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August 19, 1964

Clyde W. PROSSER, Sr., and Barbara Prosser, his wife, Plaintiffs,
UNITED STATES of America, Defendant

The opinion of the court was delivered by: ROSENBERG

By this action the plaintiffs Clyde W. Prosser, Sr. and Barbara Prosser, his wife, seek to recover from the defendant the United States of America, $ 3,063.95 in federal income taxes, penalties and interest paid by them with respect to their taxable calendar years 1951, 1953, 1954, 1955 and 1958, together with interest and costs. Assessments and payments were made pursuant to the provisions of the Internal Revenue Code of 1939, 26 U.S.C. § 1952 Ed., 293 and § 294, and of the Internal Revenue Code of 1954, 1958 Ed., § 6501 and § 6653. These read as follows:

Internal Revenue Code of 1939:


 '(b) Fraud. -- If any part of any deficiency is due to fraud with intent to evade tax, then 50 per centum of the total amount of the deficiency (in addition to such deficiency) shall be so assessed, collected, and paid, in lieu of the 50 per centum addition to the tax provided in section 3612(d)(2).

 'Sec. 294. (as amended by Sec. 118, Revenue Act of 1943, c. 63, 58 Stat. 21, and Sec. 13(b), Individual Income Tax Act of 1944, c. 210, 58 Stat. 231) ADDITIONS TO THE TAX IN CASE OF NONPAYMENT. * * *

 '(d) Estimated tax

 '(1) Failure to file declaration or pay installment of estimated tax

 '(A) Failure to file declaration. In the case of a failure to make and file a declaration of estimated tax within the time prescribed, unless such failure is shown to the satisfaction of the Commissioner to be due to reasonable cause and not to willful neglect, there shall be added to the tax 5 per centum of each installment due but unpaid, and in addition, with respect to each such installment due but unpaid, 1 per centum of the unpaid amount thereof for each month (except the first) or fraction thereof during which such amount remains unpaid. In no event shall be aggregate addition to the tax under this subparagraph with respect to any installment due but unpaid, exceed 10 per centum of the unpaid portion of such installment. For the purposes of this subparagraph the amount and due date of each installment shall be the same as if a declaration had been filed within the time prescribed showing an estimated tax equal to the correct tax reduced by the credits under sections 32 and 35.'

 Internal Revenue Code of 1954:

 ' § 6501. Limitations on assessment and collection

 '(a) General rule. -- Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) or, if the tax is payable by stamp, at any time after such tax became due and before the expiration of 3 years after the date on which any part of such tax was paid, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. * * *

 '(c) Exceptions. --

 '(1) False return. -- In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax pay be begun without assessment, at any time.

 ' § 6653. Failure to pay tax * * '(b) Fraud. -- If any part of any underpayment (as defined in subsection (c)) of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 50 percent of the underpayment. In the case of income taxes and gift taxes, this amount shall be in lieu of any amount determined under subsection (a).'

 The question at issue here is whether or not the plaintiffs as taxpayers fraudulently with intent to evade the taxes failed to make returns and payment on taxes due thereon for the various years for which refunds are now claimed by the plaintiffs. This action is timely and this Court has jurisdiction pursuant to Title 28 U.S.C. § 1346(a)(1). *fn1" By its Order of February 5, 1963 this Court dismissed the complaint as to the year 1951.

 The plaintiffs are husband and wife and had been accustomed to filing joint returns. The amount for refunds originated from earnings of the husband who is employed as a draftsman and also did some engineering work on his own time. The wife plaintiff was not employed but maintained the household.

 For all of the years 1953 through 1958, the taxpayers reported as income on their federal income tax returns only those amounts which Mr. Prosser computed to be the wages or payments for a forty-hour work week. Everything over and above that is what he called overtime pay or payment for 'moonlighting' and was not reported on the returns. Mr. Prosser underpaid his income taxes not only during the years at issue here but also during intervening years 1956 and 1957. The taxes, penalties and interest, recovery of which is sought by this action, were paid by the plaintiffs as the result of assessments made by the Internal Revenue Service on May 27, 1960 upon its determination that the plaintiffs' income in each of the years 1953, 1954, 1955 and 1958 had been understated and that the plaintiffs had accordingly underpaid their income taxes in those years. The penalties which were assessed were those for underpayment of tax due to fraud under Section 293(b), Internal Revenue Code of 1939 and Section 6653(b), Internal Revenue Code of 1954, and the ad valorum penalty for failure to file declarations of estimated tax in 1953 and 1954 under Section 294(d)(1) (A), Internal Revenue Code of 1939. These taxes, penalties and interest as assessed and paid are as follows: Year Tax 1939 Code 1939 Code failure Interest Total fraud penalty to file declaration (Sec. 293(b) of estimated tax penalty (Sec. 294(d)(1)(A) 1953 $ 378.08 $ 189.04 $ 42.44 $ 163.37 $ 772.93 1954 Code fraud penalty (Sec. 6653(b) 1954 $ 374.60 $ 187.30 $ 36.18 $ 137.30 $ 735.38 1955 171.44 85.56 -0 51.50 308.50 1958 357.53 178.77 -0 43.94 580.24 $ 2397.05


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