*209 Decisions will be entered under Rule 50.
Where over a period of years an intelligent taxpayer and businessman has received income in substantial amounts and has failed to report that income, and where no books or records were kept by him and no tenable explanation was offered for the failure to report the income received, the respondent has established by clear and convincing evidence that some part of the deficiencies is due to fraud with intent to evade tax within the meaning of
*751 These cases, consolidated for purposes of trial, involve deficiencies in Federal taxes and penalties for the years and in the amounts as follows:
| Arlette Coat Co. | |||||
| Deficiency | |||||
| Year | Docket | 50% penalty | |||
| No. | Declared | Excess | |||
| Income tax | value excess | profits | |||
| profits tax | tax | ||||
| 10/31/43 | 20161 | $ 4,386.64 | $ 32,347.28 | $ 20,956.69 | |
| 10/31/44 | 17305 | 7,343.07 | 71,886.15 | 41,355.47 | |
| Abraham Wolf. | |||
| Year | Docket No. | Income tax | 50% penalty |
| 1942 | 19822 | $ 5,738.01 | $ 2,869.01 |
| 1943 | 19822 | 11,974.76 | 1 15,139.96 |
| 1944 | 18778 | 14,302.60 | 16,274.86 |
By reason of the stipulated facts and the concessions made by respondent in the record and on brief, there are left for consideration no issues in dispute in respect to the Arlette Coat Co., Docket Nos. 17305 and 20161. The taxes for the several years will be settled as agreed to, and the respondent on brief concedes he has not sustained the fraud penalties.
*752 The remaining issues relate to Abraham Wolf's tax liabilities for the years 1942, 1943, and 1944, which were determined by respondent on a net worth basis, and to the assertion of the fraud penalty for those years.
The cases were submitted on stipulated facts and oral and documentary evidence adduced by the parties.
FINDINGS OF FACT.
Abraham Wolf, hereinafter referred to as the petitioner, is an individual, residing in New York, New York. The returns for the periods involved were filed with the collector of internal revenue for the third district of New York.
Petitioner Abraham Wolf *211 was employed by Wolf & Barse, Inc., from 1927 to October, 1938, as a salesman and fur buyer. During the remainder of 1938 through 1940, he received approximately $ 7,500 per year in salary from the Arlette Coat Co. The salaries received by Abraham Wolf during this period were as follows:
| 1927 | $ 1,040 |
| 1928 | 2,080 |
| 1929 | 3,500 |
| 1930 | 3,500 |
| 1931 | 4,000 |
| 1932 | 4,000 |
| 1933 | 10,000 |
| 1934 | 7,500 |
| 1935 | 7,500 |
| 1936 | 7,500 |
| 1937 | 7,500 |
| 1938 | 7,500 |
| 1939 | 7,500 |
| 1940 | 7,500 |
These amounts were received in cash.
In 1933 Abraham Wolf bought a one-sixth interest in Wolf & Barse, Inc., for about $ 5,000. In 1938 he sold his interest in Wolf & Barse, Inc., for approximately $ 17,000 and withdrew from that company. He then invested approximately $ 7,000 of that money in the Arlette Coat Co., later increasing this investment to $ 16,000. During the years in question, 1942, 1943, and 1944, petitioner was president and an 80 per cent shareholder of the Arlette Coat Co., which employed his services at a salary of about $ 9,800 in 1942, $ 10,400 in 1943, and $ 10,400 in 1944.
With respect to the taxable years immediately preceding the years here involved, petitioner paid total income taxes as follows: *212
| 1934 | $ 66.00 |
| 1935 | 30.04 |
| 1936 2 | |
| 1937 | 29.73 |
| 1938 | None |
| 1939 | 214.87 |
| 1940 | 55.90 |
| 1941 | 272.13 |
During the periods in question, petitioner Abraham Wolf kept and maintained no books of account with respect to his personal transactions.
*753 At the close of business December 31, 1941, petitioner Abraham Wolf and his wife had the following assets in the amounts stated:
| Cash on hand in North River Savings Bank | $ 318.94 |
| Equity in brokerage accounts in the name of Abraham Wolf | 3,534.38 |
| Equity in brokerage accounts in the name of Marion Wolf | 880.19 |
| Investment in Arlette Coat Co | 16,000.00 |
| Account due from Arlette Coat Co | 838.43 |
| Total | 21,571.94 |
At the close of business December 31, 1942, petitioner Abraham Wolf and his wife had the following assets in the amounts stated:
| Deposits in North River Savings Bank | $ 29.04 |
| Deposit in National Safety Bank & Trust Co | 425.75 |
| United States Savings bonds purchased at cost of | 1,350.00 |
| Equity in brokerage accounts in the name of Abraham Wolf | 3,520.58 |
| Equity in brokerage accounts in the name of Marion Wolf | 1,510.58 |
| Investment in Arlette Coat Co | 16,000.00 |
| Due from Arlette Coat Co | 5,339.02 |
| Total | 28,174.97 |
*213 During the year Abraham Wolf's living and personal expenses amounted to $ 6,300.
At the close of business December 31, 1943, petitioner Abraham Wolf and his wife had the following assets in the amounts stated:
| Deposits in Bank of Manhattan Co | $ 461.18 |
| Deposits in North River Savings Bank | 1,484.38 |
| Deposits in Bank of the Manhattan Co | 280.00 |
| Deposits in National Safety Bank & Trust Co | 2,002.31 |
| Deposits in Bank of Yorktown | 3,445.35 |
| Deposits in Harlem Savings Bank in the name of Marion Wolf | 1,803.37 |
| United States Savings Bonds on hand at cost | 8,831.25 |
| Investment in Walton Avenue Apartment House in name of Marion | |
| Wolf | 1,250.00 |
| Equity in brokerage accounts name of Abraham Wolf | 13,276.66 |
| Equity in brokerage accounts name of Marion Wolf | 7,686.65 |
| Investment in Arlette Coat Co | 16,000.00 |
| Due from Arlette Coat Co | 10,429.18 |
| Total | 66,950.33 |
During the year 1943 Abraham Wolf's living and personal expenses amounted to $ 10,000. The income of the wife, Marion Wolf, as reported on her return for the year was $ 1,386.41.
At the close of business December 31, 1944, petitioner Abraham Wolf and his wife had the following assets in the amounts stated:
| Deposits in Bank of the Manhattan Co | $ 721.44 |
| Deposits in North River Savings Bank | 7,032.10 |
| Deposits in Bank of the Manhattan Co | 1,281.09 |
| Deposits in Bank of Yorktown | 4,506.60 |
| Deposits in National Safety Bank & Trust Co | 16.74 |
| Deposits in Bank of Yorktown | 1,478.37 |
| Deposits in Bank of the Manhattan Co. in name of Marion Wolf | 1,695.19 |
| Deposits in Harlem Savings Bank in name of Marion Wolf | 3,921.28 |
| United States Savings Bonds on hand at cost | 13,443.75 |
| Investment in Walton Avenue Apartment House in name of Marion | |
| Wolf | 1,250.00 |
| Equity in brokerage accounts in name of Abraham Wolf | 26,450.30 |
| Equity in brokerage accounts in name of Marion Wolf | 36,669.04 |
| Due from Penreis Realty Co | 3,100.00 |
| Investment in Arlette Coat Co | 16,000.00 |
| Due from Arlette Coat Co | 7,996.20 |
| Total | 125,562.10 |
*214 *754 During the year 1944 Abraham Wolf's living and personal expenses amounted to $ 11,200. During the taxable year 1944 Abraham Wolf had long term capital gains of which 50 per cent should be given recognition in arriving at net income based upon the "net worth increase" method in determining income. The amount to be deducted is $ 174.31. For 1944 Marion Wolf filed a separate return and reported income in the amount of $ 246.54. During the taxable year 1944 Marion Wolf had long term capital gains of which 50 per cent should be given recognition in arriving at net income based upon the "net worth increase" method in determining income. The amount to be deducted is $ 175.76. Marion Wolf reported no income in 1942.
Marion Wolf had no property at the time of her marriage and her only source of income came from her husband, the petitioner.
Petitioner's net income, as shown on his returns for these years, was $ 7,688.05 in 1942, $ 7,675.30 in 1943, and $ 10,381.22 in 1944. For victory tax purposes petitioner in 1943 reported his net income as $ 9,065.43.
Petitioner filed his income tax return for 1942 with an understatement therein of taxable income received during the year*215 in the amount of $ 5,214.98; he filed an income and victory tax return for the year 1943 with an understatement therein of taxable income received during the year in the amount of $ 39,713.65 for ordinary tax, or the amount of $ 38,323.52 for victory tax; and he filed an income tax return for 1944 with an understatement therein of net taxable income received by him during the year of $ 58,833.94.
A part of the deficiency for each of the taxable years 1942, 1943, and 1944 was due to fraud, with intent to evade tax.
OPINION.
In the absence of adequate books of account, respondent determined petitioner's tax liability for the years 1942, *755 1943, and 1944 on what is commonly called a net worth basis. In our findings of fact, we have set forth the assets owned by petitioner at the close of business as of December 31, 1941, 1942, 1943, and 1944. These facts were agreed to by petitioner and entered the record in this case by way of a stipulation of the parties. There were also stipulated, and we have set forth as facts, certain other items such as the amount of Wolf's living and personal expenses during the several years in question. In the stipulation of facts as agreed to by*216 the parties, there appears the following reservation and statement: "Nothing contained in this stipulation shall preclude the petitioner, Abraham Wolf, from introducing evidence to show the existence of assets other than those stipulated herein at December 31, 1941 and the existence of liabilities at December 31, 1943 and 1944."
At the trial of this case, the only witness on behalf of petitioner to take the stand was Wolf himself. In support of his contention that he was the owner of assets as of December 31, 1941, in excess of those set forth in our findings, Wolf testified that he had a little box that he kept in a closet in his home and as of that date it contained approximately $ 50,000. It was testified during the trial by witnesses for the respondent, and also by Wolf personally, that during the long months when this case was under investigation and an effort was being made to work out the amount and nature of Wolf's assets, he never once mentioned to Government agents the presence of this little box of money, nor did petitioner's representatives, who were working with the Government agents, advise them of the presence of this box of money. It was when Wolf took the stand*217 at the trial of this case that for the first time mention appears of the ownership of this large sum of money. Wolf testified that his wife knew of the box, but no one else, but he did not call his wife to corroborate his testimony. The vagueness and noncommittal nature of his testimony and his manner of testifying on the stand did not impress us as to the truth of his statements and we are unwilling to find that he had this large sum of money in the little box as of December 31, 1941, or that he had any substantial assets in addition to those set forth in our findings. In further support of his contention that he did not have income in the amount that the increase in net worth would indicate, Wolf testified that he had borrowed from various friends sums of money, approximating some $ 9,000, and therefore such portion of his assets represented borrowed funds. We can not find, however, from the record with any definiteness when the alleged borrowings were made or when they were repaid. No corroborative evidence of these debts was offered and not one of the persons from whom Wolf claimed to have borrowed money was called to testify.
But even if we should be willing to accept Wolf's*218 testimony that *756 he had the little box with $ 50,000 in it and had borrowed these sums of money, there would still be over the several years approximately $ 38,000 unaccounted for. In so far as the deficiencies in tax are concerned, the burden of proof rested on the petitioner and, in our opinion, he has completely failed to carry it. The tax liability will, therefore, be determined in accordance with our findings of fact.
There remains for consideration the nature of the so-called 50 per cent fraud penalties. The burden rests on the respondent to prove by clear and convincing evidence that some part of the deficiencies is due to fraud, with intent to evade tax.
To establish fraud by direct proof of intention is seldom possible. Usually it must be gleaned from the several transactions in question and the conduct of the taxpayer relative thereto.
Where over a course of years an intelligent taxpayer and business man has received income in substantial amounts, as shown by this record, and has failed to report *219 that income, and where no books or records were kept by him and no tenable explanation was offered for the failure to report the income received, the burden of the respondent, in our judgment, is fully met. We think this conclusion is amply supported by authority. As stated by the Circuit Court of Appeals for the Sixth Circuit in
* * * Discrepancies of 100% and more between the real net income and the reported income for three successive years strongly evidence an intent to defraud the Government. The Board did not err in deciding that 50% penalties should be assessed.
The contention of the petitioner that the fraud penalty can not be applied to the entire deficiency where only part of the deficiency arises from fraud, or where part of the tax has been paid prior to the receipt of the deficiency notice, has been well settled adversely to this contention in prior decisions. See
The petitioner has alleged as error the failure of the Commissioner to apply the provisions of the Current Tax Payment Act of 1943. Since we have found that part of the deficiency in 1942 was due to fraud, with intent to evade taxes, the petitioner is not entitled to the benefit of the forgiveness feature of section 6 of that act.
Decisions will be entered under Rule 50.