*52 Decisions will be entered for the respondent.
1. Inventory. -- The Commissioner was justified in using the taxpayer's own suggested theory of evaluating opening cattle inventory for 1944 in the absence of books, records, or other evidence.
2. Ordinary Income -- Capital Gain -- Breeding Herd. -- The taxpayer failed to establish that any cattle sold in 1945, 1947, and 1948 were being held as breeding stock, and all the gain from cattle sales in those years was ordinary income.
3. Unpaid Income. -- A cash basis taxpayer received taxable income from a sheep venture in 1948 and 1949.
4. False and Fraudulent Returns -- Statute of Limitations -- Sec. 276 (a). -- The statute of limitations is no bar to the assessment of a deficiency for 1944 as the taxpayer filed a false and fraudulent return with intent to evade taxes for that year. Sec. 276 (a).
5. Fraud Additions -- Sec. 293 (b). -- The Commissioner properly determined additions to the tax for the years 1944 through 1948 where a part of the deficiency in each year was due to fraud with intent to evade taxes.
*170 The Commissioner determined income tax deficiencies and additions for fraud, as follows:
| Additions | |||
| Taxpayer | Year | Deficiency | under |
| sec. 293 (b) | |||
| M. D. Eagle, Jr., and Geraldine Eagle | 1944 | $ 4,744.67 | $ 2,372.34 |
| 1945 | 4,335.12 | 2,167.56 | |
| 1946 | 10,964.15 | 5,308.53 | |
| 1948 | 7,483.62 | 3,741.81 | |
| Marvin D. Eagle, Jr | 1947 | 11,509.59 | 5,889.29 |
| Geraldine Eagle | 1947 | 11,509.58 |
The issues for decision are:
1. Whether the Commissioner erred in determining the amount of the deficiencies for 1944, 1945, 1947, and 1948 by
A. understating the opening cattle inventory for 1944,
B. failing to recognize gain on sales of cattle in 1945, 1947, and 1948 as capital gains, and
C. including in income the unpaid profits from a sheep venture in 1948 and 1949;
2. *54 Whether the petitioners filed a false and fraudulent return in 1944 with the intent to evade taxes so that the statute of limitations is not a bar to the assessment of a deficiency for that year; and
3. Whether additions to the tax for fraud are due under section 293 (b) for the years 1944 through 1948.
FINDINGS OF FACT.
The petitioners, husband and wife, filed their income tax returns for the taxable years with the collector of internal revenue for the second district of Texas. They filed separate returns on a community property basis for 1947 and joint returns for the other years.
Marvin Eagle, during the taxable years, was engaged in the business of buying and selling cattle, and he also raised and sold a few cattle and some grain. He maintained no books or records from which his income could be determined or from which his income tax returns could be properly prepared.
The Commissioner, in determining the deficiencies, computed Marvin's income from bank deposit slips and statements pertaining to Marvin's checking account, the bank's customer liability ledgers which showed Marvin's various loans and payments thereon, and by verifying Marvin's sales and purchases with the persons*55 with whom he dealt.
Marvin financed his purchases of cattle through loan accounts at two banks. He applied a substantial part of his receipts directly to the payment of the loans. Those receipts never went through his checking accounts.
*171 The petitioners' income tax returns for the taxable years were prepared by a lawyer. The information given to the lawyer by Marvin for the purpose of the returns consisted of bank statements, canceled checks, deposit slips, and such other information as the lawyer requested. The lawyer would present the returns to the taxpayers for signatures along with checks for payments of the tax shown on the returns. Marvin never questioned the adequacy of the returns at the time he signed them.
Sales of cattle and grain made by Marvin during the taxable years in the following total amounts were not disclosed on the petitioners' returns:
| 1944 | $ 25,530.67 |
| 1945 | 60,718.86 |
| 1946 | 42,011.64 |
| 1947 | 49,735.23 |
| 1948 | 53,761.36 |
The following table shows the income reported by the petitioners on their returns and additional income received by them during the taxable years which was not reported:
| Year | Reported | Unreported |
| 1944 | $ 3,002.60 | $ 14,078.74 |
| 1945 | 2,264.17 | 13,481.18 |
| 1946 | 4,401.80 | 25,257.01 |
| 1947 | 9,500.35 | 48,936.28 |
| 1948 | (13,919.29) | 39,892.80 |
*56 Marvin received but failed to report income from such items as agricultural adjustment program payments, sales of feed and seed, pasture rent, machinery hire, dividends, recovery of expenses previously deducted, and sales of capital assets in the following total amounts:
| Year | Amount |
| 1944 | $ 1,654.45 |
| 1945 | 1,351.73 |
| 1946 | 2,035.23 |
| 1947 | 6,479.40 |
| 1948 | 6,094.91 |
Marvin had no records to show his cattle inventory as of December 31, 1943. The Commissioner, in determining the deficiency, used $ 9,061.78 as the opening inventory for the calendar year 1944. He used that figure because it was the amount of Marvin's outstanding notes at the bank on December 31, 1943, and Marvin told the revenue agent in this connection that the amount of his notes at the bank would generally indicate the cost of cattle on hand. The evidence fails to show that the opening inventory figure for 1944 should be any larger amount.
Marvin sold in March and April 1945, for $ 2,604.42, 36 head of cattle which he had raised. Ages of those animals are not shown in *172 the record. He made a deposit of $ 1,200 on September 16, 1946, for the purchase of some heifers, and between October 16 and 18, 1946, *57 he actually purchased 286 heifers at a cost of $ 20,964.20. He sold 286 head of cattle for $ 32,352.64 on March 22, 1947. He was forced to make that sale due to drought conditions. He sold 174 head of cattle on October 21, 1948, for $ 23,437.82. He had bought those cattle between October 27 and November 1, 1947, as part of a group of 546 heifers and steers, for which he paid the total amount of $ 45,303.72. None of the animals involved in the sales mentioned in this paragraph were held primarily for breeding purposes and all were held primarily for sale to customers in the ordinary course of Marvin's business.
Marvin and A. C. Grandbush signed a memorandum agreement in June 1948 under which Marvin was to furnish sheep and Grandbush was to pasture and sell the sheep as a joint venture. Marvin furnished sheep in June 1948 valued at $ 13,390.70 and during 1948 and 1949 invested a total of $ 35,000 in the venture. A profit of $ 4,455.53 was realized on the venture in 1948. The Commissioner determined that Marvin received from that venture income of $ 2,152.41 in 1948 and $ 1,346.37 in 1949. The record does not show that Marvin ever sustained any loss from the joint venture and*58 it does not show that any debt due him from Grandbush as a result of the venture became worthless in 1949.
The joint return filed by the petitioners for 1944 was false and fraudulent with intent to evade tax.
A part of each deficiency determined by the Commissioner and involved herein was due to fraud with intent to evade tax.
All facts stipulated are incorporated herein by this reference.
OPINION.
Marvin concedes that he received large amounts of income in each year which he did not report and contests the deficiencies in only three respects. First, it is contended on Marvin's behalf that the opening inventory for 1944 was in excess of the $ 9,061.78 used by the Commissioner in determining the deficiency for that year. Marvin has not testified that the inventory in question was larger than the amount used by the Commissioner, determined as a result of information theretofore given by Marvin to representatives of the Commissioner. There is no worthwhile evidence in the record to show that Marvin is entitled to a larger opening inventory for 1944. No one who knew anything about his inventory at that time has testified on the subject. The argument is advanced on Marvin's behalf*59 that the banks were not allowed to lend on cattle more than a certain percentage of the cost, and therefore the cost of the *173 cattle must have been substantially in excess of the amount of notes outstanding. Such an argument is not evidence, and the record as a whole does not justify a finding that the opening inventory for 1944 was any larger than the amount determined by the Commissioner.
The next attack upon the amount of the deficiencies is on the ground that some of the sales made by Marvin during the years 1945, 1947, and 1948 were of breeding cattle and the resulting gains were long-term capital gains of which only one-half is includible in computing taxable income. See sec. 117 (j) (1). The petitioners have the burden of proving that the animals sold were held for more than 6 months and were held primarily for breeding purposes and not for sale in the ordinary course of Marvin's business. Marvin testified that he had about 25 cows and 2 bulls which constituted a breeding herd during the taxable years, but there is no claim that he sold any of those animals. He sold 36 animals in March and April 1945 for $ 2,604.42. They consisted of cows and bulls which Marvin*60 had raised. But the evidence does not show how long any of those animals was held by Marvin or that they were held primarily for breeding purposes. He sold 286 head of cattle on March 22, 1947. He had bought 286 heifers between October 16 and October 18, 1946, and if they were the cattle sold on March 22, 1947, he obviously did not hold them for as much as 6 months. True, he made a deposit on September 16, 1946, in connection with this purchase, but the evidence does not show that he thereby acquired title to any of the animals. Furthermore, evidence that he held the animals for breeding purposes would be necessary, and his statement, that he was "forced to sell breeding stock," standing alone is not sufficient for this purpose. He purchased 546 heifers and steers between October 27 and November 1, 1947, and from that lot he sold 174 animals on October 21, 1948. He testified that he bought those heifers to stock a breeding herd at his Colorado ranch, but there is no other evidence in the case from which it might be determined that the animals sold in 1948 were held primarily for breeding purposes and not primarily for sale to customers in the ordinary course of Marvin's trade*61 or business. It is noted that an undisclosed number of those animals were steers, which could form no part of a breeding herd. The testimony of an accountant with no personal knowledge of the facts is not reliable or helpful. The evidence as a whole does not justify a finding that any of the animals involved in any of the contested sales of the taxable years represented capital assets held for more than 6 months.
The third and final attack made upon the amounts of the deficiencies as determined by the Commissioner is that the Commissioner erred in including in income for 1948 and 1949 any amounts representing income from the joint venture with Grandbush. Marvin claims that he did not get his investment back and obviously did not realize any *174 gain from the venture. The evidence on this point fails to sustain any part of this contention. Proceeds of the venture in large amounts must have been paid to Marvin, but he has made no effort to show how much. Grandbush testified that he was not certain that any money was owing to Marvin at the close of the transaction. Incidentally, it might be pointed out if any money was owing by Grandbush to Marvin there is no issue raised*62 in this proceeding about such an amount constituting a bad debt in any taxable year and the evidence does not show that any such debt became worthless during the taxable years. Marvin has failed in his burden of proof on all three issues and the deficiencies must stand in the amounts determined by the Commissioner.
It is conceded that the assessment and collection of the deficiency and addition to the tax for 1944 are barred by the statute of limitations unless the joint return filed for that year was false and fraudulent with intent to evade tax. See sec. 276 (a). Likewise, the additions to the tax cannot stand unless it appears that a part of each deficiency was due to fraud with intent to evade tax. Sec. 293 (b). Here the Commissioner has the burden of proof and he must prove fraud in each instance by clear and convincing evidence. The parties have stipulated that sales of cattle and grain made by Marvin during the taxable years, involving large amounts and resulting in large profits, were not disclosed on the petitioners' returns, which are in evidence. Likewise, the amount of income reported and unreported for each year has been stipulated and some detail of portions thereof*63 was also stipulated. Marvin attempts to avoid the responsibility for failing to report income in large amounts, which he now concedes should have been reported, by blaming it on his lawyer. The evidence as a whole, however, justifies the conclusions that Marvin did not supply his lawyer with sufficient information to enable the latter to make a proper return of his income for any year here in question and, further, that he failed to give the lawyer any information in regard to large amounts of his income. . Marvin was personally responsible for the omissions. . The admitted understatements set forth in the Findings of Fact, large in proportion to the amounts of income reported and consistent over the entire period of 5 years, support the Commissioner's determinations of fraud. Marvin's failure to keep books and records of his business transactions as required by law can be considered in this connection. The evidence shows that Marvin expended large amounts of cash in the purchase of various properties during the taxable years, amounts far in excess of the total*64 net income which he was reporting. That cash was not borrowed, and its only apparent source was out of the income from his business transactions. . Marvin, despite limited attendance at school, was in no *175 sense ignorant but had ample intelligence to realize fully that the income which he was reporting on his returns was only a small part of that which he should have reported in each taxable year. The evidence as a whole, in clear and convincing fashion, shows a pattern of deliberate omission of the larger part of his income for each taxable year. . Findings have been made, after consideration of the entire record, that the return for 1944 was false and fraudulent with intent to evade tax and that a part of each deficiency for each year was due to fraud with intent to evade tax.
Decisions will be entered for the respondent.