persuaded by the evidence which we do have that his wife, not the petitioner, was the owner of the property, and the gain realized on the sale was her income. We so hold.
Our findings of fact supply adequate basis for making adjustments for items such as the two Alabama By-Products Corporation bonds which were redeemed, one in 1945 and the other in 1947, and discussion thereof should be unnecessary.
Most of what we have said above as to fraud in making the returns is applicable with respect to the additions to tax for fraud. The evidence convincingly shows that part of the deficiency for each of the taxable years was due to fraud with intent to evade tax, and we have so found. Sec. 293 (b), I. R. C. 1939.
Since, as discussed above, the filing of the unsigned return form for 1944, even though it did reflect items of income and deductions, was not the filing of a return within the meaning of the statute and the petitioner has failed to show that his failure to file a proper return for that year was due to reasonable cause, and not to willful neglect, respondent's determination of an addition to tax for that year, pursuant to section 291 (a) of the 1939 Code, is approved.
Decision *83 will be entered under Rule 50.
Footnotes
1. Presumably the amounts shown represent par or face value of the securities. There is no showing or indication that the amounts represent cost.↩
2. The stamped date of the final payment is quite faint, but could be some date in December of 1924. It is the testimony of the petitioner that the Tuscumbia bonds were redeemed on some date which he did not remember. He did not remember what was done with the proceeds.↩
3. Presumably Ernest was the M. E. Reaves whose mortgage for $ 2,510 was listed by petitioner in the securities owned by him at October 5, 1921.↩
4. The date of the mortgage was February 21, 1930, and it was the testimony of petitioner that he paid $ 11,000 therefor. The record does not show the payments which had been received under the mortgage up to the time of default, nor the amount of loss, if any, sustained by the petitioner on the mortgage. Neither is there any showing of the disposition of moneys collected on the mortgage or the ultimate disposition of the property itself.↩
5. Holders of 4th Liberty Loan bonds called for redemption on April 15, 1935, had the option during March 1935 to exchange the said bonds on a par for par basis for United States Treasury 2 7/8 per cent bonds due 1955-1960.↩
6. According to the revenue agent's report, these bonds were purchased October 5, 1934.↩
7. Both the petitioner and his wife denied ever having counted the currency in the box and disclaimed ever knowing the amount in currency in the box.↩
8. Presumably the ledger sheets used and the method followed with respect thereto were not parts of the McCaskey System. The sheets indicate that they were the product of the Visible Record Equipment Company of Chicago, Illinois, whereas the McCaskey summary sheets are shown to be the product of the McCaskey Register Company of Alliance, Ohio.↩
1. The sheet for December 1944 is missing from the low summary sheets and the $ 28,247.50 represents the total receipts from his practice as reported by petitioner in his return. For 1944 through the month of November, the total receipts as shown by the low summary sheets totaled $ 24,073.50.
For the months of March and April 1944, the entries on the low summary sheets, from which the amounts reported by petitioner in his 1944 return were taken, were duplicates in substantial part. In the column designated as the daily credit business, the amounts shown were exactly the same for all days in both months, except March 30 and April 30, and except for the fact that there was an entry for March 31, with no corresponding entry for April. No amounts were shown under daily credit business for the fifth and thirteenth days of either month. The 5th of March was a Sunday, whereas the 5th of April was on Wednesday. The 13th of March was on Monday and the 13th of April a Thursday. In the column headed daily cash business, the amounts entered were identical for 23 out of 30 days. And in the columns headed received on account and total daily cash receipts, the entries were identical for 21 of the 30 days for April and the first 30 days of March. For 3 of the 11 days for which the amounts were different, the difference was an even $ 100.
9. In the case of Otis Grayson, petitioner on April 12, 1946, received a check for $ 250 from Grayson's employer. Petitioner's fee was $ 150. From the remaining $ 100, he paid the balance on Grayson's hospital bill and the fees of his assistant in the operation and of the anesthetist and refunded $ 31.13 to Grayson, all of which was summarized in a letter from petitioner to Grayson under date of May 2, 1946. Grayson had been a patient of petitioner some years earlier, and the last entry on his ledger sheet indicated a payment of $ 20, leaving a balance of $ 34.80, under date of February 9, 1944. The next entry was a charge of $ 150 under date of May 30, 1946, which purported to cover services rendered to Grayson in May of 1946. Also under date of May 30, was an entry showing a balance of $ 150 owing and unpaid. There was no entry showing receipt of $ 250 on April 12, 1946, or any part thereof, and no entry was ever made on the ledger sheet showing that any part of the $ 150 was ever paid. According to petitioner's monthly summary sheets for 1946, his total receipts for April 12 were $ 84; for May 2, $ 55; and for May 30, $ 82. And from an analysis of the entries on the summary sheets for all of April and May of 1946, the entries for only 1 day, namely, April 15, when total daily cash receipts were shown as $ 236 and only $ 5 shown as having been received on accounts prior to April 1, would permit even a conjecture that the Otis Grayson fee of $ 150 was included.
1. Entered in column for "Received From Charge Accounts."
2. None.↩
10. It is not clear from the testimony of Violet Marshall whether in entering payments received from the bureau and the reporting thereof to petitioner, the amount recorded and reported was the net amount or the gross amount. There is accordingly no way of knowing, from the record here, whether or not the method of handling payments from the bureau resulted in a double deduction of commissions.
11. In the meantime, a loan had been obtained for roof repair on the house, which loan petitioner had had to pay, thereby increasing the amount owing to him on the property. It was petitioner's testimony that some years previously the nephew had advised him he would resume the payments owing by his father, that while the nephew was in the Navy during the war he had sent the payments to his mother, but the only payments he, petitioner, had received were in the form of two war bonds sent direct to him and on which he realized some $ 90 to $ 100. The respondent in his determination, however, determined that petitioner had received from his nephew as payments on the property, $ 158.55 in 1942, $ 300 in 1943, and $ 185 in 1944, all in addition to the $ 1,000 received in 1945. And in determining the disbursements which had been made by petitioner from his regular checking account, he determined that petitioner had paid on the roofing loan, $ 83 in 1942, $ 99.60 in 1943, and $ 74.84 in 1944.
12. Presumably the odd figures in the stated amounts represented interest.↩
13. By months, the deposits made during the years 1942 through 1947 ranged from a low of $ 1,193.63 in March of 1942, to a high of $ 6,817.13 in September of 1943. For 1942, the deposits ranged from the above-mentioned low of $ 1,193.63 for March, to a high of $ 2,762.91 for December. In 1943, the monthly deposits ranged from a low of $ 1,859.86 in May, to $ 6,817.13 in September. In 1944, the deposits ranged from $ 2,678.41 in January, to $ 6,592.94 in July. In 1945, from a low of $ 2,174.81 in November, to a high of $ 5,160.65 in July. In 1946, the deposits ranged from $ 1,788.25 in November, to $ 5,120.68 in January; and in 1947, from $ 1,660.05 in June, to $ 3,406.08 in December.
14. These records consist of ledger sheets of the bank recording loans to petitioner, his repayments, and the balance due subsequent to each transaction.↩
1. Many of the loans merely represent the replacement of old obligations by new obligations, and result in no increase in total debt.↩
2. The first entry in the bank records, introduced in evidence, is dated October 15, 1927, and merely records an outstanding total balance due from petitioner of $ 6,600.
3. From September 7, 1940, to September 10, 1940, petitioner had no outstanding balance due.↩
4. From July 3, 1941, to September 21, 1943, petitioner had no outstanding balance due.↩
5. From November 22, 1943, to January 17, 1946, petitioner had no outstanding balance due.↩
2. The depreciation claimed as an expense of petitioner's business includes $ 1,800 on medical and office equipment and $ 2,723 on real estate.↩
1. Information taken from second amended return for 1945.
15. At the trial herein, both petitioner and Violet Marshall testified that the amounts shown on the Greenwood books as receipts did not represent collections at all, that during the years 1942 through 1945 the delinquent accounts shown by the McCaskey cards were checked off alphabetically and collection letters were sent, and that the entries in the Greenwood books under the column "All Other Cash Receipts" and in the few instances, in the "Received From Charge Accounts" column represented the total of the amounts owing by the patients to whom collection letters had been written during the month indicated by the entry.
1. Record not available.↩
2. None.↩
1. These amounts were taken from the unsigned return for 1944.
1. Amended Feb. 11, 1947.↩
16. In so concluding, we have given no weight to any failure by petitioner to prove error in respondent's deficiency determinations.↩
17. It was petitioner's testimony that the interest from the bonds themselves, except for one-eighth of 1 per cent, was committed to the payment of interest on the purchase loans, and except possibly as the loans became paid up, the interest on the bonds being purchased would not be available to petitioner.↩