Kastel v. Commissioner , 136 F.2d 530 ( 1943 )

WALLER, Circuit Judge.

The Bayou Novelty Company, a partnership, engaged in the slot machine business in New Orleans, Louisiana, filed partnership returns of income for the years 1936 and 1937 listing the taxpayer and three others as members of the co-partnership and entitled to receive its earnings.

The Commissioner of Internal Revenue determined that there were only two members of the partnership, to-wit, taxpayer and Costello, from which it was determined that the taxpayer had understated his income in large amounts for each of the years in question. Fraud penalties were imposed by the Commissioner.

Taxpayer and his wife filed their individual returns for both years upon the community basis, claiming Louisiana as their domicile.

On an appeal, the Board of Tax Appeals sustained the Commissioner except as to the imposition of the fraud penalties. This appeal is to review the decision of the Board of Tax Appeals.

During the hearing before the Board counsel for the Commissioner conceded the following:

“(1) That the Bayou Novelty Company reported all income earned by the partnership for both years.

“(2) That the individuals composing the partnerships as set forth in the returns filed by the Bayou Novelty Company reported for both years all income earneu and reported by the Bayou Novelty Com pany partnership.

“(3) That the Commissioner’s determination of petitioner’s understatement of Bayou Novelty Company partnership income for both years was based upon the Commissioner’s determination that Philip Kastel and Frank Costello were the only partners in the Bayou Novelty Company, and that they were equal partners.”

Whether or not there was an understatement of income depends: (a) upon whether or not the taxpayer and Frank Costello were the only members of the partnership of the Bayou Novelty Company, and (b) whether or not the taxpayer and his wife were legal residents of Louisiana in the years in question and entitled to make their returns upon the communig basis.

If Kastel and Costello were the only members of the partnership, the returns were false and fraudulent and the amount of the income was understated. If Kastel is not entitled to avail himself of the community property laws of the State of Louisana, his income was likewise understated.

The taxpayer introduced in evidence the income tax returns of the partnership for the years in question, which purported to show that there were four partners. This was all the evidence on the question of membership in the partnership. .The Commissioner offered no testimony on the subject. Taxpayer took the position that the Commissioner had alleged that the income tax returns of his partnership were false in that there were only two co-partners instead of four as shown by the return, and that these allegations, together 'with the imposition of the fraud penalties, amounted to an allegation of fraud, the burden of proving which was upon the Commissioner. The Commissioner contended, and the Board found, that the. burden was on the taxpayer to demonstrate that the amount of his return was correct.

We agree with the taxpayer that the charge that his partnership had made a false return asserting that the income of the partnership was divided among four persons when in fact it was divided between two, the taxpayer and another, and the imposition of fraud penalties because of the false returns, amounted to a charge of fraud and the burden of proving same is on the one making the charge.¹

After having admitted that the partnership had returned all its income; that the partners named in the return had collectively reported all of the income; and that the deficiency was based upon his finding that the return was false and fraudulent in that the partnership had two instead of four partners, the Commissioner cannot compel the taxpayer to go forward with evidence to exonerate himself of a charge of fraud or dishonesty in the absence of any evidence tending to prove fraud or dishonesty. An indictment by the Commissioner is not evidence.

The Commissioner had imposed fraud penalties, which the Board of Tax Appeals did not sustain, but the case clearly presented to the Board an issue of fraud. The elimination of fraud penalties, either in or before the final order, would not have eliminated the fact that the taxpayer was charged with making false returns.

Taxpayer produced uncontradicted evidence to show that he and his wife registered at a hotel in New Orleans on October 21, 1935, and remained there until March 3Í, 1936. From March 31, 1936, until December 31, 1936, he and his wife were registered at another hotel in New Orleans. In these registrations New York was given as their place of abode. On November 8, 1936, taxpayer took residence in an apartment hotel. A written lease of this apartment, dated April 22, 1937, covering the period from May 7, 1937, to May 31, 1938, was executed, in which it was recited that petitioner was a resident of New Orleans, Louisiana, at which place taxpayer and wife resided until January, 1939. During these periods charge accounts were opened with several merchants in New Orleans showing the frequent purchase of numerous articles. The records of the hotels show many items charged to the taxpayer throughout the various periods.

On March 6, 1937, taxpayer wrote the Collector of Internal Revenue, at New Orleans, in part as follows: “Heretofore, I filed my income tax return with the Collector of Internal Revenue in.NewYork, but since I am presently, and was for the year 1936, engaged in business in New Orleans, and also since I have established New Orleans as my domicile, I am addressing my application for an extension to you.”

The hotel records reveal that on two occasions service accounts for someone other than the petitioner were charged to the room. In his return' for the year 1937 Kastel claimed deduction of some $2,400 as income taxes paid to the State of New York. Income tax returns for both years were filed with the Louisiana Collector of Internal Revenue.

No testimony was offered by the Commissioner in support of his contention that the taxpayer was not legally domiciled in the State of Louisiana, but the Board found, 'on petitioner’s evidence, that he had failed to prove that he was.

We think that the evidence introduced in support of the taxpayer’s contention showing: (1) the residence of the taxpayer and his wife in New Orleans from October, 1935, to January, 1939; (2) the location of the main business of the taxpayer in New Orleans; (3) the letter written to the Collector of Internal Revenue on March 6, 1937; (4) the filing of income tax returns in Louisiana; and (5) the opening and use of charge accounts; make out a prima facie case of domicile in New Orleans, at least for the year 1937.²

We do not hold that prima facie proof of domicile in New Orleans for the year 1936 was presented by the petitioner. The burden was on him to do so before he can avail himself of the advantages of reporting income on the community basis under the law of Louisiana. Since, however, the case is to be reversed and remanded for the error of the Board in holding that petitioner had the burden of proof on the issue of fraud and for the holding of the Board that prima facie proof of domicile in Louisiana for the year 1937 had not been made out, and since it appears that the facts were not adequately developed on the whole case, it seems appropriate that the entire controversy should be reversed and remanded to the Tax Court for further proceedings not inconsistent with the views herein expressed.

Reversed and remanded.

1 Griffiths v. Commissioner of Internal Revenue, 7 Cir., 50 F.2d 782; Jackson v. Harris, 10 Cir., 43 F.2d 513; Lalone v. United States, 164 U.S. 255, 17 S.Ct. 74, 41 L.Ed. 425; Rogers v. Commissioner of Internal Revenue, 6 Cir., 111 F.2d 987; Jemison v. Commissioner of Internal Revenue, 5 Cir., 45 F.2d 4.

2 “A person is presumed to be an inhabitant of the locality where he lives and his contrary contention places burden on him to show otherwise.” Dupont, etc., v. Byrnes, 2 Cir., 101 F.2d 14.

“A [person] found residing in a foreign country is presumed to be there animo manendi, and if a state of war should bring his national character into question, he has burden of explaining the circumstances of his residence.” The Venus, 12 U.S. 253, 8 Crunch 253, 3 L.Ed. 553.

“Mere residence in a particular place is prima facie evidence of a domicile at such place, but the presumption may be overcome by showing that such residence is for a temporary purpose.” Butler v. Farnsworth, Fed.Cas.No.2,240, 4 Wash. C.C. 101.

“The presumption arising from actual residence in any place is that the party is there with the intention of remaining.” The Amado, Fed.Cas.No.12,005, Newb. Adm. 400.

“Where a person lives is taken prima facie to be his domicile until other facts establish the contrary.” Bradstreet v. Bradstreet, 7 Mackey 229, 18 D.C. 229.

“Where an individual has resided in a State (La.) for a considerable time, being engaged in the prosecution of a business, he may well be presumed to be a citizen of such State, unless the contrary appear.” Shelton v. Tiffin, 47 U.S. 163, 185, 6 How. 163, 12 L.Ed. 387.

“The place where a man lives is properly taken to be his domicile until facts adduced establish the contrary.” District of Columbia v. Murphy, 314 U.S. 441, 62 S.Ct. 303, 309, 86 L.Ed. 329.

“The place where a [man] lives is taken to be his domicile until facts adduced establish the contrary.” Anderson v. Watt, 138 U.S. 694, 11 S.Ct. 449, 452, 34 L.Ed. 1078.