Opinion
Docket Nos. 8840 8841 8842.
1949-11-30
ESTATE OF JOSEPH NITTO, A MINOR, ANNETTE CARAVETTA NITTO, GUARDIAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ESTATE OF FRANK NITTO, DECEASED, ANNETTE CARAVETTA NITTO, ADMINISTRATRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ANNETTE CARAVETTA NITTO, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
James A. O'Callaghan, Esq., for the petitioners. William Schwerdtfeger, Esq., and John D. Kiley, Esq., for the respondent.
1. Held, under the facts, decedent received unreported taxable income in the taxable years in amounts determined herein.
2. Held, upon failure of proof, respondent did not err in determining that certain dividends were received by decedent in 1939, rather than in 1938.
3. Held, gain realized from the sale of a partnership interest was capital gain.
4. Held, respondent did not err in determining fraud penalties.
5. Held, respondent failed to prove transferee liability stemming from gift of a joint interest in bonds to minor son. James A. O'Callaghan, Esq., for the petitioners. William Schwerdtfeger, Esq., and John D. Kiley, Esq., for the respondent.
In these consolidated proceedings, respondent determined deficiencies in income tax and penalties for the years 1935 to 1940, inclusive.
In Docket No. 8841 the deficiencies and penalties, the latter sought by amended answer, are as follows:
+--------------------------+ ¦Year¦Tax ¦Penalty ¦ +----+----------+----------¦ ¦ ¦ ¦ ¦ +----+----------+----------¦ ¦1935¦$24,662.77¦$12,331.39¦ +----+----------+----------¦ ¦1936¦57,681.34 ¦28,840.67 ¦ +----+----------+----------¦ ¦1937¦84,016.10 ¦42,008.05 ¦ +----+----------+----------¦ ¦1938¦60,488.88 ¦30,244.44 ¦ +----+----------+----------¦ ¦1939¦48,644.77 ¦24,322.39 ¦ +----+----------+----------¦ ¦1940¦18,664.26 ¦9,332.13 ¦ +--------------------------+
In Docket Nos. 8840 and 8842 transferee liability of petitioner is asserted as transferee of the assets of Frank Nitto, now deceased and sometimes hereinafter referred to as decedent. In Docket No. 8840, the liability is limited to $29,970; and in Docket No. 8842, to $125,000. These amounts of assets, respondent contends, were transferred by decedent and, as a result of the outstanding deficiencies and penalties, created a state of insolvency.
The issues presented for disposition are:
(1) Whether decedent obtained unreported taxable income in each of the years 1935 and 1940 from a joint undertaking, whereby substantial sums of money were received from members of the motion picture industry;
(2) Whether decedent had unreported partnership income for the taxable years indicated in the following amounts:
+---------------+ ¦1935¦$368.18 ¦ +----+----------¦ ¦1936¦10,001.17 ¦ +----+----------¦ ¦1937¦12,487.91 ¦ +----+----------¦ ¦1938¦26,754.33 ¦ +----+----------¦ ¦1939¦22,267.58 ¦ +---------------+
(3) Whether decedent properly reported the receipt of dividends of $14,880 from the Gables Racing Association, Inc., in 1938, or whether such dividends were taxable to him in the year 1939, when actually received in cash, as respondent contends;
(4) Whether a gain of $10,000 from the sale of a partnership interest by decedent in 1939 was taxable as ordinary income or as capital gain;
(5) Whether some part of any of the deficiency in tax for each of the years 1935 to 1940, inclusive, was due to fraud, with intent to evade tax;
(6) Whether petitioner individually was liable as transferee of the assets of the decedent to the extent of $125,000, representing wedding gifts given to her by decedent in 1943; and
(7) Whether petitioner, as guardian of the estate and person of Joseph Nitto, a minor, was liable as transferee of the assets of decedent to the extent of $29,970, representing the value of United States savings bonds, series F, purchased by decedent in 1942 and placed in the joint names of himself and his minor son, Joseph.
Some of the facts were stipulated.
FINDINGS OF FACT.
The stipulated facts are hereby found and incorporated herein by this reference.
Petitioner Annette Caravetta Nitto, a resident of Riverside, Illinois, is the widow of Frank Nitto and the duly appointed and qualified administratrix of his estate. Decedent committed suicide on March 19, 1943, less than a year after his marriage to petitioner. She is also the duly appointed and qualified guardian of the estate and person of Joseph Nitto, minor son of the decedent.
The income tax returns of decedent for the taxable years herein involved were filed with the collector at Chicago. They reflected net income and taxes due and paid as follows:
+---------------------------+ ¦Year ¦Net income¦Taxes paid¦ +-----+----------+----------¦ ¦ ¦ ¦ ¦ +-----+----------+----------¦ ¦1935 ¦$87,079.85¦$22,782.13¦ +-----+----------+----------¦ ¦1936 ¦82,756.69 ¦22,471.24 ¦ +-----+----------+----------¦ ¦1937 ¦103,469.73¦34,301.61 ¦ +-----+----------+----------¦ ¦1938 ¦107,112.43¦36,557.15 ¦ +-----+----------+----------¦ ¦1939 ¦63,674.08 ¦13,196.55 ¦ +-----+----------+----------¦ ¦1940 ¦39,903.26 ¦9,398.63 ¦ +-----+----------+----------¦ ¦Total¦483,996.04¦138,707.31¦ +---------------------------+
On the returns for the years 1935, 1936, 1937, and 1940, no deductions were claimed; for the year 1938, deductions totaled $966.02; and for 1939, $956.33.
During the years before us decedent was one of the leaders of an underworld gang in and around Chicago, Illinois. Sometime prior to the first year herein involved, he became acquainted with George Browne, who was then business manager of Local No. 2 of the International Alliance of Theatrical Stage Employees and Motion-Picture Machine Operators of the United States and Canada, hereinafter sometimes referred to as the IATSE. He also was acquainted with William Bioff, who, together with Browne, undertook early in 1934 to exact sums of money from various motion picture distributors in the Chicago area, in return for their undertaking to maintain, among other things, the status quo as to the number of projectionists necessary and as to wages paid members of the local, of which Browne was business agent.
The early success of Browne and Bioff in this venture came to the attention of Nick Circella, who was an associate of decedent in various operations. After some preliminary discussions, Browne and Bioff agreed with Nitto and his group, of which there were at least ten members, that they should jointly carry out on a larger scale a program of securing funds from various members of the motion picture industry in a manner similar to that already followed by Browne and Bioff. A number of meetings were held, and Nitto and his group undertook to bring their influence to bear, which was extensive and widespread, to secure the election of Browne as national president of IATSE in the 1934 convention of the union. Browne had previously sought that office, but had been defeated. However, he was successful in the 1934 election, and continued to remain as president of the organization during all of the years before us. Upon his election, he appointed Bioff as his personal representative, and the group of which Nitto was leader designated Circella as its representative in overseeing the various activities that were to be carried on.
Browne's election to the presidency of IATSE increased the power of the group and permitted more extensive operations.
At the outset, it was agreed that, of the moneys that Browne and Bioff would obtain, 50 per cent would be retained by them and 50 per cent would be turned over to the Nitto group, such payments generally being made to Circella as representative of that group. On only one occasion was any payment made directly to Nitto, that being in an amount of about $12,000. Sometime in 1935, at the insistence of Nitto, the arrangement was changed so that two-thirds of the funds was to be paid to him and his group and one-third was to be retained by Browne and Bioff.
The plan of operation generally followed was that Browne and Bioff, and sometimes Circella, would approach the top executives of the various large motion picture exhibitors and producers and exact from them substantial sums of money, generally in cash, in return for which they sought to insure that the number of employees would not be increased, that wages paid employees would not be increased, and that strikes of the employees would not be called. Much of the negotiations, particularly with the large producers, would take place at the time of the ‘basic agreement‘ meetings which were held between industry and labor representatives. The funds were generally paid to Bioff, Browne, and Circella, at various times and places throughout the year, in a somewhat secretive manner. While Nitto remained in the background throughout, he had great influence in determining the policy of the group.
Among the devices used to transmit the payments were, in addition to the direct paying over of the funds, payments to attorneys for fictitious services and the payment of commissions on the sales of film. During the years 1935 to 1940 over $1,000,000 was received in this manner by the venture. From 1935 through 1937 about $250,000 was received in each year. In 1938 and 1940 about $90,000 was so received, and in 1939 the amount obtained was about $70,000.
Of the two-thirds share given to the Nitto group, some part was received and retained by Nitto and the remainder was distributed among his associates.
Decedent did not report any of this income on his tax returns for the years 1935 to 1940, inclusive, nor did he disclose any receipts from that source to persons who prepared his returns. He kept no books or records relative to his income and maintained no bank account.
Respondent determined that decedent obtained the following unreported income from the enterprise that was engaged in obtaining the money from the motion picture and theatrical exhibitors and producers:
+----------------+ ¦1935¦$44,757.12 ¦ +----+-----------¦ ¦1936¦83,899.65 ¦ +----+-----------¦ ¦1937¦124,446.77 ¦ +----+-----------¦ ¦1938¦73,827.83 ¦ +----+-----------¦ ¦1939¦42,051.93 ¦ +----+-----------¦ ¦1940¦35,911.04 ¦ +----------------+
During each of the years before us, decedent received the following amounts of income from this source, which he failed to report:
+-------------+ ¦1935¦$15,000 ¦ +----+--------¦ ¦1936¦40,000 ¦ +----+--------¦ ¦1937¦40,000 ¦ +----+--------¦ ¦1938¦15,000 ¦ +----+--------¦ ¦1939¦12,000 ¦ +----+--------¦ ¦1940¦15,000 ¦ +-------------+
In May 1941 Browne and Bioff were indicted in the United States District Court for the Southern District of New York on charges of violating the so-called Anti-Racketeering Act, and later that year they were convicted.
On March 18, 1943, Nitto and various other members of his group were indicted in the same court for conspiring to violate the same act. One day later, Nitto committed suicide.
The moneys were exacted from the various payees with full knowledge on their part as to Browne's and Bioff's activities and assurances; and no effort was made to secure the assistance of law enforcement authorities in seeking recovery thereof or in a termination of the demands. After the conviction of Browne and Bioff, one of the studios brought suit and recovered judgment against them for the funds they had paid over.
The plan had its inception in the practice of one of the Chicago exhibitors which had to make such payments to Browne's predecessor as the business agent of a local union. In return, the business agent prevented the making of vigorous union demands upon the exhibitor.
On the estate tax return of the decedent there was reported a gross estate of $176,460.47.
As a result of adjustments in depreciation and other items on the returns of the various partnerships, of which decedent was a member, his share of income from the various partnerships named was understated on his return for each of the years 1935 to 1939, as follows:
+---------------------------------------------------------+ ¦ ¦ ¦ ¦ ¦ +----------------------------+----+-----------+-----------¦ ¦ ¦ ¦Partnership¦Actual ¦ +----------------------------+----+-----------+-----------¦ ¦ ¦Year¦income ¦partnership¦ +----------------------------+----+-----------+-----------¦ ¦ ¦ ¦reported ¦income ¦ +----------------------------+----+-----------+-----------¦ ¦ ¦ ¦ ¦ ¦ +----------------------------+----+-----------+-----------¦ ¦ ¦ ¦ ¦ ¦ +----------------------------+----+-----------+-----------¦ ¦New Kensington Kennel Club ¦1935¦$3,729.85 ¦$4,098.03 ¦ +----------------------------+----+-----------+-----------¦ ¦New Kensington Kennel Club ¦1936¦20,983.45 ¦23,992.50 ¦ +----------------------------+----+-----------+-----------¦ ¦Edward Vogel and Frank Nitto¦1936¦34,302.58 ¦36,580.24 ¦ +----------------------------+----+-----------+-----------¦ ¦Edward Vogel and Frank Nitto¦1937¦48,256.67 ¦53,903.89 ¦ +----------------------------+----+-----------+-----------¦ ¦Steubenville Kennel Club ¦1938¦8,142.97 ¦10,771.90 ¦ +----------------------------+----+-----------+-----------¦ ¦Edward Vogel and Frank Nitto¦1938¦54,368.58 ¦61,892.12 ¦ +----------------------------+----+-----------+-----------¦ ¦Steubenville Kennel Club ¦1939¦7,747.62 ¦8,747.62 ¦ +----------------------------+----+-----------+-----------¦ ¦Edward Vogel and Frank Nitto¦1939¦22,860.04 ¦32,684.49 ¦ +---------------------------------------------------------+
John Patton was the owner of record of 16.53 per cent of the capital stock of the Gables Racing Association, Inc., a Florida corporation engaged in the business of conducting horse races. Of this percentage of capital stock, which was in Patton's name, he was the actual owner of only one-half, and decedent was the owner of the other half.
On June 30, 1938, the association declared a dividend of $186,000 in favor of its stockholders, and it debited that sum to its surplus account and credited it to an account designated ‘Dividends Payable.‘ The dividend was not paid in cash in 1938, the stockholders of record instead receiving notes from the corporation. Patton's note was in the sum of $29,760.
The dividend was paid in cash in March 1939, Patton receiving a check in the sum of $31,128.96, representing both dividends and interest thereon. The proceeds of this check were divided equally with decedent.
On his income tax return for 1938 decedent reported $14,880 as dividends from the association, and on his return for the taxable year 1939 he reported no dividends from that source.
The association had the following amounts of cash on hand and in banks as of the dates indicated.
+--------------------------+ ¦June 30, 1938 ¦$37,431.42¦ +---------------+----------¦ ¦July 31, 1938 ¦19,309.87 ¦ +---------------+----------¦ ¦Aug. 31 1938 ¦6,122.52 ¦ +---------------+----------¦ ¦Sept. 30, 1938 ¦1,520.74 ¦ +---------------+----------¦ ¦Oct. 31, 1938 ¦5,560.30 ¦ +---------------+----------¦ ¦Nov. 30, 1938 ¦39,951.98 ¦ +---------------+----------¦ ¦Dec. 31, 1938 ¦39,771.15 ¦ +--------------------------+
The increase in the cash on hand and in banks as of November 30, 1938, was the result of borrowings to put the race track in condition for the opening of the meeting to be held shortly after January 1, 1939.
The association did not have a meeting between June 30, 1938, and December 31, 1938, and hence had no income of any consequence during that period. On June 30, 1938, the corporation had accounts receivable of $55,266.73. The debit of the $180,000 to the surplus account on that date produced a debit balance of $47,571.21.
In 1936 Edward Vogel and decedent entered into a partnership for the purpose of operating a slot machine business. In 1939 decedent sold out his interest to Vogel for $20,000. The basis for his interest in the business at the time of the sale was $10,000. On his return for the taxable year 1939 decedent reported the $10,000 gain from the sale as a long term capital gain.
For the taxable year 1935 assessment of the proposed deficiencies in tax and penalty was barred by the statute of limitations, in the absence of proof of fraud, prior to the issuance of the deficiency notice. For the taxable years 1936 to 1940, inclusive, consents were properly executed extending the period within which the deficiencies in tax and penalty might be assessed to a date beyond the date on which the deficiency notice was issued; and hence the assessment of the deficiencies for such years is not barred by the statute of limitations, even though fraud is not established.
Some part of the deficiency for each of the years 1935 to 1940, inclusive, was due to decedent's fraud, with intent to evade tax.
On January 4, 1943, prior to the making of any gifts to his wife, Annette Caravetta Nitto, decedent was possessed of net property in the amount of $301,460.47 (without regard to any unpaid deficiencies in Federal income tax or penalties due and owing by decedent for prior years). On that date decedent made a gift of $75,000 in cash to his wife, thus reducing the amount of property which he possessed to $226,460.47.
On March 10, 1943, decedent made a gift of $50,000 in cash to his wife, Annette, thus reducing the amount of property which he possessed to $176,460.47.
The gifts of $75,000 and $50,000 were made to decedent's wife pursuant to a promise made to her by decedent prior to their marriage in May 1942.
In May 1942 decedent purchased United States savings bonds, series F, in his name and in the name of Joseph Nitto as coowner. Decedent retained ownership and possession of these bonds until his death on March 19, 1943. Upon the death of Frank Nitto, Joseph Nitto became the owner of these bonds. The bonds were purchased by decedent with his own funds, and no part of the purchase price thereof was contributed or furnished by Joseph.
At the time of decedent's death the bonds had a value of $29,970. At that time, decedent was possessed of net property in the sum of $176,460.47 (without regard to any unpaid deficiencies in Federal income tax or penalties due and owing by the decedent for prior years), which amount includes the value of the bonds. Exclusive of the bonds, decedent was possessed of net property in the amount of $146,490.47 (without regard to any unpaid deficiencies in Federal income tax or penalties due and owing by decedent for prior years).
OPINION.
KERN, Judge:
(1) As to the deficiency in taxes determined for the year 1935, its assessment is barred by the statute of limitations unless fraud with intent to evade tax can be shown. Consequently, it is incumbent upon respondent to prove fraud in that year in order to prevail not only as to the penalty, but also as to the removal of the bar of the statute of limitations from the deficiency itself. With reference to the deficiencies in taxes for other years herein involved, the burden of proof is upon petitioner, although the burden, of course, is upon respondent as to the fraud penalties.
Petitioner, placing undue reliance upon Helvering v. Taylor, 293 U.S. 507, seeks to have us consider the first issue as though the burden of proof were upon respondent for all purposes for all years before us. We disagree with this contention. There is no evidence that respondent's determination was ‘without rational foundation.‘
Petitioner has offered little evidence. Moreover, motions to strike a substantial portion of the evidence adduced by respondent's witnesses were made by petitioner, and they have been disposed of by appropriate order. These motions were based upon the so-called ‘dead man's‘ statute.
This type of statute, and the one by which we are controlled, declares that the testimony of the surviving party to a transaction is inadmissible in actions between the survivor and the personal representative of the deceased. The testimony here sought to be stricken was given not by parties to this proceeding, and not by anyone who can be said to have had any real interest in the outcome of this controversy. Petitioner seeks to demonstrate that one witness, Bioff, may stand to gain some indefinite advantage, as a tax case in which he is involved is still pending. That in itself would be insufficient to warrant a striking of his testimony. Cush v. Allen, (App.D.C.), 13 Fed.(2d) 299. Moreover, his testimony was of such a nature as hardly to be considered of any benefit to him.
The D.C. Code, par. 14-302, provides:‘If one of the original parties to a transaction or contract has, since the date thereof, died or become insane or otherwise incapable of testifying in relation thereto, the other party thereto shall not be allowed to testify as to any transaction with or declaration or admission of the said deceased or otherwise incapable party in any action between said other party or any person claiming under him and the executors, administrators, trustees, heirs, devisees, assignees, committee, or other person legally representing the deceased or otherwise incapable party unless he be first called upon to testify in relation to said transaction or declaration or admission by the other party, or the opposite party first testify in relation to the same, or unless the transaction or contract was made or had with an agent of the said deceased or otherwise incapable party, and said agent testifies in relation thereto.‘(See sec. 1111, I.R.C.)
Petitioner's motions to strike evidence from the record on this ground have been denied by appropriate order.
It should be observed that, had we granted petitioner's motions, respondent's position might have been weakened as to the year 1935, but would have been strengthened as to the years 1936 to 1940. In that event, it would have been incumbent upon us to uphold respondent's determination as to the latter years in the full amounts of the deficiencies determined; whereas, by considering the testimony adduced, we believe that it supports the position we take that the deficiencies determined were too high.
We have carefully weighed the evidence presented, with full recognition of the credibility of each of the witnesses and of the other essential factors present in a proceeding with such a basically unsavory background as we have here.
Respondent has established convincingly, we believe, decedent's association with Bioff and Browne in their scheme of procuring substantial sums of money from various members of the motion picture industry. Furthermore, it conclusively appears that at least the amounts found by us were so received by these associates during each of the years herein involved.
The only doubtful factor in the proceeding is the precise amount received and retained by Nitto personally during each of the years. There can be no question but that he received some amounts in all the taxable years, and that whatever amounts he so received he failed to report for income tax purposes.
It is our view, however, that the absence of precise proof as to the exact amount received by Nitto is not fatal to respondent, even as to the year 1935.
Although the precise amount obtained by decedent can not now be ascertained, we do know that he did receive and did personally retain some of the proceeds. Any other conclusion would be beyond the pale of reasonable belief. Having resolved whatever doubts we may entertain against the party having the burden of proof, we have determined the amounts set out in our findings as the amounts so received by decedent. Cf. Cohan v. Commissioner (CCA-2), 39 Fed.(2d) 540.
As will hereinafter appear, it is our opinion that fraud with intent to evade tax has been established for all years.
Petitioner urges that, even if decedent did receive funds from this venture during these years, such proceeds did not represent taxable income under the doctrine of Commissioner v. Wilcox, 327 U.S. 404, holding that embezzled funds were misappropriated without the knowledge or participation of the owner and, also, the funds came to the party who was sought to be taxed, not by the ‘conscious act‘ of the owner ‘in response to a claim for an agreed service by the party to whom they were paid.‘ Wilcox v. Commissioner (CCA-9), 148 Fed. (2d) 933, 935; affd., 327 U.S. 404. The Wilcox case does not stand for the proposition that all funds ‘fraudulently or illegally acquired‘ are nontaxable. Ibid. Wallace H. Petit, 10 T.C. 1253. Even if we were to adopt petitioner's suggestion and denominate these various receipts as ‘extortion,‘
the result would not be otherwise. Although the payors might have had the right to recover the funds so paid over, at least until such recovery, imposition of an income tax on the payees would not be improper. See Akers v. Scofield (CCA-5), 167 Fed.(2d) 718; certiorari denied, 335 U.S. 823. See also Wilcox v. Commissioner, supra; Humphreys v. Commissioner (CCA-7), 125 Fed.(2d) 340; certiorari denied, 317 U.S. 637; Caldwell v. Commissioner (CCA-5), 135 Fed.(2d) 488; Richard Law, 2 T.C. 623; Johnson v. United States, 318 U.S. 189; Note, 58 Yale L.Journal 955, 962, et seq.; Note, 166 A.L.R. 891.
Cf. Hernstein v. Paramount Pictures, Inc., 37 N.Y.S.(2D) 404, 412, 415; affd., 41 N.Y.S.(2D) 210; 292 N.Y. 468; 55 N.E.(2D) 740.
Moreover, we discern from the record that the payors knowingly and willingly paid over the funds sought to be here taxed and, in a sense, lent encouragement to, and participated with full knowledge of the facts in, the activities of Browne and Bioff and the Nitto group. We fail to see how on the facts before us the doctrine of the Wilcox case can apply. Wallace H. Petit, supra.
(2) The second issue has in substance been resolved by the stipulation of the parties; the facts as stipulated appear in our findings of fact. The necessary computations can be made under Rule 50.
(3) Petitioner does not strenuously press the issue as to the proper year of reporting the dividends from the Gables Racing Association, Inc.; and taxwise it is observed, upon brief, that it may even result in lesser tax if respondent's view is upheld.
The facts bearing upon this issue have been stipulated and are set out in our findings. We are not informed as to whether the notes were negotiable or whether they were demand or time notes. Neither is there evidence from which we can determine their fair market value, if any, in 1938.
It is our conclusion that respondent's determination should be upheld, and that the dividends should properly have been reported in 1939 and not in 1938.
(4) On the authority of H. R. Smith, 10 T.C. 398; affd. (CA-5), 173 Fed. (2d) 470, and cases therein cited, this issue must be decided in petitioner's favor. In that case it was recognized that the sale of a partnership interest is the sale of a capital asset, and any gain realizable therefrom is properly reportable as capital gain. City Bank Farmers Trust Co. v. United States (Ct.Cls.), 47 Fed.Supp.98, upon which respondent seeks to place much reliance, was expressly rejected in the Smith case, and, as in that case, we decline to follow it here.
(5) As to the fraud penalties, the burden of proof is upon respondent. ‘Because direct and clear-cut proof of fraud is seldom available, it must be established by a full consideration of the records and testimony offered, the appearance and manner of the witnesses, conduct of the taxpayer, and all conditions and circumstances surrounding the transactions which produced the disputed income.‘ Wallace H. Petit, supra, at page 1257; M. Rea Gano, 19 B.T.A. 518. Much of the obscurity which beclouds this case, no doubt, results from the nature of the transactions that produced the income, as well as from decedent's failure to keep proper records or other sources of information that would cast additional light on the problems that confront us.
Through petitioner's own witnesses it has been established that decedent did not report any income he received from his operations with Browne and Bioff. We have already held that decedent did receive substantial income from such sources. The receipt of such amounts of income over many years and the unexplained failure to report any are significant in determining the existence of fraud. Frank A. Weinstein, 33 B.T.A. 105; Frank A. Maddas, 40 B.T.A. 572; affd (CCA-3), 114 Fed.(2d) 548. Although other motives may also have induced decedent not to disclose this income, we are convinced from the entire record that fraud, with intent to evade tax, was also present. The receipts were of such magnitude and derived from such sources as to preclude the inference that they were omitted due to oversight.
No argument has been made as to the survival of the fraud assessment. Such action does survive decedent's death. Estate of Charles Louis Reimer, 12 T.C. 913.
(6) Petitioner Annette Caravetta Nitto's individual transferee liability, as this issue is narrowed by the parties, turns solely on the question of whether the amounts of the deficiencies and penalties to be determined against decedent's estate under Rule 50 exceed the amount of assets that remained with decedent after each of the transfers to his wife. If, upon the recomputation of decedent's taxes and penalties for the years before us, the aggregate liabilities do not exceed the amount of such retained assets, then petitioner is not individually liable as transferee. In any event, it is conceded by respondent that her transferee liability can not exceed the amount of the assets transferred to her, namely, $125,000.
(7) The liability of petitioner Annette Caravetta Nitto as guardian of the minor, Joseph Nitto, is our final issue. The law relating to joint tenancies and transferee liability does not appear to be too well settled. See and compare Myrtle M. Irvine, 36 B.T.A. 653; reversed (CCA-8), 99 Fed.(2d) 265; Tooley v. Commissioner (CCA-9), 121 Fed.(2d) 350, reversing 42 B.T.A. 977, which had not considered this point; and Christine D. Muller, 10 T.C. 678. But even though we consider the crucial transfer to be the purchase by decedent of the bonds in May 1942, and even though we judge the issue in the light of our opinion in the Irvine case, which appears to be most favorable to respondent, we are not able to decide the question for him. Respondent has failed to meet the burden which he has in a transferee proceeding and has not demonstrated the extent of decedent's estate immediately prior to the gift of the bonds to his son in 1942, a necessary disclosure to establish transferee liability on the assumption that this gift was the crucial transfer. A comparable showing appears to have been a strong operative fact in the Irvine case (see page 658 of the opinion). By reason of this lack of proof, there can be no holding of transferee liability against petitioner as guardian of the minor.
Reviewed by the Court.
Decision will be entered under Rule 50.