The Globe, Inc. v. Commissioner

THE GLOBE, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. The Globe, Inc. v. Commissioner Docket No. 46791. United States Board of Tax Appeals 28 B.T.A. 119; 1933 BTA LEXIS 1175; May 17, 1933, Promulgated *1175 On its income tax returns, which were filed on the basis of cash receipts and disbursements, the petitioner deducted amounts as salaries which it neither paid nor credited in the taxable years. Held, the deductions should be disallowed and the fraud penalties affirmed. David E. Coffman, Esq., for the petitioner. J. M. Leinenkugel, Esq., and R. B. Cannon, Esq., for the respondent. LANSDON *119 The respondent has asserted deficiencies in income taxes and penalties for fraud as follows: Year Deficiency Fraud penalty — 1922 — $994.80 $497.40 — 1923 — 952.65 476.33 — 1924 — 1,132.28 566.14 — 1925 — 1,452.49 726.25 — 1926 — $1,681.41 $856.85 — 1927 — 1,724.49 862.24 — 1928 — 426.13 213.07 The deficiencies arise from the respondent's action in disallowing deductions in each of the taxable years for salaries claimed to have been paid to petitioner's officers and for other alleged business expenses. The penalties imposed are for alleged fraudulent understatements of income resulting from deductions as expenses of amounts which were never paid or incurred. FINDINGS OF FACT. The petitioner is a Texas corporation, organized*1176 on April 20, 1922, with its principal place of business at Ranger, Texas. During the taxable years it was engaged in the retail clothing business. On its income tax returns for the period ending December 31, 1922, and for the calendar year 1923, the petitioner deducted $6,600 and $7,200, respectively, as salaries paid to its three officers. On its income tax return for each of the years 1924 to 1928, inclusive, it deducted $9,600 as salary paid to its three officers. None of the amounts were, in fact, paid or credited to the officers nor were they charged as an expense on the books of the corporation. In addition to the above amounts the petitioner deducted as salaries paid in the years 1922 to 1928, inclusive, the respective amounts of $3,537.26, $5,676.28, $5,636.50, $6,464.92, $7,589.84, $8,824.65 and $10,440.60, which were actually paid and which the respondent has allowed as a proper deduction. Of such amounts approximately $35 per week was paid to each of petitioner's three officers. The petitioner paid *120 no income tax for the years 1922 to 1925, inclusive, but paid a tax of $56.91 for 1926, $89.98 for 1927 and $154.21 for 1928. The petitioner kept its books*1177 and rendered its income tax returns on the basis of cash receipts and disbursements. At the hearing the respondent conceded that the petitioner is entitled to a deduction for bad debts in each of the taxable years 1923 to 1928, inclusive, of $476.50, $567.60, $699.40, $669.75, $709.15 and $1,072.26, respectively. He concedes that it is also entitled to deductions for bad checks in 1926 and 1927 in the respective amounts of $913.34 and $523.14 and to a reduction of gross sales for 1927 in the amount of $3,297.43. OPINION. LANSDON: The respondent has alleged fraud and has submitted evidence sufficient in our opinion to prove it. The facts clearly show that the amounts in question were not paid or credited to the petitioner's officers during the taxable years and that no charges for such amounts were made on the books of the corporation. It is also clear that such amounts were deducted from income on the income tax returns filed by the petitioner for each of the taxable years. The petitioner's president and treasurer have sworn to returns which were false, for the purpose of evading income taxes. The deductions must be disallowed and the penalties approved. Cf. *1178 ; ; and . Decision will be entered under Rule 50.