Lead Opinion
OPINION.
The first issue is whether Marjorie May Sutor’s income tax returns for 1943 and 1944, barred from assessment of deficiencies under the 3-year limitation of section 275 (a) of the Internal Revenue Code, may, under the facts of this proceeding, be subject to assessment under the 5-year limitation of section 275 (c) of the Code. Respondent has conceded that Leslie A. Sutor’s 1943 income tax return is barred by section 275 (a) of the Code. But, inasmuch as Leslie filed a waiver of limitations with respect to his 1944 return, l hat return is open to assessment of a deficiency.
As the findings indicate, the determination of deficiencies was made within five years of the date of filing for all returns in issue. Tire returns in question are in evidence. Cf. C. A. Reis,
Gross receipts from the launch business represented gross income to the petitioners herein. Cf. Regulations 111, section 29.22 (a)-5; Estate of R. L. Langer,
The California community property law is effective for Federal taxation purposes. Cf. John Miller Kane,
The second question then presented is whether or not the respondent erred in disallowing deductions for depreciation and certain expenditures claimed on the petitioners’ returns for the taxable periods involved. A related issue is whether respondent erred in determining a negligence penalty under section 293 (a) of the Internal Revenue Code.
Respondent disallowed portions of depreciation deductions claimed by petitioners for the years 1943 and 1944, and he has increased the deduction for 1945.
Respondent’s disallowance of certain expenditures claimed by petitioners for the taxable periods involved puts upon petitioners the burden of proving facts necessary to allow such deductions. Cf. Atlantic Bank & Trust Co. v. Commissioner,
Furthermore, in the operation of the launch business in particular, _ petitioners failed to keep any books of account or records. Section 54 of the Code; Regulations 111, section 29.54 — 1. This failure, when considered in the light of petitioners’ education and business experience, and Leslie A. Sutor’s own testimony as to the ample amount of idle time the business involved, establishes to our satisfaction that part of the deficiencies in each year involved was due to negligence, but without intent to defraud, on the part of the petitioners. We therefore find that respondent correctly imposed the 5 per cent negligence penalty in each taxable year involved. Section 293 (a) of the Code.
Petitioners assign as error an alleged violation by respondent of section 3631 of the Code, stating that respondent had examined their books and records more than once for each taxable year involved and without giving written notice beforehand. Petitioners have not shown that such violations occurred. Moreover, on its face, the petitioners’ position is inconsistent with their failure to keep books or records. Again, this is not a defense invalidating the deficiency since the examinations, if so made, were apparently conducted without timely objection by the petitioners and the protection thus afforded by section 3631 was therefore waived by the failure to object. See Philip Mangone Co. v. United States,
In computing the deficiency for 1943 under section 6 of the Current Tax Payment Act of 1943, the year 1942 may be considered although the 1942 return was filed more than 5 years prior to the date shown in the notice of deficiency.
In Z. W. Koby,
* * * It must be borne in mind that respondent has not determined any deficiency for tlie year 1942. The only year in question in this proceeding is 1943, although the forgiveness provisions of the Current Tax Payment Act of 1943 require that the petitioner’s income for 1942 be considered in arriving at his tax liability for 1943.
Decision will be entered under Rule 50.
Notes
Respondent also disallowed a claimed adjustment to the depreciation basis as a result of a sale of a boat or boats in 1943. As we have found, this transaction instead resulted ÍU a capital gain of ?3£§.84 in 1943,