Kehoe v. Commissioner

JOHN KEHOE AND WIFE, SARAH KEHOE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Kehoe v. Commissioner Docket No. 64609. United States Board of Tax Appeals 34 B.T.A. 59; 1936 BTA LEXIS 752; March 10, 1936, Promulgated *752 1. Petitioner did not report on his income tax return, for 1925, income received by him in that year from the sale of beer. Held, the return was false and fraudulent with intent to evade tax and the tax may be assessed at any time. 2. Petitioner entered into a final closing agreement with the Commissioner which was approved by the Acting Secretary of the Treasury, pursuant to section 1106(b) of the Revenue Act of 1926, without disclosing his income from the sales of beer. Held, such failure to disclose income was fraudulent and the closing agreement was properly set aside by the Commissioner. 3. The respondent having sustained the burden of proving that the return filed by the petitioner for 1925 was false and fraudulent with intent to evade tax and also of proving fraud in connection with the closing agreement, it is held that his determination of the deficiency is presumed to be correct and, there being no proof that the deficiency as determined is erroneous, his determination is sustained. 4. The deficiency being due to fraud with intent to evade tax, the 50 percent penalty as determined by the respondent is sustained. 5. The petitioner, Sarah Kehoe, *753 having pleaded the statute of limitations and the execution of a final closing agreement, and the respondent having failed to prove that a false or fraudulent return was filed by or for her and having admitted that none of the income herein was her income and that she was guilty of no fraud, malfeasance, or misrepresentation of a material fact in connection with the closing agreement, her claim of no deficiency is sustained. R. M. O'Hara, Esq., Leo W. White, Esq., and W. H. Gillespie, Esq., for the petitioners. M. B. Leming, Esq., and H. E. Lucas, Esq., for the respondent. TURNER *60 This proceeding involves a deficiency in income tax for the year 1925 in the amount of $208,043.36 and a fraud penalty in the amount of $108,803.61. The basis for the respondent's determination is that the petitioner, John Kehoe, was the operator of a brewery during the taxable year and that he failed to report in his income tax return substantial amounts of income received therefrom. It is contended on behalf of the petitioners that the statute of limitations against the assessment and collection of the deficiency in question had run prior to the mailing*754 by the respondent of his notice of determination and, too, that a final closing agreement was signed by the parties and approved by the Acting Secretary of the Treasury on January 27, 1928, in accordance with the provisions of section 1106(b) of the Revenue Act of 1926. The respondent has affirmatively alleged that the statute of limitations has not run for the reason that the return was false and fraudulent with intent to evade tax; and, further, that the closing agreement was fraudulent and of no force or effect. It is contended on behalf of the petitioner, Sarah Kehoe, sometimes referred to herein as Mrs. John Kehoe, that she received no income in 1925 from the operation of the brewery and was guilty of no fraud in connection with the closing agreement and for that reason an order of no deficiency should be entered as to her. On this point the respondent admits the facts but contends that the liability for the deficiency and penalty is joint and several. FINDINGS OF FACT. The petitioners are husband and wife, residing at 143 William Street, Pittston, Pennsylvania. On March 15, 1926, an income tax return for the year 1925 was filed by John Kehoe, in the name of "Mr. and*755 Mrs. John Kehoe" and stated on its face that it was a joint return of husband and wife. This return was executed and signed by John Kehoe only. One of the business activities of petitioner John Kehoe during the taxable year was that of manufacturing and selling beer. Mrs. John Kehoe did not participate in the beer business and the word "petitioner" *61 as hereinafter used refers to the petitioner, John Kehoe, unless otherwise specified. On February 9, 1924, Patrick F. McGowan of Wilkes-Barre, Pennsylvania, was employed by the petitioner to make application for and procure if possible a permit from the Federal Government for the operation of a brewery located at Edwardsville, Pennsylvania, and generally known as Bartels Brewery. The petitioner advised McGowan that William F. McHugh, who was present at the time, would be in charge of the brewery and that he (McGowan) should follow the instructions given by McHugh, who in turn would receive his instructions from the petitioner. The petitioner then instructed McGowan to go with McHugh to sign a lease for the brewery. The lease, which was signed on the same date by McGowan, with McHugh as a witness, was in McGowan's name. *756 Among other things it provided for a term of 10 months from March 1, 1924, and a consideration of $30,000, payable $3,000 monthly in advance. It was renewable at the option of the lessee for a period of two years, at $50,000 per year and certain other considerations. Later in February 1924, McGowan was called to petitioner's office where a conference was had between petitioner, McHugh, and McGowan concerning the brewery. Upon leaving, McGowan was instructed to take $6,000 in cash from petitioner's desk. A bank account was opened with the Peoples National Bank of Edwardsville, Pennsylvania. Of the amount so deposited, $3,000 was used as the initial payment on the rent due under the brewery lease, $2,750 was paid for materials on hand at the brewery at the time it was taken over, $150 was drawn by McGowan as his first month's salary, and the final $100 was also drawn by McGowan for his personal use at the direction of the petitioner. The option to renew the lease was exercised by notice signed by McGowan under date of October 30, 1924, and thereafter a supplemental agreement for lease of the blacksmith and carpenter shops and ice plant used in connection with the brewery was*757 entered into for the period from July 1, 1925, to December 31, 1926, at an additional rental of $6,000 per year, payable $500 monthly. The notice to renew and the supplemental lease were signed by McGowan pursuant to his employment by petitioner. On the same day the lease was signed, February 9, 1924, McGowan, acting under the instructions of petitioner, subscribed and swore to an application for a permit to operate a dealcoholizing plant for the production of cereal beverages under the provisions of the National Prohibition Act. A bond in the penal sum of $10,000 was given as required by the Prohibition Administration. The American Surety Co. of New York became surety on the bond. An indemnity agreement was required by the surety company where the principal in *62 the bond was not financially responsible in the amount of the bond. Such an agreement was entered into for the protection of the surety company by petitioner and his brother, Thomas Kehoe, as indemnitors. A permit was issued in McGowan's name on June 18, 1924, and was received by him on or about July 2, 1924. Petitioner did not wait for the permit to issue but began the manufacture of beer immediately*758 upon obtaining possession of the brewery under the lease of February 9, 1924. Two grades of beer were manufactured and sold. One grade was known as "near beer" while the other was commonly referred to as "high powered" beer. The high powered beer was put in barrels and shipped by rail. The near beer was bottled and sold locally, being hauled away from the brewery in wagons, trucks, and automobiles. The brewery started shipping high powered beer about March 24, 1924. The railroad shipping point was Kingston, Pennsylvania. In the latter part of 1924, prohibition agents confiscated four cars of beer from the brewery in the railroad yards at Kingston, Pennsylvania. This led to the revocation of the brewery permit. Previously, on July 28, 1924, McGowan, upon instructions from petitioner, had applied for a renewal of the brewery permit for the year 1925. This application was disapproved. Thereafter, a proceeding was brought in the District Court of the United States for the Middle District of Pennsylvania, No. 471, March term, 1925, in Equity. The action of the Federal authorities in revoking and canceling the permit and in refusing McGowan's application for a renewal was*759 reversed and they were directed to approve the application for renewal. Thereafter a permit dated July 24, 1925, was issued by the Federal Prohibition Commissioner upon the renewal application. The indemnity bond upon which the American Surety Co. of New York was surety and the indemnity agreement between the surety company and petitioner John Kehoe and Thomas Kehoe, under which the 1924 permit was issued, remained in force and effect for the year 1925. McGowan had nothing to do with the American Surety Co. making the bond and never paid any premiums thereon. On December 28, 1925, McGowan, at the direction of petitioner, executed an application for the renewal of the brewery permit for the year 1926. A bond in the amount of $25,000 was given in connection with the application. The American Surety Co. was surety and there was deposited with the bond, as collateral, a certificate of deposit in the amount of $25,000. The certificate of deposit was issued by the Miners Savings Bank of Pittston, Pennsylvania, upon the execution of a joint note for $25,000 in favor of the bank by petitioner John Kehoe and Thomas Kehoe. *63 In the latter part of 1926, petitioner John Kehoe*760 informed McGowan that they were about to lose the brewery permit and that one John Carroll was going to make application for a permit. Petitioner instructed McGowan that when everything was ready, McHugh would notify him and that he was to turn the plant over to Carroll. Subsequently McGowan turned the plant over to Carroll on instructions from McHugh for a consideration of $500 which McHugh instructed him to keep. Prior to February 28, 1927, McGowan was advised by petitioner that it was not possible to get a permit for Carroll. McGowan was instructed to sign a letter given by McHugh, notifying the prohibition department in Philadelphia to dispose of the beer on hand. This was done, the department disposing of 885 to 895 barrels of high powered beer. McGowan had no financial interest in the brewery nor in the contracts or leases taken in his name, but was employed and used by the petitioner to act as lessee of the brewery and apply for and hold permits under the National Prohibition Act for the operation thereof. The petitioner was the real party in interest. McGowan had no regular duties at the brewery, but usually came down during the forenoon to see if McHugh had instructions*761 for him. Occasionally he stopped by in the afternoon. The petitioner was at the brewery only a few times during its operations under the lease but often conferred with McGowan and McHugh at his office in Pittston. He instructed McGowan to keep his mouth shut and to talk to no one about the brewery, and at times sent him on trips to New York, Philadelphia, and Atlantic City to get him away from the brewery, McGowan occasionally being followed by revenue men. The petitioner furnished the money for McGowan's expenses on these trips. Petitioner paid McGowan a salary of $150 per month up to the time he received the first permit to operate the brewery and thereafter $200 per month. In September 1924, he caused an automobile to be purchased for McGowan and thereafter also caused an additional $125 per month to be paid to McGowan until the automobile was paid for. McGowan's salary was always paid in cash except for the period from February 9 to March 9, 1924. For that period the salary was paid by check on the Peoples National Bank of Edwardsville, Pennsylvania, against the account previously described. Sometimes McGowan's salary was paid by petitioner and sometimes by McHugh. In*762 December 1924, petitioner gave McGowan a Christmas present of $2,000 in cash. From time to time he also paid him additional sums of money. William F. McHugh was the manager of the brewery; Charles J. Locke was bookkeeper; Tom Kearns and Francis Kane were employed *64 in the office; thirty-five or forty men were employed in the racking room and other parts of the plant. Carl Bossert was brew master. Charles J. Locke was transferred in October 1924 to the brewery as bookkeeper, from similar employment with the Kehoe Electrical Construction Co., a business belonging to the petitioner and of which McHugh was manager. Prior to that employment he had installed the books for Indian Queen Bitters, another of the petitioner's enterprises. After transfer to the brewery he kept the books in the near beer department. These books reflected no charges for freight on the high powered beer shipped by rail, neither did they show receipts from the sale of such beer. All materials for the manufacture of near beer were put into an inventory and the books kept by Locke reflected all of the materials from the inventory account in every department. A bank account was opened May 16, 1924, under*763 McGowan's name in the West Side Trust Co., Kingston, Pennsylvania, for use in connection with the operation of the brewery. McGowan did not open the account, nor did he sign a signature card at the bank, nor write or sign any checks drawn on the account. Practically all, if not all, of the checks were drawn by Locke and signed in McGowan's name by William F. McHugh. This bank account disclosed deposits and withdrawals of approximately $30,000 in 1925. Locke made out income tax returns for the years 1924, 1925, and 1926, in accordance with the books which he kept. These returns were made out in the name of Patrick F. McGowan and purported to show the profit or loss of the Patrick F. McGowan Brewery, sometimes known as Bartels Brewery. The total receipts from the business of manufacturing cereal beverages shown on the return for 1925, in the amount of $97,713.19, were from sales of near beer. The return did not reflect any amount from the sale of high powered beer. It indicated a net loss of $82,325.97. Certain books were kept by Francis Kane in the back office at the brewery. Occasionally Kearns worked with Kane. Locke had nothing to do with these books and they were not*764 considered by him in making out the income tax returns of the brewery which McGowan signed. Harry Kenny was baggagemaster on a train of the Delaware, Lackawanna & Western Railroad running between Hoboken, New Jersey, and Kingston, Pennsylvania. In 1924, he purchased eight carloads of beer from petitioner for parties in Jersey City and Hoboken, who paid him a commission of from $50 to $100 per car. The beer was shipped by rail from the Kingston Railroad yard. This was the rail shipping point of Bartels Brewery which was being operated by petitioner under the McGowan lease. Kenny paid petitioner for *65 the beer in cash at about $2,100 per carload of 100 barrels. In making the first payment, Kenny tendered a check but was directed by petitioner to take it down to the Miners Bank in Pittston and have it cashed. Kenny cashed the check and took the money back to petitioner. The records of the Delaware, Lackawanna & Western Railroad Co. show that approximately 885 cars of cereal beverage were shipped by rail from Kingston, Pennsylvania, in 1925. A carload was approximately one hundred barrels. All of these cars were loaded at the McGowan brewery (Bartels Brewery) siding*765 at Edwardsville, Pennsylvania. The total freight prepaid at Kingston on these carload shipments was approximately $98,648.60. A large portion of the freight on the shipments was paid by William F. McHugh, Thomas Kehoe, or Thomas Kearns, some one of whom ordered the cars in which he said cereal beverage was shipped. The near beer sold for $6 per barrel. This was approximately a uniform price. High powered beer sold from $12 to $17 per barrel. It was carried on the brewery inventory at $12 per barrel. The income tax return filed on March 15, 1926, disclosed a total income tax liability of $194.56, which amount was paid. This return, which was signed and executed by petitioner John Kehoe, did not report any income from the McGowan brewery or from the sale of beer. After an investigation by a representative of the Bureau of Internal Revenue, the respondent, on October 20, 1927, sent to petitioners a notice of deficiency in tax for 1925, in the amount of $9,563.86. The deficiency was assessed and paid November 15, 1927. Thereafter, an agreement in writing was entered into between petitioners and the respondent, fixing the total liability for tax and interest for the year*766 1925 at $10,631.74, which was made up as follows: Amount returned $194.56 Deficiency 9,563.86 Interest 873.32 10,631.74 This agreement was approved by the Acting Secretary of the Treasury January 27, 1928. In June 1929, the respondent was informed that petitioner John Kehoe was the owner of the brewery business during the taxable year and on January 3, 1930, notified Kehoe in writing that it was necessary to make a further examination of his income tax liability for 1925. On February 24, 1932, the notice of deficiency from which this appeal is taken was sent to petitioner. On February 13, 1933, the Acting Secretary of the Treasury made an order declaring a revocation of the closing agreement previously mentioned. *66 The income tax return for the year 1925 was false and fraudulent with intent to evade tax, and the deficiency herein is likewise due to fraud with intent to evade tax. There was also a misrepresentation by the petitioner of material facts affecting the determination and assessment covered by the final closing agreement. Petitioner Sarah Kehoe derived no income from the operation of the McGowan brewery during the taxable year*767 and was not guilty of any fraud, malfeasance, or misrepresentation of fact materially affecting the determination or assessment made for the year 1925 on the basis of the return previously described herein, which was the subject matter of the agreement as to final determination and assessment of tax thereunder. OPINION. TURNER: It is admitted that the assessment and collection of the deficiency involved in this proceeding is barred by the provisions of section 277(a)(1) 1 of the Revenue Act of 1926, unless the return filed by the petitioners for the taxable year was false and fraudulent with intent to evade tax, in which case the tax may be assessed at any time, under the provisions of section 278(a) 2 of the same act. It is also admitted that the petitioners executed a final closing agreement in the form prescribed by section 1106(b) 3 of the Revenue Act of 1926 and that the assessment and collection of the deficiency here in question is prohibited by that agreement, unless there was "fraud or malfeasance or misrepresentation of fact materially affecting the determination and assessment" of the tax covered by the agreement. *768 In support of his allegations that the income tax return for the calendar year 1925 was false and fraudulent and the further allegation that petitioner John Kehoe was guilty of fraud, malfeasance, or misrepresentation of facts materially affecting the determination and assessment which formed the basis for the said final closing agreement, the respondent presented in evidence numerous documents and *67 the oral testimomy of a great number of witnesses. The petitioners presented no evidence or proof of any kind. Petitioner Sarah Kehoe rested her case on a motion for no deficiency on the respondent's admission that she derived no income from the brewery business and the further admission that she was not guilty of fraud in connection with the assessment and collection of the tax thereon. Petitioner John Kehoe asked for a finding of no deficiency upon the ground that the respondent had failed to sustain the burden of showing fraud, malfeasance, or misrepresentation of fact in connection with the final closing agreement, and, further, that he had not sustained the burden of showing that the original return for 1925 was false or fraudulent. The basic question in this case*769 is one of fact and is whether or not petitioner John Kehoe was the real party in interest in the operation of the brewery at Kingston, Pennsylvania, commonly known as Bartels Brewery, but often referred to during the period here in question as the Patrick F. McGowan Brewery. It is strenuously argued that the respondent has failed to show any connection between petitioner John Kehoe and the operation of the brewery business, except through the testimony of Patrick F. McGowan, whose credibility is seriously questioned. On the other hand, the respondent has made much of the fact that petitioner John Kehoe was present throughout the hearing and failed to take the stand to refute the allegations made against him and to deny in any way whatsoever the statements made by the various witnesses which tended to show that he was the operator of the brewery. Regardless of whether or not McGowan's testimony, standing alone, would be considered sufficient to sustain the respondent's allegations, and regardless of any inferences that might be drawn from the failure of the petitioner to take the stand or to present other evidence, the facts, circumstances, and happenings described and disclosed*770 by documentary proof and the testimony of witnesses convince us that the petitioner was the real party in interest in the operation of the brewery during the taxable year. Furthermore, we had the opportunity to observe the witness McGowan on the stand, and we have carefully examined the transcript of his testimony, and we believe that McGowan told us the truth. Many of the specific events and happenings which make up the entire picture have been set forth in our findings of fact. Others might be described, such as the conference held in the office of Evan C. Jones, on the night in December 1924, just prior to the hearing on the revocation proceedings, when McHugh, the known manager of the brewery, introduced John Kehoe as his boss to the witness Mullaghy, yardmaster for the Lackawanna Railroad, who had been called in for a discussion of the circumstances surrounding the seizure of the *68 four cars of beer in the railroad yards. However, there is no doubt in our minds that John Kehoe owned the brewery business, and a further recital of events or review of evidence to show his connection therewith would serve no useful purpose. Further, the petitioner argues in substance*771 that there is no direct evidence of the actual payment to him of money during he taxable year from the brewery or any other source and that, regardless of the facts and circumstances that may be disclosed by the record, the respondent's charge of fraud fails. It is, of course, elementary that actual physical payment of money to the petitioner is not essential to a determination against him. We have found as a fact that the brewery business was his, and that McHugh, McGowan, and others were his employees. Any of the proceeds of the brewery business coming into their hands would be chargeable to the petitioner, regardless of whether he ever had actual physical possession of the money. It should also be kept in mind that the operation of the brewery at the time and in the manner described in this proceeding was extremely hazardous. The margin of profit was necessarily great, and success was largely dependent upon the ability of those so engaged to make no direct record in writing or otherwise of the things done and the transactions completed. It does not follow, however, that the absence of the usual written records and customary books of account showing the receipt of income means*772 the absence of other proof equally as positive and convincing as any written record that might be presented. That such is the situation here is clearly shown by a resume of some of the known facts. We know that the near beer business was a front for the under-cover manufacture and sale of the so-called high powered beer; that the records kept at the brewery covered only the near beer business, the proceeds of which were not sufficient to keep the brewery open; that the freight on the high powered beer shipped by rail was in excess of the entire sales shown on the brewery books; that the employees were paid a cash bonus of $8 weekly, which was furnished by McHugh, and was not reflected in the books of account; that, in spite of a loss of $82,325.97, reflected by the brewery books for the year 1925, on a gross business of $97,713.19, the petitioner was actively engaged in securing and did secure a renewal of the permit for operations in 1926; that on such a business only approximately $30,000 is disclosed in the bank records during the taxable year; that with the exception of one month in 1924, McGowan's salary for the years 1924, 1925, 1926, and 1927 was paid in cash either by the*773 petitioner or McHugh; that Harry Kenny paid cash to the petitioner for eight carloads of beer bought by him in 1924; that the price of high powered beer, in 1925, ranged from $12 to $17 per barrel; that approximately 885 carloads of such beer were *69 shipped from the brewery over the Delaware, Lackawanna & Western Railroad Co. lines in 1925; that freight on these shipments in the approximate amount of $98,648.60 was paid in cash by McHugh, Kearns, and Tom Kehoe; that a carload of beer was approximately one hundred barrels, and by applying the minimum price of $12 per barrel, these shipments represented sales aggregating at least $1,062,000; and, further, we know that a beer broker by the name of William V. Loughran, of Scranton, Pennsylvania, often during the taxable year sent envelopes which at times were known to contain money to the petitioner's office in Pittston. The messenger was told to deliver them to McHugh, but on one occasion they were accepted by Tom Kehoe, the petitioner's brother. These and other facts previously stated in our findings lead us to the conclusion that large amounts of income were received in cash by or for the petitioner from the operation of*774 the brewery in 1925, and that the receipt of this income has never been reported nor disclosed by him. To hold otherwise would be to ignore the obvious. He not only failed to disclose and report in his return the income from the operation of the brewery, but has at all times denied and still denies any connection whatever with its operation. We accordingly hold that the return of petitioner John Kehoe for 1925, was false and fraudulent with intent to evade tax and that under the provisions of section 278(a), supra, the tax may be assessed at any time. We further hold that the facts disclosed definitely show fraud, malfeasance, and misrepresentation of facts materially affecting the determination and assessment of the tax covered by the final closing agreement and that the respondent, acting with the approval of the Secretary of the Treasury, was justified in going behind the said closing agreement in making the determination which forms the basis of this proceeding. . We have found that the petitioner, with intent to evade tax, failed to report in his return income received from the operation of the brewery and on the record*775 it is apparent that he made no disclosure of such income at the time of executing the closing agreement, nor at any other time. While the filing of a return and the signing of a closing agreement are separate and distinct and fraud in one does not necessarily indicate fraud in the other, the same or a continuing act, that of wilfully concealing income, may be, and on the facts in this case, is a sufficient basis for finding that the return was fraudulent with intent to evade tax and further that there was a misrepresentation of a material fact in the execution of the closing agreement. Cf. , and . *70 The petitioner contends that the respondent has not only the burden of proving fraud in order to overcome the defense that the period within which the tax may be assessed has expired, but also has the burden of proving the amount of the tax. Or, in other words, it is the petitioner's contention that in cases where the respondent charges fraud and the burden of showing fraud is placed upon him by the statute, his determination of a deficiency is not prima facie correct*776 as in cases where fraud is not involved. In support of this contention the petitioner relies upon ; ; and . These cases are not in point. In the first case cited, it does not appear that fraud was pleaded and the court held that the petitioner had presented plausible testimony showing error in the determination of the deficiency and that this testimony had not been contradicted except by inference. In the two remaining cases the respondent failed to sustain the burden of proving fraud and there was no occasion to consider and determine the question here raised by the petitioner. In this case the respondent has sustained that burden. While it is usually true that in order to show that a return is false and fraudulent with intent to evade tax, it is necessary to prove the receipt of income not reported by the taxpayer in such return, but, once it is shown that the return is false and fraudulent, the burden of proving the respondent erred in determining the deficiency is on the petitioner. *777 The issues are clearly separate. . Here the petitioner introduced no evidence to show that the amount of the deficiency as determined by the respondent is erroneous, but elected to stand on the fraud issue alone. Having resolved the fraud issue against the petitioner, the respondent is affirmed on this issue. Furthermore, we are of the opinion that, even if the rule were as contended for by the petitioner, the determination of the respondent should be sustained. The evidence clearly indicates gross receipts from the operation of the brewery in an amount much greater than the amount upon which the computation of the deficiency here under consideration was based, and we do not understand that the respondent, even under petitioner's theory, should also be required to prove his deductions for him. We have found as a fact that the deficiency herein was due to fraud with intent to evade tax, and on that finding the penalty determined by the respondent attaches as provided by statute. Sec. 275(b), Revenue Act of 1926. The final issue relates to the liability of Sarah Kehoe. No proof was offered by either party and this issue*778 was submitted on a motion *71 for a finding of no deficiency, the basis for the motion being the admissions contained in respondent's answer. The notice of determination of deficiency was addressed to "Mr. and Mrs. John Kehoe." The petition herein is a joint petition and designates John Kehoe and Mrs. John Kehoe as the petitioners. It was signed and verified by each of them. In paragraph 1 thereof the petitioners describe themselves as individuals, husband and wife, residing at 143 William Street, Pittston, Pennsylvania, and state that they filed a joint return of their income for the year 1925. In paragraph 5(a) of the petition, which conatains the allegations of fact as to the return, it is alleged that on or about March 15, $1926, the petitioners, being husband and wife, duly filed a joint return of their income on form 1040, provided therefor by the Bureau of Internal Revenue. They also plead the statute of limitations and the execution of a final closing agreement. The respondent, in paragraph 1 of his answer, admits that the petitioners are individuals, residing at 143 William Street, Pittston, Pennsylvania, and that they are husband and wife, but in paragraph*779 5 denies that they filed a joint return of their income, and in connection with this denial, alleges that on March 15, 1926, petitioner John Kehoe filed an income tax return, whereon he answered in the affirmative the question, "Is this a joint return of husband and wife?" and alleges further that the said return was executed and signed by John Kehoe and by no other person. Further, in the answer, after admitting that none of the income involved in this proceeding was income to Sarah Kehoe, and that she was guilty of no fraud, malfeasance, or misrepresentation of a material fact in connection with the closing agreement, the respondent concludes with a prayer for a determination that the final closing agreement was induced by the fraud and deceit of John Kehoe, that the return of John Kehoe was false and fraudulent, and that the assessment of the tax against him might be made at any time. The answer asks for no determination as to Sarah Kehoe. In their reply the petitioners admit the respondent's allegation that John Kehoe filed an income tax return for the calendar year 1925, whereon he answered in the affirmative the question, "Is this a joint return of husband and wife?" and*780 further admit that the said return was executed by John Kehoe and no other person. Although the nature of the return filed by John Kehoe was put in issue by the respondent's denial that it was a joint return, no proof was submitted, by either party, other than the return itself, and it disclosed nothing that was not already covered by the pleadings. Obviously the pleadings do not show that the said return was or was not the joint return of the petitioners. *72 On this state of the record petitioner Sarah Kehoe asks for a finding of no deficiency, while the respondent argues for a determination of the full deficiency and penalty against her, and as a basis for this argument assumes the filing of a joint return by the petitioners, John Kehoe and Sarah Kehoe, contending on this assumption that there is joint and several liability. Regardless of whether there is joint and several liability where a joint return by husband and wife is filed and a determination based on such a return is made, the respondent by his answer has precluded such an argument in this case. The assumption of a joint return is directly contrary to the allegations contained in the answer, which has not*781 been amended and with reference to which no request to amend has been made. It thus appears that the respondent has not proved the filing of a false or fraudulent return except in the case of a return which he alleges was executed and signed by John Kehoe alone and which he denies was a joint return. The record does not show the filing of a false or fraudulent return by or for the petitioner, Sarah Kehoe. On these facts, supplemented by the admission that none of the income herein involved was the income of Sarah Kehoe and the further fact that she was guilty of no fraud or malfeasance in connection with the closing agreement signed by her, her claim of no deficiency is sustained. As to the petitioner, John Kehoe, decision will be entered for the respondent. As to the petitioner, Sarah Kehoe, decision will be entered for the petitioner. Footnotes 1. SEC. 277. (a) Except as provided in section 278 - (1) The amount of income taxes imposed by this Act shall be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. ↩ 2. SEC. 278. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. ↩ 3. SEC. 1106. (b) If after a determination and assessment in any case the taxpayer has paid in whole any tax or penalty, or accepted any abatement, credit, or refund based on such determination and assessment, and an agreement is made in writing between the taxpayer and the Commissioner, with the approval of the Secretary, that such determination and assessment shall be final and conclusive, then (except upon a showing of fraud or malfeasance or misrepresentation of fact materially affecting the determination or assessment thus made) (1) the case shall not be reopened or the determination and assessment modified by any officer, employee, or agent of the United States, and (2) no suit, action, or proceeding to annul, modify, or set aside such determination or assessment shall be entertained by any court of the United States. ↩