
    354 F. 2d 274
    O. K. ARMSTRONG AND M. M. ARMSTRONG v. THE UNITED STATES
    [No. 225-60.
    Decided December 17, 1965.
    Plaintiffs’ motion for rehearing denied March 18, 1966]
    
      
      Olarence T. Kipps, Jr., attorney of record, for plaintiffs. Miller (& Chevalier, of counsel;
    
      Philip R. Miller, with whom was Acting Assistant Attorney General Richard M. Roberts, for defendant. C. Moxley Featherston, Lyle M. Tv/mer, and Philip I. Brenncm, of counsel.
    Before Cowen, Chief Judge, Laramore, Dureee, Davis and. Comjns, Judges.
    
   Per Curiam:

This income tax case, relating to the six

years 1945 through 1950, was referred to Trial Commissioner; W. Ney Evans with directions to make appropriate factual findings and to submit his recommendation for a conclusion of law. The commissioner has filed a report containing findings, an opinion, and a recommended legal conclusion. Exceptions have been taken, briefs filed, and oral argument had. The ultimate issues are: (1) whether, apart from the defense of collateral estoppel, the defendant has sustained its burden of showing that Mr. Armstrong committed fraud in filing his tax returns for these years; (2) whether plaintiffs have shown that the taxes assessed against them (exclusive of fraud penalties) were erroneous; and (3) whether plaintiffs are collaterally estopped, by a prior criminal conviction, from arguing that Mr. Armstrong committed fraud in his returns for 1947, 1948, and 1949. The commissioner’s answers to these inquiries were that-the Government had failed to prove that Mr. Armstrong committed fraud; that the plaintiffs had likewise failed to prove any .error in the basic taxes assessed against them; and that the doctrine of collateral estoppel was inapplicable in the circumstances of this case. The defendant challenges the first and third of these conclusions; the plaintiffs accept the second in part.

On the first two of these issues the court adopts the portion of Commissioner Evans’ opinion which deals with these questions. His conclusion results almost entirely from his evaluation of Mr. Armstrong as a person, in the past as well as the present — as gleaned from the latter’s testimony before the commissioner, from Mr. Armstrong’s life and background, and from the evidence pertaining to Mr. Armstrong’s dealings with his tax responsibilities and problems, .especially in 1945 through 1950. Giving due weight to the commissioner’s opportunity to appraise Mr. Armstrong, his testimony, and the evidence of his past actions, the court sees no basis for overturning the trier’s factual determination and evaluation and therefore accepts them. That part of the commissioner’s opinion, together with the preliminary discussion, appears in Part I of this opinion (with minor changes). The court’s views on the legal issue of collateral estoppel (which differ from those of the commissioner) are set forth in Part II. Our ultimate conclusion on the whole case is contained in Part III.

I

Commissioner Evans’ opinion, except for the discussion of collateral estoppel, is as follows (with minor changes):

Taxpayer seeks by this action to recover deficiency assessments and alleged overpayments of income taxes for the years 1945 through 1950. The defense alleges that for each of the 6 years in question plaintiff filed falsó or fraudulent income tax returns in an attempt to evade taxes properly due and owing.

The petition was filed on June 10, 1960. Theretofore, on April 13, 1955, taxpayer had been convicted under a three-count indictment of having willfully attempted to defeat and evade income taxes owed the United States by filing false returns for the 3 years 1947,1948, and 1949. A fine of $500 per count was thereafter imposed.

When the present action came on for pretrial proceedings, the allegation of res judicata in defendant’s answer to the petition was presented and considered in terms of collateral estoppel, i.e., whether or not plaintiff was estopped to deny fraud for the years 1947-1949 or to present evidence in support of such a denial.

At that time and later, when the case was brought to trial (in November 1963), well-reasoned precedents were divided sharply on the application of collateral estoppel. Under the circumstances, ruling on the question was reserved, and the trial proceeded pursuant to an understanding that the Government, having the burden of proving fraud, might adduce evidence of fraud as to any or all of the years in question, and the plaintiff might seek to refute any such evidence offered by the Government. Moreover, plaintiff was permitted, under this arrangement, to adduce evidence of overpayment of taxes for all years (including the years 1947-1949) in contemplation of the finding for which he contends that there was no fraud in any of the 6 years at issue in this suit.

In recent months (being since the conclusion of the trial of the instant case), the Tax Court of the United States has reversed field categorically and now is in accord with the Court of Appeals holding that collateral estoppel does apply. As a consequence, the overwhelming weight of authority now favors the position initially taken by the Government t.ba.f. plaintiff’s prior conviction for having willfully attempted to defeat and evade income taxes lawfully due operates as an estoppel to preclude him from denying fraud for the years 1947-1949 or from presenting evidence in support of such a denial.

Meanwhile, the case has been tried pursuant to the ruling reserved and the understanding above recited, and the attorneys for the parties have submitted their requested findings of fact and their briefs on the law in conformity with the trial record as made. Since it is manifestly impossible to unscramble the omelet and apply collateral estoppel in pristine form nunc fro tunc, the findings of fact have also been prepared in conformity with the trial record as made, reserving the application of the law for the formal conclusion.

The conclusions which I have reached as findings of ultimate fact on the basis of the evidence are, on their face, contradictory. On the issue of fraud, as to which the defendant has the burden of proof, my conclusion is that defendant has failed to sustain the burden as to any year in issue; while on the issue of overpayment of taxes, as to which plaintiff has the burden of proof, my conclusion is that plaintiff has failed to carry the burden for lack of credibility. The facts will explain this paradox.

■ Plaintiff’s father was a Baptist minister who held a pastorate at Willow Springs, Missouri, at the time his son was born, shortly before the turn of the century. The father later held pastorates in other small towns in southwest Missouri, at one of which (Carterville) plaintiff completed the eighth grade and was graduated from high school.

Plaintiff attended Drury College, in Springfield, Missouri, majoring in education and psychology, and was graduated with a bachelor of arts degree. He taught school for a year, and was in the military service for 2 years during World War I. Upon his release from the service, he studied law at Cumberland University, in Tennessee, receiving his degree in 1922. He was duly admitted to practice in Missouri, but elected instead to turn to journalism. He took a master’s degree in journalism from the University of Missouri.

For 3 years during the late 1920’s he taught journalism at the State University of Florida. He was caught up in the Florida land speculation of that era and incurred losses when the boom collapsed. He assumed personal responsibility for some of these losses, and completed payment of the debts in 1946.

In 1929, plaintiff returned to Missouri and became active in the Baptist Church and the Republican Party. He was elected to the Missouri General Assembly in 1932, 1934, and 1942, and to the House of Representatives of the United States Congress in 1950, where he served one term. Meanwhile, in 1938, he served by appointment of the Governor as an investigator of alleged corruption (gambling, racketeering, and prostitution) in Jackson County (Kansas City), Missouri.

While living in Florida, plaintiff began a career as a freelance writer. Upon his return to Missouri, in 1929, he continued writing part time, but devoted most of his efforts during the first 2 or 3 years to teaching at Drury College and serving as its alumni director, and later to the duties of public office, elective or appointive.

In 1938, he began writing articles for the Reader’s Digest, on assignment or on speculation, and in 1944 was appointed an editorial staff writer with the status of expenses and remuneration for those of his articles which the magazine accepted for publication. He continued in this status during the years at issue in this suit (1945-1950) and thereafter. Sizable portions of his gross income during these years came from articles accepted for publication by the Reader’s Digest and from the reimbursement of expenses incurred in the writing of such articles. He also wrote for other publications, and has written at least two books.

Two of his articles have concerned taxation, dealing primarily with efforts to lower taxes. In 1946, he was appointed chairman of an advisory committee created by the Senate Committee on Post Office and Civil Service, and has since described this assignment as being related to “the Senate Study on Taxation,” although his duties were more concerned with the possibility of lowering the cost of Government operations with a view toward the consequent reduction of taxes.

During the 10 or 12 years' material to this action (from 1944 through 1955), plaintiff was active (1) in civic affairs, being a member of the Kiwanis Club, the American Legion, and the Chamber of Commerce in his home town of Springfield, Missouri; (2) in church work, as a member of the University Heights Baptist Church, and as chairman and member of various regional councils and associations engaged in Baptist-related civic and social action; and (3) in politics, local and state, affiliated with the Republican Party.

Plaintiff is an intelligent man, well educated, highly literate and just as highly emotional. He speaks with great clarity, and his utterances carry the impression of careful thought and earnest sincerity. These qualities are fully reflected in his success as a lay leader in the Baptist Church, a field in which he is widely known and highly regarded, and in his effectiveness as a political leader, a field in which he is also widely known and often regarded as controversial.

In 1945, plaintiff’s family consisted of himself, his wife, and five minor children whose ages then were 20, 18, 12, 6, and 5. Mrs. Armstrong died in 1947. Plaintiff remarried in 1949.

During the years in controversy, plaintiff used a room in his home as his office. In it he kept his research materials, manuscripts, and other records relating to his work, including invoices for articles, reimbursement statements, and those parts of the family records for which he assumed responsibility.

His work took him out of town frequently, sometimes for extended periods. During 1945 and 1946, Mrs. Armstrong paid the household bills and some of the business bills. After her death, the two older sons looked after payment of the bills. Plaintiff himself consistently paid some of the business bills and looked after some of his records. His filing system, however, if he had one, was proved by later experience to be woefully deficient. Neither the family nor the business records, such as receipts, canceled checks, bank statements, insurance policies, and tax returns were ever organized into a coherent or usable system.

Plaintiff’s income, during the years here involved, was derived from the proceeds of his writing (magazine articles and books), from fees and honorariums for lectures, from salary payments for teaching, and from payments for special assignments in the fields of church work and political activity. Each of these activities (other than teaching) involved expenses for travel, for which he was usually reimbursed.

During each of the years 1945-1950, inclusive, plaintiff timely filed income tax returns, Form 1040, with the Collector of Internal Revenue, Kansas City, Missouri, and paid the amounts of the tax liability shown on the returns at the time the returns were filed. Summaries of these returns appear on Table 1, incorporated in finding 36.

On each of these returns plaintiff started with adjusted gross income, without explanation or schedules showing how he arrived at the figures. He then subtracted his (personal) deductions to arrive at net income, from which he subtracted his exemptions to derive the taxable income, on which he computed his tax liability.

Following are his entries of adjusted gross.income and tax liabilities:

The Forms 1040 for 1945, 1946, 1947, and 1948 were done in longhand. Those for 1949 and 1950 were typewritten. Each was dated by the taxpayer as having been signed by him within the week preceding the filing date of March 15. The four forms done in longhand gave the appearance of sketchiness and hurry.

In the fall of 1950, an office audit of taxpayer’s 1949 tax return was made by the Audit Branch of the Internal Revenue Service, Kansas City office. In that return, taxpayer had listed, under Exemptions, himself and 7 other persons (his wife, his mother, and his 5 children), and had claimed 6y2 exemptions. While the audit of his 1949 return was pending, his 1948 return was assigned to another auditor in the Kansas City office of the Internal Revenue Service. Both auditors made requests of taxpayer for further information:

While these requests were outstanding, the auditors had occasion to examine records in a Springfield bank on other matters. One of them took the opportunity to look at some of the records of plaintiff’s bank account. He made a mental note of the indication he found of checks having cleared through plaintiff’s account as deposits, the totals of which appeared to exceed by considerable amounts the adjusted gross incomes reported by plaintiff. These impressions were later confirmed by more detailed examination of the bank records.

As requests for information by representatives of the Internal Revenue Service in Kansas City increased, plaintiff requested that the investigation of his returns be transferred to Springfield. The transfer was made in January 1951, the month in which plaintiff took his seat in Congress. The investigation in the Springfield office, of. plaintiff’s income tax returns for 1948 and 1949, was assigned to Revenue Agent John C. Boals.

■ ■ Agent Boals reexamined the bank records, with plaintiff’s 1948 and 1949 returns in hand, and found from the bank’s ledger sheets that total deposits to plaintiff’s account in each of the years 1948 and 1949 materially exceeded the amounts recorded on plaintiff’s returns as adjusted gross revenue. He reported his findings to his superior in the Springfield office, who forwarded the information to the Kansas City office where the Intelligence Division officially assigned Special Agent Aimer A. Ridge to work with Revenue Agent Boals in making an investigation.

In response to an invitation from Agent Boals, plaintiff went to the Internal Revenue Service office in Springfield on April 23, 1951, to discuss his returns for 1948 and 1949 with Agents Boals and Ridge. The details of this and several other meetings between plaintiff and the revenue agents are set forth in the findings, as are details of the results of the investigation, and of additional inconsistencies.

Plaintiff appears to have had no adequate conception, be-foré lie met with the revenue agents on April 23d,-of the nature or depth of the interrogation to which he was to be subjected. From the agents’ standpoint, the interrogation was a routine effort to obtain information with which to explain plaintiff’s returns. Plaintiff took umbrage at the agents’ endeavors, and the meeting ended in a strained atmosphere. The agents, construed plaintiff’s resentment as reflecting a lack of cooperation on his part, and forthwith launched a full investigation which ultimately was extended to cover his income tax returns for the years 1945-1950.

Before his next meeting with the agents, plaintiff satisfied himself that the investigation of his tax returns was not politically inspired and, when he again met with the agents on May 9, 1951, he so advised them and apologized for his anger at the previous interview. Thereafter, his attitude was one of cordiality , and cooperation and, when the interviews ended, in April 1952, he expressed the belief that he had been treated fairly during the investigation.

In the course of the yearlong investigation, the two revenue agents (1) assembled from outside sources as much information as possible concerning payments made to plaintiff for writing, lectures, teaching, and political activities; (2) made exhaustive analyses of the bank records; (3) interviewed plaintiff intermittently; (4) obtained from plaintiff such of his canceled checks, receipts, and “work papers” as he could locate; (5) made a check spread, in the preparation of which plaintiff participated; and (6) reconstructed his income as best they could by the established methods known as the specific items method and the net worth method.

While the evidence does not warrant the conclusion that plaintiff was willfully uncooperative in supplying to the agents his receipts, canceled checks, and “work papers,” the fact remains that the production of these records was a slow process. The inferences to be drawn from the evidence as a whole are (1) that, for lack of a coherent, usable filing system, plaintiff could not assemble these papers readily; (2) that plaintiff produced such papers as he could find, as he found them, in the hope each time that his latest effort would suffice; and (3) that plaintiff never, during the course of the investigation, took the time to make a thorough search to turn up at one time all of the records in Ms possession. The production of canceled checks, for example, went on piecemeal throughout 9 months of the year of investigation.

The progress of the investigation was further impeded by recurrent discoveries by the agents that statements made by plaintiff at one interview were inconsistent with statements made by him on the same subject at a prior interview. The agents’ experience with plaintiff’s so-called “work papers” is illustrative of this impediment.

On one occasion the agents went to plaintiff’s home, at his request, to pick up some papers. There plaintiff handed to them a set of typewritten notes relating to his income taxes for the years in question. On the table one of the agents saw still other notes, in penciled form, also apparently relating to income taxes for the same years, and asked if he might have them. Plaintiff gave them to Mm.

Conflicts in the evidence concerning the conversations between plaintiff and the agents at the time have been resolved by the conclusions (1) that plaintiff had prepared the typewritten notes the night before, to give to the agents; (2) that these notes represented plaintiff’s efforts to reconstruct the figures which he had entered as income on his returns; (3) that the penciled notes had been used by him in preparing the typewritten sheets; (4) that the penciled notes had been prepared by him at various earlier times; (5) that none of the sheets (typed or penciled) was an original work sheet used by Mm in the preparation of Ms returns; and (6) that he did not tell the agents that the notes were original work sheets in the context mentioned, although Special Agent Eidge understood him to mean just that, and so did Agent Boals until sometime later when he had had opportunity to reflect upon plaintiff’s insistence that no such statement had been made.

Subsequent examination of the two sets of notes indicated that there was very little, if any, relation between them except that both sets related to items with which plaintiff’s income tax returns were concerned, although the agents had correctly understood plaintiff to say that the penciled notes had been used by him in the preparation of the typed sheets. The agents’ subsequent examination of the two sets of notes revealed that their most graphic characteristics were conflict and inconsistency, as summarized in the findings.

The agents’ confusion over plaintiff’s inconsistencies was compounded by his ability, heretofore noted, to speak with clarity and precision, evidencing the assurance of conviction as well as sincerity and rectitude. An illustration of this situation is depicted in the agents’ testimony relative to the preparation of the check spread.

By December 1951, enough canceled checks had been assembled to warrant the preparation of the check spread. Plaintiff went to the agents’ office on December 13 to participate in this endeavor. The agents had already prepared a chart, with a breakdown of subjects to which separate checks might be allocated. Plaintiff was asked to examine each check and to indicate the category in which it belonged. The three men worked all day at the undertaking, and succeeded in making an agreed allocation of most of the checks. The agents were impressed by plaintiff’s positive attitude in making the check identifications. He seemed to them never to be vague in his recollection as to the purpose of any check to which he gave an allocation.

At plaintiff’s final interview with the agents, before the close of the investigation, they told him that their analysis showed his true income for the period 1945 through 1950 to be approximately $50,000 instead of the approximate $20,000 figure he had reported on his original income tax returns.

The agents’ reconstruction of plaintiff’s income by the specific items method is summarized in Table 1 (finding 36). According to that reconstruction, plaintiff’s adjusted gross income for the 6 years in question was slightly in excess of $56,500, whereas the total of adjusted gross income reported by plaintiff on his returns was just under $29,800. The difference between these figures of approximately $26,700 represents an increase of 89.6 percent over the amount reported by plaintiff. As heretofore noted, plaintiff did not report a figure for gross income. The agents’ specific items reconstruction of income began with a total gross income of $89,800, from which the adjusted gross income figure was derived by subtracting allowable expenses in the amount of $33,800.

The trial computations (also summarized in Table 1) upon which plaintiff predicates his requested findings of fact list gross income of $84,700, from which he would deduct expenses of $38,500 to arrive at adjusted gross income of $46,200. Thus, the difference between the parties as reflected by the evidence upon which they now rely to show actual, corrected figures may be summarized as follows:

Plaintiff, it will be noted from the foregoing, has increased his own original figure for adjusted gross income by $16,400, or 55 percent.

The final interview with the agents was on April 21,1952. It was at this time that plaintiff told the agents he thought he had been treated fairly in the investigation. In recognition of their advice that their , estimates of his income were appreciably larger than the figures shown on his returns, plaintiff told the agents, as he had told them once before, that he was preparing amended returns which would show his correct income and expenses, but that before he filed such returns he wanted to go over them with a lawyer in Washington who represented the Eeader’s Digest. This lawyer had advised plaintiff in previous interviews that the payments to him by the Reader’s Digest of $2,500 in 1949 and $5,000 in 1950 were bonuses and not gifts as plaintiff had told the agents he believed them to be when he made out his original returns. These payments, plaintiff told the agents, would be reported as income in his amended returns.

On August 12,1952, plaintiff forwarded to the Collector of Internal Revenue at Kansas City amended income tax returns for the years 1946-1950. These returns are summarized in Table 1 (finding 36). A forwarding letter explained in great detail the methods used in preparing the amended returns and assured the Collector that—

* * * these reports are as complete and as accurate as is humanly possible to make them, to my knowledge and belief.

In the amended returns plaintiff reported gross income for the 5 years totaling $71,600, from which he subtracted $27,900 in allowable expenses, to arrive at adjusted gross income of $43,700. The latter figure compares with $25,500 reported as adjusted gross income for the same 5 years on his original returns, a difference of $18,200, reflecting an increase over his initial figure of 71.3 percent.

Following is a comparison of totals reflected by plaintiff’s amended returns with totals for the same years from figures upon which the parties now rely as reflecting the true situation :

With his amended returns plaintiff remitted to the Collector of Internal Revenue $3,857.20, representing his calculation of the difference between the taxes previously paid for 1946-1950 and the taxes shown by the amended returns to be due, plus interest. It does not appear from the evidence what acknowledgment or reply, if any, the Collector of Internal Revenue made to plaintiff. It is established that the amount remitted by plaintiff was placed in an escrow account by the Collector, where it remained until after the assessment of deficiencies and penalties, whereupon plaintiff was given credit for payment on account.

Following is a comparison of the total tax liability for the years 1946-1950, as shown on plaintiff’s original returns, with the total tax liability for the same years as shown (1) by plaintiff’s amended returns pf 1952; (2) by defendant’s computation; and (3) by the trial computation on which plaintiff now relies:

Computation: Amount
Plaintiff’s Original Eeturns_ $256.37
Plaintiff’s Amended Keturns__— .3,500.84
Defendant’s Trial Computation_7,113.74
Plaintiff’s Trial Computation_ 1, 552.85

In summary, defendant contends that plaintiff initially underpaid his taxes by some $6,800, while plaintiff, although admitting his original returns reflected underestimates, now says he has since overpaid the amount properly due by $2,000.

On March 1, 1954, almost 2 years after the agents completed their investigation and 18 months after plaintiff had filed amended returns, plaintiff (accompanied by counsél) attended a meeting in the office of the United States Attorney in Kansas City, at which Agents Boals and Ridge were also present. Details of the discussions' which took place are not in evidence. It does appear, however, that when plaintiff was questioned about his' original returns and the work papers used in their preparation, he averred that no such work papers had ever existed. Agent Boals asked if it were not true that the expenses plaintiff had applied against each article had been mental calculations. Plaintiff’s attorney said the expenses did not represent mental calculations, but estimates, and plaintiff agreed that this was true.

Ten days later, on March 11, 1954, the fraud indictment against plaintiff was returned. Plaintiff suffered a nervous breakdown shortly thereafter, and ascribes the indictment as its cause.

A year later, on April 13,1955, he was brought to trial and was convicted, on all three counts, of willful evasion of taxes for 1947, 1948, and 1949. Two months later, on June 13, 1955, a fine of $500 per count was imposed.

On August 1, 1955, plaintiff filed claims for refund of amounts paid with the amended returns in the sum of $2,172.02 in tax, and $612.81 in interest. These claims for refund were rejected by the Commissioner of Internal Revenue.

On November 8, 1957, a deficiency- was assessed against plaintiff for the year 1950, and 6 months later, on May 23, 1958, deficiencies were assessed for the 5 years 1945 through 1949. On November 4, 1958, plaintiff paid the assessments, including tax, penalties, and interest in the sum of $12,022.66. On November 17, 1958, plaintiff filed claims for refund for the 6 years 1945 through 1950, in the amount of $11,708.32. These claims for refund were likewise rejected. The petition was filed in this court on June 10, I960.

In December 1961, plaintiff submitted to defendant, in connection with the present litigation, a proposed stipulation of tax computations and liability for the years 1945-1950. These computations are summarized in Table 1 (finding 36). They were prepared by the attorney who first represented plaintiff in the present litigation. This attorney had access to plaintiff’s original and amended returns and to pro forma returns for 1947-1949 (summarized in Table 1) prepared for plaintiff by a firm of auditors. In resolving the inconsistencies between these items of source material, he had to depend upon information and advice from plaintiff. Against this background, the attorney exercised his professional skill and judgment in determining the validity of such items as claimed exemptions, professional expenses (reimbursed and unreim-bursed), and allowable personal deductions.

In a deposition taken by defendant in 1962, plaintiff supported in detail the recollection and recall .by which he had advised the attorney who prepared the proposed stipulation.

The attorney who represented plaintiff at the trial of the action in November 1963 has prepared still another computation, which is fully presented in his requested findings of fact. These computations are summarized in Table 1 (finding 36).

The trial attorney also exercised his professional skill and judgment in determining the validity of such items as professional expenses (reimbursed and unreimbursed), claimed exemptions, and allowable personal deductions. Although he had access to the original returns, the amended returns, the pro forma returns, and the proposed stipulation, he too had to depend upon information and advice from plaintiff concerning receipts and disbursements and other source material.

At the trial of the action, plaintiff once more supported in detail and with firm conviction the recollection and recall by which he had advised the trial attorney, although there were manifest inconsistencies between his trial testimony and statements made by him previously.

Of the six tax computations summarized in Table 1, the first five represent computations prepared by or for plaintiff: (1) his original returns; (2) his amended returns; (3) the pro forma returns; (4) the proposed stipulation; and (5) the trial computation. Each one of the five computations reflects in large measure plaintiff’s recollection and recall as recorded by him during the years 1946-1951, in the preparation of his original returns; during 1952 for the amended returns; during 1954 for the pro forma returns; during 1961 and 1962 for the proposed stipulation; and during 1963 for the trial computation. This situation reflects the importance of an accurate appraisal of plaintiff’s reliance on recollection and recall. Such an appraisal has been attempted in finding 45, the text of which follows:

“When plaintiff prepared his original returns, during each of the years 1946-1951, the records he had before him were meager, scattered, and sketchy. The subsequent investigation of Ms tax returns, begun in April 1951 and carried over into April 1952, compelled Mm to assemble more records: canceled checks, receipts, invoices, and other current notations of many transactions. He had the benefit of these in the preparation of his amended returns, filed'in August 1952, and this benefit was a carryover for the auditors who prepared the pro forma returns in 1954. After the fraud conviction in 1955, plaintiff persevered further in the assembly of records for the years in issue. By the time of the preparation of his proposed stipulation in 1961, he had assembled as much of his recorded data as could reasonably be expected. Even so, his recollection and recall continued to be refined during the preparation of his trial computations in 1968.

“Plaintiff’s memory was freshest at the time he prepared his original returns. In the preparation of his amended returns, he had before him for reference a fair portion of his full record assembly, and in point of time he was only 1 year removed from the preparation of his 1950 return and 5 years from the preparation of Ms 1946 return. He appears to have relied rather heavily upon his 1952 review in advising the auditors who prepared the pro forma returns in 1954. By 1961-1968, when his proposed stipulation and trial computations were prepared, he was 10 to 12 years removed from his original return for 1950 and 15 to 17 years removed from the original return for 1946. He nevertheless asks the court to accept his later handiwork in preference to his earlier efforts.

“Plaintiff’s recollection and recall are materially involved in each of the five tax computations he has submitted over the years. The vagaries of the computations are matched by inconsistencies and contradictions in the statements he has made at various times based on his recollection and recall. Throughout these statements, however, there is one consistent thread: intelligence, rationality, and assurance, expressed in language calculated by its sincerity'to be informative and helpful.

“When the revenue agents worked with plaintiff on the check spread, they were impressed with his positive attitude in making check identifications. He seemed to them never to be vague in bis recollection as to the purpose of the checks. When plaintiff submitted his amended returns in 1952, he assured the Collector that ‘these reports are as complete and as accurate as is humanly possible to make them, to my knowledge and belief.’ The auditors who prepared the pro forma returns in 1954 were assured of the reasonableness of their conclusions by their discussions with plaintiff. His deposition in support of the proposed stipulation and his testimony in support of his trial computations are in similar vein. His two attorneys had been as much assured as had his auditors by discussions with him. The trial commissioner, who presided at the trial, saw no indication of dissembling or concealment in plaintiff’s demeanor as a witness.

“Surely, a hurried review of the many inconsistencies and contradictions in plaintiff’s various computations and explanatory statements would suggest that he is, at the least, careless with the truth or, at the worst, a congenital liar. Either inference would be both superficial and erroneous. The only conclusion that will stand the test of careful analysis is that, by some strange and unusual psychological quirk, plaintiff was able to believe and did sincerely believe in the truth of each statement as it was made.

“The appraisal therefore follows that plaintiff’s reliance on his recollection and recall is compulsive. His appearance as a witness demonstrated that on any occasion he is ready and willing, almost eager, to address himself to any question or matter affecting his recollection and recall, and to do so without hesitation or reflection.”

It is this appraisal which accounts for the seemingly contradictory conclusions recorded at the outset of this opinion. Defendant has failed to carry the burden of proving fraud because there is insufficient evidence of scienter or wrongful intent. Plaintiff has failed to carry the burden of proving overpayment of taxes because his statements are unreliable. One statement is as plausible as another, and there is insufficient objective evidence to warrant the acceptance of one in preference to another.

Defendant has laid great stress, at the trial and in its findings and brief, upon plaintiff’s failure to report as income (in bis initial returns) : (1) the two bonus payments be received from the Reader’s Digest ($2,500 in 1949 and $5,000 in 1950); (2) the gift to him in 1947 of an automobile by Mr. R. Gr. Le Tourneau; and (3) payments made to plaintiff by Mr. Le Tourneau which defendant contends represented either money earned (royalties) or reimbursement of expenses and which plaintiff says were gifts.

Mr. Le Tourneau was identified by plaintiff as head of the Le Tourneau Foundation and as “the well known Christian layman,” who asked plaintiff in 1944 to collect material for a book, in the course of which plaintiff was to travel extensively. Plaintiff continued to be engaged in one assignment or another for the Le Tourneau Foundation for 3 or 4 years. It was in 1947 that Mr. Le Tourneau told plaintiff of his desire to give plaintiff a 1946 automobile. Plaintiff later received the car and, when questioned about it, said it was a gift and he had regarded it as such.

One may discount, as products of an intuitive rationalization of self-interest, plaintiff’s statements that he regarded the various beneficences of Mr. Le Tourneau and the Reader’s Digest as gifts. As such, his statements might be subject to challenge for lack of basic veracity. The evidence fully warrants the conclusion that, where his self-interest is concerned, plaintiff possesses a generous capacity for intuitive rationalization. Against any challenge of his basic veracity in the exercise of that capacity, however, at least in the present context, there must be set his lifelong environment in the Baptist Church, as the son of a minister and as a lay leader dealing constantly with the Baptist ministry.

His background will have special significance to anyone familiar with the historical development of the financial mores of the Protestant denominations in an economy as relatively meager as that of southwest Missouri. Donations by wealthy laymen, to supplement inadequate ministerial stipends, and even to substitute for honorariums or the reimbursement of expenses for which the congregation had not made (perhaps could not make) provision, were not uncommon expressions of Christian charity.

The evidence, therefore, does not warrant a conclusion that plaintiff was lacking in basic veracity when he regarded these beneficences as gifts rather than income.

As authority for the imposition on plaintiff of fraud penalties for the years 1945-1950, defendant relies on the provisions of section 293 (b) of Title 26, United States Code, 1952 edition, the text of which follows:

(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).

Defendant’s brief refers to “* * * the meaning given to the term ‘fraud’ as it is used in civil tax fraud cases such as the instant controversy,” as follows:

“Fraud implies bad faith, intentional wrongdoing and a sinister motive.” Davis v. Commissioner, 184 F. 2d 86, 87 (C.A. 10th), cited with approval by this Court in Olinger v. Commissioner, 234 F. 2d 823, 824 (C.A. 5th). “The fraud meant is actual, intentional wrongdoing, and the intent required is the specific purpose to made a tax believed to be owning.” (Emphasis supplied.) Mitchell v. Commissioner, 118 F. 2d 308, 310 (C.A. 5th).

Intent is a state of mind. That the state of a man’s mind is as much a fact as the state of his digestion is axiomatic. Whereas objective tests might be made of one’s digestive apparatus, measures of mental state are almost wholly subjective and therefore quite difficult of application.

In the instant case, the bulk of the evidence which might tend to establish wrongful intent consists of the contradictions and inconsistencies attributable to plaintiff since his tax returns came under investigation. Such contradictions and inconsistencies would be entitled to considerable weight as supporting the inference of wrongful intent in the absence of satisfactory explanation of or excuse for them. As matters stand, they are fully explained, and the inference of wrongful intent which might otherwise be drawn is altogether negated by the explanation.

The explanation of plaintiff’s contradictions and inconsistencies, as derived from the appraisal of his reliance on recollection and recall, does not fully account for the fact that plaintiff materially underestimated his tax liabilities for the years 1945-1950 in his initial returns. This fact reflects his capacity for intuitive rationalization of self-interest in a slightly different context, where it is once more subject to challenge for basic veracity.

Whereas plaintiff reported in and paid with his initial returns a total tax liability of $360, he now admits, in his trial computation, that his total tax liability was $1,800, an increase of 400 percent. Percentagewise, this is not an inconsiderable variation.

In the preparation of his original returns, plaintiff, as heretofore noted, had no adequate system of records. Each year (1945-1950) as the March 15 deadline approached, he would assemble some notes of his income from writing and from the rents received from his two apartments, and occasionally of income from another source or two, together with various indicia of his contributions, interest, taxes, and medical expenses. Taking up each item of income from writing or lecturing, he would estimate the expenses incurred in connection with that item, deduct the estimate from the receipt, and enter the difference as part of his adjusted gross income. By dint of this method he never made a schedule of gross income or of expenses incurred, reimbursed or not.

The Instructions applicable at the time required him to attach a schedule of expenses. The expenses were not otherwise required to be entered on the returns. Plaintiff, however, never read the Instructions. One of the most curious facts of record is that, throughout all the grief plaintiff has had from this tax situation, including the preparation of five sets of tax computations, he had never, up to the time of trial, carefully read or studied the Instructions that go with the Form 1040. Neither did he employ counsel or auditors to assist him with either his original returns or the amended returns filed in 1952. He relied, instead, on a smattering of information obtained from interviews with Internal Eevenue staff and conversations with other people.

Surely, plaintiff was no paragon taxpayer.

The federal income tax system is one of self-assessment. Its efficiency must depend largely on the truth of facts set out by the taxpayer in his return. And, appropriately geared to the gravity of nondisclosure (or false disclosure), Congress has provided sanctions, both civil and criminal, to protect that system. Implicit in the working of the system is an obvious duty of keeping proper records imposed on the taxpayer. * * * [Halle v. Commissioner of Internal Revenue, 175 F. 2d 500 (1949), cert. denied 338 U.S. 949 (1950); 70 S. Ct. 485; 94 L. Ed. 586].

As early as 1938 there was a statutory requirement that “[ejvery person liable to any tax * * * shall keep such records, render under oath such statements, make such returns, and comply with such rules and regulations, as the Commissioner * * * may from time to time prescribe.”

The thrust of this requirement has been subjected to continuous refinement for upward of 30 years. The taxpaying public has become increasingly aware of the requirement and its importance, particularly since the substantial increases in income tax rates, beginning with the higher rates of 1941-1942. The withholding of income tax at the source was begun in 1943, but it applied only to “wages,” defined as “remuneration * * * for services performed by an employee for his employer.” Taxpayers subject to such withholding were required to declare in advance their estimates of tax for the ensuing year, and to pay the tax in installments. The sobering effects of these requirements are known to all who then had to estimate and pay their taxes in advance.

Plaintiff, however, was not one of these. As a freelance writer and lecturer, he was primarily in the category of independent contractor rather than employee. As a consequence, he missed the discipline of the withholding and estimating procedures.

Whether or not the failure to keep records adequate for tax purposes is, in and of itself, evidence of fraudulent intent depends upon the nature of the evidence. There are cases both ways. For illustration, see Safra v. Commissioner of Internal Revenue, 30 T.C. 1026 (1958) and Goldberg v. Commissioner of Internal Revenue, 239 F. 2d 316 (1956).

In the instant case, plaintiff’s failure to keep adequate records, even when coupled with his failure to report substantial amounts of income and the taking of improper deductions for travel and other business expenses, fail to provide the “clear and convincing evidence” requisite to prove fraud, because (if for no other reason) the evidence as a whole points to another, more logical inference.

Reference has been made above to the disciplines resulting from the withholding and advance estimation of income taxes, with which the majority of the taxpaying public had to become acquainted during the war and th6 years immediately following it. With respect to plaintiff, it is reasonable to say, on the basis of the record as a whole, that these disciplines caught up with him (or he with them) only as a result of the investigation of his tax returns in 1951-1952. His reaction to the situation in which he found himself was clearly one of dismay. Not only did he not understand at the outset what was happening to him, he appears not to have understood even at the time of trial. Certainly, his attitude toward his conviction on a charge of criminal fraud remained, at the time of the trial of the instant, civil action, one of incredulity and disbelief that any such thing could have happened to him.

In the view which I take of the evidence in this case, plaintiff is completely absolved of intent to evade taxes within the meaning of section 293 (b).

II

At the time this case was tried, there was a split of authority as to the binding effect of a prior conviction for wilful tax evasion upon a civil proceeding for tax fraud. On this issue of collateral estoppel, plaintiff’s trial attorney asserted in his brief to the trial commissioner that “the criminal conviction for the years 1947, 1948, and 1949 is not collateral estoppel on the issue of fraud for those years, but rather is only evidence from which the inference of fraud may be drawn if not explained,” citing Vassallo v. Commissioner, 28 T.C. 656 (1955), Safra v. Commissioner, 30 T.C. 1026 (1958), and several other Tax Court decisions so holding. His brief continues: “The sole case to the contrary is Lefkowitz v. Tomlinson, (D.C. Fla. 1962), 11 AFTR 2d 617, pending on appeal.” Plaintiff’s brief was filed on March 18, 1964. On July 13, 1964, the Court of Appeals for the Fifth Circuit decided Lefhowitz, and the case was cited in defendant’s brief to the trial commissioner, filed July 21, 1964. Lefkowitz is reported in 334 F. 2d 262 (5th Cir. 1964), cert. denied, 379 U.S. 962 (1965). Sidney Lefkowitz had been convicted of felonious evasion of income taxes for the years 1951-1953. He and his wife sued to recover the penalties that had been assessed (and paid) for civil fraud. The court concluded “that the issue of the existence of a fraudulent intent is foreclosed by collateral estoppel arising from Sidney’s conviction under section 145 (b).” 334 F. 2d at 266.

On October 21, 1964, the Tax Court held, in Amos v. Commissioner, 43 T.C. 50, that:

In the instant case imposition of the civil penalty * * * depends upon a determination of the ultimate fact that petitioner’s underpayment of tax for the years 1955 through 1958 was due to fraud. This ultimate fact for determination herein is the same ultimate fact which was determined adversely to petitioner in the prior criminal proceeding. It is therefore our decision that petitioner is conclusively bound, under the doctrine of collateral estoppel, by that prior adverse determination. Tomlinson v. Lefkowitz, 334 F. 2d 262 (C.A. 5, 1964), affirming an unreported case (S.D. Fla. 1962).

The Tax Court then proceeded to distinguish Vassallo and to overrule Safra. The Amos holding was followed by the Tax Court in another decision of the same date: Arctic Ice Cream Company v. Commissioner, 43 T.C. 68 (1964). Five Tax Court judges dissented from Amos, in favor of retaining the court’s former rule that a prior conviction is only evidence of civil fraud, and does not work an estoppel.

At the present time, therefore, the weight of the authority which has passed on the issue favors the proposition that a prior conviction for tax evasion operates as a collateral es-toppel on the issue of civil fraud in a fraud penalty proceeding. But during the trial there was no such preponderance and, as indicated in the portion of Commissioner Evans’ opinion set forth in Part I, supra, a ruling on the application of collateral estoppel was reserved as the trial opened because of the serious conflict between the decided cases. The parties proceeded pursuant to an understanding that evidence might be offered as to years involved in the criminal proceeding as well as the years not so involved. After the trial, and while the parties’ requested findings of fact and briefs were pending consideration by the trial commissioner, the conflicts among the decided cases were reduced by the full Tax Court’s action in reversing its field. ■

Without disagreeing with the Fifth Circuit or the Tax Court, Commissioner Evans was of the view that the ends of justice would not be served by application of collateral estoppel in these circumstances, now that he had heard all the evidence pertaining to all six years and had determined that Mr. Armstrong had no intent to defraud the Government during any of those years. In large part, the commissioner’s view was founded on the position that application of the estoppel doctrine, at the outset, would have precluded any evidence as to the three years covered by the criminal conviction (1947, 1948, 1949), and that it would not serve justice to apply collateral estoppel nunc pro twnc and excise all of this evidence.

The court takes a different position. We fully agree with the commissioner in his original opinion that “the nature of the evidence is such that determination of the fraud issue rests upon an analysis of the taxpayer’s course of conduct over a period of years” and that “the pattern of taxpayer’s course of conduct” could only become clear through, evidence extending over the whole six-year period. All the evidence was necessary for such an appraisal. We do not agree, however, that — in a case like this in which the determination of the taxpayer’s intent depends on an evaluation of a prolonged course of conduct — application of collateral estoppel would preclude the admission or consideration of evidence relating to the years covered by the prior criminal conviction. That evidence would be admissible and relevant because of its bearing on the taxpayer’s intent during the three years still open. Taxpayer would be estopped from seeking an adjudication that he was innocent of fraud in 1947,1948, or 1949, but he would not be estopped from seeking such an adjudication for 1945, 1946, and 1950, or from introducing evidence relating to the barred years in order to show his intent for the three years as to which he would not be es-topped. Accordingly, we consider the trial commissioner’s procedure at the trial to have been correct, as was his consideration of all the evidence (for all the years) in determining the state of the taxpayer’s mind for the years as to which the plaintiffs are not estopped.

The question remains whether the estoppel doctrine should now be applied, despite the commissioner’s independent findings of no fraud, to 1947, 1948, 1949—the years in which the jury found that there was wilful evasion. It is true that there has been a full de novo trial, and properly so in this case, but we do not think this re-trial is a sufficient reason to reject the defense of collateral estoppel. That doctrine rests not only on the desire to avoid repetitious trials but just as firmly on the need to avoid conflicting adjudications (involving the same parties), as well as the need to put an end to controversies. The jury in the criminal action determined that Mr. Armstrong had committed a fraud in 1947, 1948, and 1949. That determination was embodied in a judgment which was affirmed and has become final. Whatever we may now think or say of the correctness of the jury’s finding, we should not issue a diametrically opposed adjudication to compete with and contradict that earlier one. If possible, the same parties should not be subject to conflicting determinations on the same point, both of which are binding. Moreover, the reasons for the re-trial in this case do not counsel a lifting of the estoppel bar as to the years governed by the criminal verdict. It would discriminate against other taxpayers to hold that these particular plaintiffs obtain an advantage because the law as to collateral estoppel was unclear in 1963 and the first half of 1964, or because it was necessary in this particular instance to admit all the proffered evidence in order to determine taxpayer’s intent in the three years left untouched by the earlier decision. These are fortuitous happenstances which should not control the operation of the defense.

There may be cases in which deference to the prior adjudication is properly refused, but this is not one. The evidence before the district court was largely (though not entirely) the same as that before us, and the balance between the opposing judgments of the jury and of our trial commissioner is indeed close. There is no miscarriage of justice in holding taxpayer to the jury’s finding for the years included in the criminal trial.

Plaintiffs argue, also, that the Fifth Circuit and the Tax Court were wrong in finding a component of fraud in the crime of willful tax evasion. We agree, however, with those courts and disagree with Moore v. United States, supra, 235 F. Supp. 387, 392-93 (W.D. Va., 1964). For the reasons given in the opinions in Lefkowitz, Amos, and Artie, we hold that the issue of fraud was necessarily litigated and decided in the criminal case. The Supreme Court ruling on which plaintiffs mainly rely, United States v. Scharton, 285 U.S. 518, 521-22 (1932), rested on the special need for narrow construction of an excepting clause relating to a criminal statute of limitations; the reach of Seharton, moreover, has been severely limited by United States v. Grainger, 346 U.S. 235, 240-44 (1953).

The result is that, despite the trial commissioner’s finding as to Mr. Armstrong’s lack of fraudulent intent, plaintiffs cannot have an adjudication that Mr. Armstrong committed no fraud in 1947,1948, and 1949. For those years the judgment in the prior criminal case is decisive.

hi

On the whole case our conclusion is that plaintiffs are entitled to recover the deficiencies, penalties, and interest assessed against them for alleged fraudulent returns for the years 1945 and 1946, and fraud penalties for 1950. Judgment is entered to that effect and the amount of recovery will be determined under Buie 47(c). Plaintiffs are not entitled to recover the deficiencies, penalties, and interest assessed against them for fraudulent returns for the years 1947,1948, and 1949; nor are they entitled to recover alleged overpay-ments of taxes for the years 1945-1950, inclusive; as to these portions of their claim the petition is dismissed. The counterclaim is dismissed.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner W. Ney Evans, and the briefs and argument of counsel, makes findings of fact as follows:

THE PLAINTIFF

1. This suit, filed initially by the plaintiff, O. K. Armstrong, is concerned altogether with his actions and claims as a taxpayer. Eeferences hereinafter to the plaintiff (as claimant or taxpayer) are in the singular and signify Mr. Armstrong.

2. (a) Plaintiff was bom in Willow Springs, Missouri, shortly before the turn of the century. His father was a Baptist minister who later held pastorates in Bolivar, Ozark, ■Springfield, and Carterville, all in southwest Missouri. Plaintiff completed the eighth grade and graduated from high school in Carterville.

(b) He attended Drury College, in Springfield, majoring in education and psychology, and was graduated with a bachelor of arts degree. After a year of teaching, he was in the military service during World War I for 2 years. Upon his release from the service, he studied law at Cumberland University, in Tennessee, receiving his degree in 1922. He took the bar examination in Missouri and was admitted to practice. Instead of continuing in the law, however, he turned to journalism and took a master’s degree in journalism from the University of Missouri.

(c) During the middle and late 1920’s he lived in Florida, where he taught journalism at the State University for 3 years. He became involved in the Florida real estate speculation of the time, and incurred losses when the boom collapsed. Payment of these debts was completed in 1946.

(d) He returned to Missouri in 1929 and became active in the Baptist Church and the Republican Party. He was elected to the Missouri General Assembly in 1932, 1934, and 1942, and to the House of Representatives of the United States Congress in 1950, where he served one term. Meanwhile, in 1938, he served by appointment of the Governor as an investigator of alleged corruption (gambling, racketeering, and prostitution) in Jackson County (Kansas City), Missouri.

(e) Plaintiff began Ms career as a freelance writer while living in Florida. Upon his return to Missouri, he continued writing part time, but devoted most of his efforts during the first 2 or 3 years to teaching at Drury College and serving 'as its alumni director, and thereafter to the duties of public office (elective or appointive). In 1938, he began writing 'articles for the Reader’s Digest, on assignment or on speculation, and in 1944 was appointed an editorial staff writer with the status of expenses and remuneration for those of Ms articles which the magazine accepted for publication.

(f) He has written articles on taxation dealing primarily with efforts to lower taxes. In 1946, he was appointed chairman of an advisory committee to the Full Committee of tlie Senate Committee on Post Office and Civil Service, and has since described this assignment as being related to “the Senate Study on Taxation.”

(g) During the' 10 or 12 years material to this action (from 1944 through 1955), plaintiff was active in civic affairs as well as church work and politics. He was widely known and highly regarded as a lay leader in the Baptist Church, while as a political leader he was equally well known and somewhat controversial.

3. (a) During the years material to this action, plaintiff’s home was in Springfield, at 1307 Benton Avenue. His family consisted of himself, his wife, and five children. All of the children were minors in 1945. Their mother died in 1947. Plaintiff remarried in 1949.

(b) Plaintiff’s work took him away from home frequently, sometimes for extended periods. During 1945 and 1946, Mrs. Armstrong paid the household bills and some of the business bills. After her death, the two older sons looked after payment of the bills. Plaintiff, himself, consistently paid some of the business bills and looked after some of his records. The family records, such as checks, receipts, bank statements, insurance policies, and tax returns were never organized in a coherent system.

(c) Plaintiff used a room in his home for his office. In it he kept his research materials, manuscripts, and other records relating to his work, including invoices for articles, reimbursement statements, and those parts of the family records for which he took responsibility.

(d) A part of the residence was rented as an apartment. The space over the garage had likewise been converted into an apartment and was rented.

(e) Plaintiff’s income, during the years here involved, was derived from the proceeds of his writing (magazine articles and books), from fees and honorariums for lectures, from salary payments for teaching, and from payments for special assignments in the fields of church work and political activity. Each of these endeavors (other than teaching) involved expenses for travel, for which he was usually reimbursed. The major office expense for which he was not regularly reimbursed was for research materials. Other ' office expenses, for equipment, supplies, and telephone, were relatively minor. He regularly included in his unreimbursed expenses an allowance as rent for his office.

THE ACTION

4. (a) During the period 1945-1950, inclusive, plaintiff timely filed income tax returns, Form 1040, with the Collector of Internal Revenue, Kansas City, Missouri, and paid the amounts of the tax liability shown on the returns at the time the returns were filed.

(b) In the fall of 1950, an office audit of plaintiff’s 1949 tax return was made by the Audit Branch of the Internal Revenue Service, Kansas City office. Thereafter, his 1948 income tax return was assigned to another auditor in the Kansas City office of Internal Revenue. In each instance, the auditor requested additional information of plaintiff» While these reviews were pending, the revenue agents had occasion to examine records in a Springfield bank on other matters, and one of them took the opportunity to look at some of the bank’s records of plaintiff’s bank account. There he found indication of checks having cleared through plaintiff’s account, as deposits, the totals of which exceeded by considerable amounts the adjusted gross incomes reported by plaintiff. These events marked the beginning of a full-scale investigation, hereinafter reported in more detail..

5. (a) On August 14,1952, plaintiff filed amended returns for the years 1946-1950. The year 1945 was not then in issue.

(b) With the amended returns, plaintiff remitted as amounts due the differences between the tax liabilities shown on the amended returns and the tax liabilities paid with the original returns, plus interest.

6. On March 11, 1954, a three-count indictment was returned against plaintiff, charging him with having willfully attempted to evade or defeat income taxes owed the United States by filing false returns for the years 1947,1948, and 1949. On April 18, 1955, under this indictment plaintiff was convicted by a jury in the United States District Court for the Western District of Missouri, and on June 13, 1955, a, fine of $500 per count was imposed. The conviction was affirmed on January 18, 1956, by the United States Court of Appeals for the 8th Circuit, and a petition for writ of certiorari was denied by the Supreme Court on April 30, 1956.

7. (a) Following is a summary of the amounts paid by plaintiff for the years 1945-1950, with his original and amended returns:

(b) As a result of the foregoing payments, plaintiff had paid, for the years 1946-1950, total taxes in the amount of $3,500.64, and interest in the amount of $612.93.

(c) On. August 1, 1955, plaintiff filed claims for refupd of amounts paid with tlie amended returns, in the amount of $2,172.02 in tas,, and $612.81 in interest. These claims for refund were rejected by the Commissioner of Internal Revenue.

8. (a) On November 8, 1957, a deficiency was assessed against plaintiff for the year 1950.. On May 28, 1958, deficiencies were assessed for the 5 years 1945 through 1949. On November 4, 1958, plaintiff paid the assessments, including tax, penalties, and interest (assessed and accrued), as -follows:

(b) On November 17, 1958, plaintiff filed claims for refund for the years 1945-1950, inclusive, in the amount of $11,708.32. These claims for refund were rejected by the Commissioner of Internal Revenue.

9. (a) The petition initially filed by plaintiff on June 10, 1960, sought recovery of $14,223.50, representing $12,053.89 allegedly due as a result of the deficiency assessments and $2,169:61 allegedly due as a result of overpayments of tax reported on his amended returns.

(b) Plaintiff’s second amended petition alleged that the total overpayment on the amended returns for the years 1946-1949 was $3,261.25, an increase for this item over the original petition of $1,091.64, and asked for recovery in the> amount of $15,315.14.

THE issues

10. (a) Defendant has alleged, in its answer to first amended petition, that “plaintiff, for each of the years in question, filed false or fraudulent income tax returns in an attempt to evade taxes properly due and owing by plaintiff for such years.”

(b) The pervasive issue of ultimate fact, therefore, is: Did plaintiff, for any of the years in question (1945-1950), file a false or fraudulent income tax return in an attempt to-evade taxes properly due and owing ?

11. (a) Defendant has further alleged, in its answer to first amended petition, that on the basis of plaintiff’s conviction of “wilfully attempting to defeat and evade income taxes by filing a false and fraudulent income tax return under Section 145(b) of Title 26, U.S.C., for the years 1947, 1948, and 1949, * * * it is res judicata between plaintiff and defendant that plaintiff filed a false and fraudulent income tax return * * *” for those years, and “further is res judi-cata that plaintiff was lawfully obligated for income taxes in those years in at least the amounts set forth in the indictment of which plaintiff was convicted.”

(b) At the trial this allegation of res judicata was presented and considered in terms of collateral estoppel, i.e., whether or not plaintiff was estopped to deny fraud for those years (1947-1949) or to present evidence hi support of such a denial.

(c) At the trial, ruling was reserved on the issue of collateral estoppel; defendant was permitted to include the years 1947-1949 in its evidence in support of alleged fraud, and plaintiff was permitted to present evidence in support of his denial of fraud.

12. (a) As noted in finding 9(a), plaintiff seeks recovery of alleged overpayments of taxes for each of the years 1946-1950, in addition to recovery of the deficiency assessments,, penalties, and interest for the years 1945-1950.

(b) One issue thus presented may be stated as follows: For any year as to which, fraud is not established, has plaintiff overpaid the tax properly due and owing and, if so, by what amount ?

(c) As to the deficiency assessments, penalties, and interest, for alleged civil fraud, plaintiff seeks recovery ¡only of the amounts paid, on the basis of all or nothing.

THE INVESTIGATION

13. (a) As requests for information by representatives of the Internal Eevenue Service in Kansas City increased, plaintiff requested that the investigation of his returns be transferred to Springfield. The transfer was made in January 1951, and plaintiff’s income tax returns for 1948 and 1949 were assigned to Eevenue Agent John C. Boals, of the Springfield office, for investigation.

(b) Plaintiff, meanwhile, had been elected to Congress, and took his seat in the House of Eepresentatives in January 1951. His absence from Springfield and his absorption with his new duties contributed to the slow progress of the investigation and the piecemeal development of the facts ,by the revenue agents.

14. (a) After first noticing from the records of the Citizens National Bank in Springfield that several large checks payable to plaintiff had cleared the bank, Agent Boals reexamined plaintiff’s returns for 1948 and 1949 and confirmed his impression that the total of the checks of which he had made a mental note exceeded the total income reported by plaintiff. The agent thereupon returned to the bank and made a more detailed analysis of the checks and of the bank ledger sheets of plaintiff’s account, which indicated that total deposits in each of the years 1948 and 1949 materially exceeded the amounts recorded on plaintiff’s returns.

(b)Agent Boals made a written report of his observations and findings to Iris superior in the Springfield office. The information contained in this report was forwarded to the Kansas City office which informed the Intelligence Division of the facts for consideration of the assignment of a special agent to the case. Thereafter, Special Agent Aimer A. Ridge was officially assigned to the case to work with Agent Boals in making an investigation.

15. (a) On April 23, 1951, plaintiff went to the Internal Revenue office in Springfield, in response to a request by Agent Boals, to discuss with Agents Boals and Ridge his tax returns for 1948 and 1949. At the outset, plaintiff was told that the sole purpose of his being invited to the meeting was to give the agents an opportunity to go over his income tax material with him, but that he need not make any statements. Plaintiff agreed to discuss the returns with the agents.

(b) The agents thereupon made inquiry into the items of magazine income appearing on plaintiff’s returns for 1948 and 1949. Plaintiff explained that he arrived at the income figures appearing on the faces of the returns in the following manner: Upon receiving a check from Reader’s Digest, he would deduct from the amount of the check all expenses incurred by him in writing that particular article; and at the end of each year he would total the net amounts to arrive at the net income figure which appeared on the return. For example, plaintiff listed' on his 1948 return five articles with income reported of $625, $340, $1,203, $1,400, and $320. Plaintiff stated that the checks received from Reader’s Digest were much larger and that the figures reported were only net amounts.

(c) The discussion then turned to plaintiff’s contributions, whereupon he became “highly indignant” and “mighty incensed.” He stated that the agents had no right to inquire into his contributions, that every taxpayer was entitled to deduct 15 percent of the income reported, and that he was going to take this up with a congressional committee in Washington. From then on the conference continued in a rather strained mamier.

(d) The next topic for discussion was the matter of dependents. At this point plaintiff inquired as to why his returns had been assigned for audit. He stated that he felt that he was being persecuted, that the examination was politically inspired, and that he was going to make a personal investigation of both of the agents with respect to the matter. The agents pointed out to plaintiff, as evidence that the investigation was not politically inspired, that on his 1949 return he had listed eight persons, claimed 6% dependents, and that one-half of a dependent was not permissible.

(e) The agents then inquired specifically as to the two exemptions claimed for plaintiff’s sons, Milton and O. K., Jr. (In 1949, Milton Armstrong was 24 years old, and O. K., Jr., was 22.) Plaintiff explained that these two sons had been in military service; that upon their return they entered college and also worked; that neither was able fully to meet his expenses; and that plaintiff found it necessary to provide to each of them $1,000 during this period.

(f) When plaintiff was asked to produce records to shed some light on his income for the years then in issue, he became heated. He stated that all his canceled checks and all records were in Washington, D.C. He was asked to obtain such records and consented to do so. The agents thereupon said they would meet again with plaintiff in Springfield at his convenience, and a tentative date of May 7,1951, was agreed upon. Plaintiff then left the meeting, appearing to the agents to be “obviously angry.” He did not offer to shake hands with them.

16. Because of what the agents considered an “obviously uncooperative attitude” on plaintiff’s part, they then launched a full investigation. Agent Bidge sent out numerous collateral requests to agents in the field to get information on income from writing from Eeader’s Digest and other magazines for which he believed plaintiff had written. Both agents began checking into records at the Citizens Bank of Springfield, particularly deposit slips, ledger sheets, and re-cordáis film, in an attempt to reconstruct plaintiff’s income.

17. (a) On May 9,1951, plaintiff went to the office of the Internal Revenue Service in Springfield for his second meeting with Agents Ridge and Boals. At the outset, plaintiff apologized for his anger at the previous meeting, said that he had made inquiries and had found that the investigation of his tax returns was not politically inspired, and further stated that he felt he owed the agents an apology for some of the things he had said at the earlier interview. The discussion then proceeded on a very friendly basis.

(b) Plaintiff brought to this meeting a few canceled checks which were for medical expenses and contributions, and also some typed pages on which were listed medical expenses and contributions, all of which he offered to the agents to prove his contributions and medical expenses as set forth on his returns for 1948 and 1949.

(c) On each of the contribution sheets plaintiff had listed small amounts as donations to a Brazilian mission. When the agents inquired as to one of these, plaintiff said that in 1946 his wife had lent the South American mission $1,000, and had loaned it $500 more at a later time. On his returns plaintiff had claimed small amounts of these loans as gifts. He explained that he took a deduction for the interest he would have received, and that he did so on the advice of a lawyer who had told him he was entitled to do so since he had not received any interest and had forgiven the payment of it.

(d) At this meeting the agents again questioned plaintiff as to the manner in which he had prepared his returns. The agents then had in their possession his returns for the years 1946-1949, inclusive. Plaintiff repeated his former statement that he had followed the practice of deducting from the amount of each check received from the Reader’s Digest all expenses incurred in writing the articles, and that at the end of the year he totaled these net amounts to arrive at the income reported on his returns.

(e) Plaintiff was informed by the agents that such a method of reporting income made verification very difficult, and that in order to verify the amounts shown on the returns it would be necessary to obtain from him, or from, some other source, the gross income from each article and a detailed summary of tbe expenses incurred in writing each, article. As a means of illustration, Agent Ridge stated to plaintiff that the method used in reporting income (in terms of the net amount) was similar to that used by black marketeers and gamblers. The agents believed that plaintiff realized that this reference was offered only as an illustration, with no inference intended that plaintiff fell into the category of black marketeer or gambler, and that he took no offense.

(f) Plaintiff told the agents at this conference that a number of the expenses incurred were paid by cash rather than by check. The agents replied that his canceled checks would nevertheless probably support the major part of his expenses and that they (the agents) would realize and expect, as they went over the checks, that many items would perhaps be paid by cash, which fact would be taken into consideration. They requested that he submit, in addition to his canceled checks, any receipts he might have relative to payment in currency.

(g) During the investigation the agents had discovered certain deposits to plaintiff’s accounts for the year 1950 in the total amount of $5,750, none of which appeared to have been reported as income. Upon inquiry concerning these sums, plaintiff stated that $5,000 of the amount was a payment he had received from Reader’s Digest in 1950. He further stated that he had received a payment from Reader’s Digest in 1949 and had used it for a honeymoon trip to South America. He insisted that both of these payments were gifts.

(h) At the conclusion of the May 9 meeting, plaintiff stated that he would meet with the agents on the following day and present other papers which he had at home evidencing how he had arrived at his taxable income and would also submit other records such as canceled checks and receipts.

18. (a) On May 10, 1951, at the request of plaintiff, the agents went to his home where they were taken to the second floor room which plaintiff used as his office. In the room were filing cabinets and several cardboard boxes, a large center table, chairs, and a typewriter. Plaintiff presented to the agents certain typewritten notes which pertained to his income taxes for the years in question.

(b) Because plaintiff had another appointment, the meeting in Ms office was brief. The agents did not have opportunity to examine the typed pages. Among the few matters discussed, one was plaintiff’s reluctance to furnish his canceled checks because, he explained he felt they were not sufficient to show properly the expenses he had incurred in writing, since it had been necessary for him to pay many expenses by currency. The agents explained that it was absolutely necessary for them to examine these checks, and plaintiff agreed to furnish the canceled checks the next day.

(c) Another item discussed at this time was the fact that plaintiff on each of the returns for the years in question had claimed $720 hi rent for his office. Plaintiff explained that he would have to pay at least $60 per month for an office downtown, wherefore he thought he was entitled to deduct $60 per month for the room in his home.

(d) As the agents were leaving, one of them noticed on the table several pages of penciled notes bearing the years under investigation, and asked if the agents might have them also. Plaintiff agreed, and the agents took both sets of notes, typed and penciled.

(e) There is a conflict of testimony between the two agents as to how these two sets of notes were identified by. plaintiff. Special Agent Bidge testified that plaintiff identified the typewritten notes as work papers that had been used in the preparation of the original returns, and further identified the penciled sheets as notes used in the preparation of the typed notes. Agent Boals, on the other hand, testified that he understood plaintiff to mean that, while the penciled notes had been used to prepare the typed notes, both sets represented plaintiff’s efforts to reconstruct the entries he had made on his original returns, the reconstruction having been undertaken for the benefit of the agents. The latter version also represents plaintiff’s version. The record as a whole warrants acceptance of the version upon which plaintiff and Agent Boals agreed.

(f) It further appears from the evidence that the typed notes had been prepared by plaintiff the night before the agents came to his home, and that in their preparation he had referred to the penciled notes, some of which had likewise been prepared the night before while others had been made at some earlier time. It is not established by the evidence that any of the notes had been used, or had been in existence for use, as original work papers in the preparation of the initial returns.

19. The two sets of notes described in the preceding finding are in evidence as defendant’s exhibits, and defendant lays great stress upon their evidentiary value because of the discrepancies between them and other inconsistencies between them and other submissions by plaintiff.

20. (a) On May 11,1951, plaintiff delivered to the agents various canceled checks and other papers. Later on the same day plaintiff called Agent Boals to say that he had found certain documents in which the agent might be interested and asked if Mr. Boals would come to his home to pick them up since plaintiff was leaving town the following morning. Agent Boals went to plaintiff’s home that evening and was given various canceled checks and some tax receipts (personal property and real estate).

(b) On August 30, 1951, plaintiff again met with the agents and told them that as a result of conferences with Internal Revenue agents and a liaison officer in Washington' and with attorneys for the Reader’s Digest, he had been advised that the 1950 payment of $5,000 and the 1949 payment of $2,500 were income. He said that he planned to. file amended returns reporting these amounts. He was asked by the agents at this meeting to furnish them with his canceled checks for 1950.

(c) On September 10,1951, plaintiff again met the agents at the Internal Revenue office in Springfield, bringing with him a few additional checks. The group discussed plaintiff’s loan to the South American mission. Plaintiff said that in 1948 his daughter had a savings account in the Citizens Bank of Springfield which earned a small amount of interest, and that he had loaned $500 of this money to the mission.

21. (a). Oil December 12, 1951, another meeting was held at which the group discussed plaintiff’s 1947 trip to Europe. The agents had found on plaintiff’s work papers an expense item of $3,037 which apparently represented plaintiff’s costs on this trip, but they had been able to locate only two checks dealing with thé trip, one iri the amount óf $500 and one in the amount of $300. Plaintiff was asked to explain the apparent, discrepancy. . In reply he said he could travel much cheaper than'other people working,for Reader’s Digest; that most members of 'the staff of Reader’s Digest charged $25 per day for, their expenses while traveling, whereas he could travel for half that amount. He stated that the $3,037 figure was not correct and that he had paid substantially less on the trip. He undertook to submit at á later date a'figure which would reflect his true expenses for the trip.

(b) Plaintiff further told the agents at'this meeting that he had gone over his income tax matters with lawyers for the Reader’s Digest; that he realized his original returns were incorrect; and that he intended to file amended returns for the years in question.

(c) At this meeting plaintiff was given a list of checks which were missing from the group he had supplied to the agents. Pie agreed to look for the missing checks and to return the following day to go over a check spread which had been prepared by Agent Boals and to identify the expenditures that were paid by check.

22. (a) On December 13, 1951, plaintiff returned to the Internal Revenue office to go over the check spread with the agents. The check spread consisted of the following categories: medical; personal and living; contributions; auto; writing; travel; telephone; taxes; life insurance; capital investments; and unclassified.

(b) The three men worked at a table, with Agent Boals and plaintiff on one side and Agent Ridge on the other side. Plaintiff examined each and every check and indicated the category to which it belonged. Each check was allocated as plaintiff indicated. Where Agent Boals had initially made an incorrect allocation, a change to the correct column was made in accordance with plaintiff’s selection. No allocation was made arbitrarily. The only allocations made were those indicated by plaintiff. The agents were impressed by-plaintiff’s positive attitude in making the check identifications. He seemed to them never to be vague in his recollection as to the purpose of the checks.

(c) In regard to the living expense column there were certain expenses that overlapped into the operation of plaintiff’s: apartments. The agents indicated such expenses as part personal and part business. The checks remaining unclassified' because neither the agents nor plaintiff could classify them were all allowed to plaintiff as business expense.

(d) After an entire day devoted to this endeavor, agreement was reached as to the completeness of the check spread-

23. (a) On January 9, 1952, plaintiff had another interview with the agents. He told them he had decided that he-wanted to make the 1948 loan to the South American mission a gift for the year 1948. The agents advised him that it was-too late to change a 1948 loan into a gift for that year.

(b) The agents questioned plaintiff about a check in the-amount of $493.53 which had cleared the bank in early 1950-Plaintiff said he could not recall and had no information with respect to this check. He had in his possession at the time-a folder, in which the agents said they saw the check in. question.

24. (a) On April 21, 1952, plaintiff again met with the-agents in the Internal Revenue office in Springfield. Plaintiff told the agents that the $1,629.40 reflected in his letter to-them under date of March 9, 1952, represented his true expenses for the 1947 trip to Europe, rather than the $3,037 figure shown on his work papers. When it was again pointed out to him that his checks reflected only $857 for the trip, he was unable to explain where the additional money came from.

(b) Plaintiff was again questioned about the work papers (typewritten and penciled notes) which he had given to the agents on March 10, 1951. He stated at this meeting that these were not his oi’iginal work papers. He said that he had worked backward from his gross income to arrive at the net income which he reported on his returns; that he had estimated the c,ost which he had attributed to writing books in an amount sufficient to work back to the net income shown on his returns.

(c) Plaintiff again told the agents that he was preparing amended returns for the years in question and that those would show his correct income and expenses. He stated that before he filed the amended returns he wanted a lawyer for Reader’s Digest in Washington to go over them.

(d) As the meeting drew to a close, the agents advised plaintiff that the investigation was virtually completed and that it showed that his true income for the period 1945 through 1950 was approximately $50,000 instead of “the approximate $20,000 figure” he had reported on his original income tax returns. He was further advised that the $50,000 figure was determined by two methods: the specific items method of recomputing tax and the net worth method.

(e) At the conclusion of this meeting plaintiff shook hands with the agents and said that he believed he had been fairly treated during the investigation.

25. (a) On June 18,1952, Special Agent Ridge submitted his final report on the case.

(b) On August 7, 1952, and on another, later occasion, plaintiff called on Agent Boals at the latter’s home to discuss some of the items which had been discussed during the investigation.

(c) Five days later, on August 12, 1952, plaintiff filed amended returns for the years 1946-1950 inclusive.

(d) After each and every interview with plaintiff, Agent Boals prepared a memorandum of the interview.

26. (a) On March 1, 1954, plaintiff, accompanied by his attorney (Mr. Caldwell), attended a meeting in the office of the United States Attorney (Mr. Schueffier) in Kansas City. Also present were the United States Attorney’s assistant (Mr. West), and Agents Ridge and Boals.

(b) Upon being questioned about his original returns and the work papers used in their preparation, plaintiff stated that there never existed any such work papers. Agent Boals asked if it were not true that the expenses applied against each article had been a mental calculation. Plaintiff’s attorney said these had not been mental calculations but estimates ; and plaintiff agreed.

(c) Plaintiff’s trip to Europe in 1947 was also discussed. Plaintiff said he had returned from Europe on a military transport plane; that he was able to do so because he was representing a Senate investigating committee.

(d) At this meeting plaintiff submitted an audit report prepared for him by the accounting firm of Eoper and Atkins.

RESULTS OF THE INVESTIGATION

. 27. (a) Irregularities appearing on plaintiff’s returns for 1948 and 1949 had precipitated the full investigation of his returns for 1945-1950, inclusive. The full investigation uncovered what Agent Boals described as “various audit badges,” defined as manifestations on the face of the returns which would give rise to questions.

(b) After noting “audit badges” in plaintiff’s returns, Agent Boals followed routine practices (1) in conferring with plaintiff to determine how he had arrived at'the figures shown on the returns; (2) in asking plaintiff to substantiate and verify the figures as shown; and (3) in reconstructing plaintiff’s income by the methods of specific items and net worth. These two methods permit a cross-check of one against the other.

28. (a) The revenue agent (Mr. Boals) analyzed all of plaintiff’s available records, including bank records, noting items that went through his bank account by deposit or check, and identifiable items that he might have received in cash pi’ diverted to some other source such as investments. This method is known as analysis by “flow in,” which made it necessary for the agent to go through all of plaintiff’s bank records to determine all items received by him and to determine whether such items were in fact deposited in his bank account or converted into currency upon receipt.

(b) All of plaintiff’s flow in, that is, all of the deposits into his bank account during the years in question were transferred to the specific items schedule. The agent was careful not to include nontaxable items from other sources. The specific items schedule covered all income deposited in plaintiff’s account for every year in question.

(c) In preparing the specific items computation, the agent worked on the premise that since plaintiff had cash items, he therefore had funds available to Mm wMch might account for certain of the currency deposits. Accordingly, in arriving at the actual deposits in, for example, the year 1945, the agent deducted all of the currency deposits from the total amount of cash going through plaintiff’s account. The result was that, even if the currency deposits were from checks cashed by plaintiff, no income to Mm was attributed to them.

29. (a) The net worth method was next used to provide a cross-check of the accuracy of the specific items method.

(b) Before undertaking to prepare the net worth schedule the agent conducted an exhaustive examination to determine plaintiff’s assets and liabilities as of December 31,1944. The net worth method contemplates the preparation of a balance sheet, by yeai’s, reflecting taxpayer’s assets and liabilities, year by year, throughout the period in question. As the total net woi'th at the end of a particular year was determined, it was compared with the net worth for the year preceding to arrive at the increase or decrease for the given year. The end of the year 1944 was therefore the starting point.

(c) The agent was satisfied that he had been able to uncover all of plaintiff’s assets as of December 31,1944, and so listed them on the schedule. He inquired of plaintiff as to cash on hand, and plaintiff said he had had none. The •agent was also satisfied that he had determined all of plaintiff’s liabilities as of December 31,1944. He showed the list to plaintiff and asked him if the list was complete, and plaintiff said it was.

(d) The agent then prepared similar statements of assets and liabilities for each of the years in question, 1945-1950, inclusive.

(e) In determining plaintiff’s net income from the schedules of Ms net worth, the agent made adjustments according to Ms own judgment, based on the information he had, as to nontaxable income; as to nonallowable deductions paid hy checks for such expenses as automobile, telephone, taxes, life Msurance, medical expenses, food, clothing, schooling, and political campaigning; and as to allowable personal deductions for contributions, interest, taxes, medical expenses, car licenses, and sales taxes.

30. (a) The reconstruction of plaintiff’s income for the years 1945-1950 by the specific items method indicated net income for the period of $52,060.47, as compared with total net income of $23,539.80 reported by plaintiff on his original returns.

(b) The reconstruction of plaintiff’s income for the years 1945-1950 by the net worth method indicated net income for the period of $51,960.80.

(c) The agent prepared a schedule of “reconciliation of unreported income,” as a comparison of plaintiff’s reported net income with the net income derived from the net worth and specific items methods. He then used the net income figure derived from the net worth method to compute the additional tax and penalties owed by plaintiff.

(d) Finally, the agent prepared a reconciliation of additional taxes for the years 1945-1950 in which he found the amount of taxes owed to be $8,073.91 as opposed to the sum of $357.91 reported and paid by plaintiff. He then submitted his report to the Kansas City office of the Internal Revenue Service.

ADDITIONAL INCONSISTENCIES

31. (a) Eeference has been made in finding 18 to certain so-called work papers of plaintiff, one set in penciled notes and another set of notes that had been typed. Finding 19 records the conclusion that none of these items was a work paper used by plaintiff in the preparation of his original returns.

(b) The agents, with both sets in their possession, found many inconsistencies within the two sets of notes.

32. (a) In December 1961, plaintiff submitted to defendant, in connection with the present litigation, a proposed stipulation wherein still other entries relating to his taxable income for the years 1945-1950 were submitted. In March 1962, plaintiff supported the entries in the proposed stipulation by an extensive oral deposition taken by defendant.

(b) Comparison of the entries in the proposed stipulation with entries on the so-called work papers reveals further inconsistencies.

33. The discrepancies within the so-called work papers, penciled and typed, and the inconsistencies between those notes and the entries in the proposed stipulation are summarized in the finding next succeeding.

34. (a) One of the handwritten pages for 1945 contained two expense notations, $110 for the article Westervelt’s Pig, and $273 for the article Dr. Strad Le T (for a total of $383); whereas on one of the typewritten pages there appeared two expense items totaling $383, but listed as $110 for work on the Jenny Lind book and $273 for Le Toumeau research. In the proposed stipulation there appeared still different expense items for 1945, listing $55 for work on the Jenny Lind book and $150.50 for work on the Decisive Battles book.

(b) One of the typewritten sheets for 1946 contained three expense items: Jenny Lind, $750; Decisive Battles, $390; Le Tourneau, $686; for a total of $1,826. None of the handwritten pages contained reference to any of these items. The proposed stipulation, on the other hand, listed for 1946: Jenny Lind, $414; and Decisive Battles, $407.40; for a total of $821.40.

(c) One of the typewritten sheets for 1947 listed three expense items: Jenny Lind, $708.50; Le Tourneau book, $180; Decisive Battles, $338; for a total of $1,226.50. The proposed stipulation listed: Jenny Lind, $272; Decisive Battles, $237; Senate Tax Study, $101.15; for a total of $610.15.

(d) One of the typewritten pages for 1948 listed three expense items: Jenny Lind, $242; Total Terror, $600; Taxation Study, $150; for a total of $992. The proposed stipulation listed, for 1948: Jenny Lind, $98.25; Total Terror, $540; Taxation Study, $149.60; Decisive Battles, $176.06; Le Tourneau booklet, $52.35; for a total of $1,116.26. None of the handwritten notes reflected any of the above expenses.

(e) One of the typewritten sheets for 1949 listed two expense items: Jenny Lind, $355.70; Total Terror, $395.50; for a total of 751.20. Another typewritten sheet for the same year listed simply Books — $613.40. The proposed stipulation listed for 1949: Total Terror, $87; Decisive Battles, $158; for a total of $245.

(f) Under plaintiff’s arrangement with Reader’s Digest he was free to write articles or books unassigned by Reader’s Digest, but such articles or books were to become the property of Reader’s Digest if the magazine desired to publish them. Reader’s Digest also undertook to reimburse plaintiff for his expenses, and plaintiff testified that he felt free to charge Reader’s Digest for expenses incurred by him in doing research for the Jenny Lind book. He further testified that most of the travel required in writing Jenny Lind was done in connection with Reader’s Digest research and that he was reimbursed for such expense. Tire typewritten sheets which taxpayer gave to the agents reflect personal out-of-pocket expenses for writing Jenny Lind of $2,166.20, being $110 in 1945; $750 in 1946; $708.50 in 1947; $242 in 1948; and $355.70 in 1949. His proposed stipulation listed $839.25, being $55 in 1945; $414 in 1946; $272 in 1947; and $98.25 in 1948.

35. (a) During each of the years in question (1945-1950). plaintiff made substantial payments from his bank account which tend to show that his net income for each of those years was larger than he reported on his original returns.

(b) In 1945, he deposited $572.61 in a savings account; made a payment of $500 on the mortgage on his home; bought furniture to the extent of $400; and paid life insurance premiums of $384.42; for a total of $1,857.03. His reported net income for that year was $3,550.22.

(c) In 1946, he paid off the mortgage on his home with $2,250; paid life insurance premiums of $1,530.47; bought a car for $589; and made other payments and loans of $900; for a total of $5,269.47. His reported net income for 1946 was $4,132.82.

(d) In 1947, he bought another automobile for $1,066.24; paid life insurance premiums of $1,708.45; and put $3,600 in savings accounts; for a total of $6,374.69. His reported net income for 1947 was $3,610.45.

(e) In 1948, his life insurance premiums were $1,747; he made a loan of $500; and he bought stock in a local business in the amount of $5,500; for a total of $7,747. His reported net income for 1948 was $4,570.90.

(f) In 1949, his life insurance premiums were $1,745.52; he made a loan of $2,500; bought stock in the amount of $5,500, and bonds in the sum of $1,541.75; for a total of $11,287.27. His reported net income for 1949 was $3,939.60.

(g) In 1950, plaintiff paid $1,569.16 in life insurance premiums; made a down payment of $1,000 on an automobile; loaned his sons $2,475; and paid political expenses of $2,610.71; for a total of $7,654.87. His reported net income for 1950 was $3,736.11.

36. Table 1, appended hereto and by reference incorporated herein, contains a summary of the several tax computations in evidence. Five of these computations were made' by plaintiff, as hereinafter described. The sixth source on Table 1 reflects defendant’s determination, by the specific-items method, of gross income, expenses, adjusted gross income, deductions, and net income; and defendant’s reconciliation of taxes due, which formed the basis of the assessments for deficiencies.

37. (a) The 6 computations of tax liability submitted by-plaintiff include:

(1) Plaintiff’s original returns for the years 1945-1950..

(2) Plaintiff’s amended returns for the years 1946-1950.

(3) Pro forma returns for the years 1947-1949, prepared, by auditors employed by plaintiff.

(4) Computations contained hi plaintiff’s proposed stipulation, submitted to defendant in 1961.

(5) Computations submitted in evidence by plaintiff at the trial in 1963.

(b) There are in evidence 5 sets of explanatory material prepared and submitted by plaintiff. These include:

(1) The so-called work sheets described! in findings 18,. 19, and 31.

(2) Supplementary statements attached to plaintiff’s-amended returns.

(3) Supplementary statements submitted by plaintiff with, his pro forma returns.

(4) Plaintiff’s deposition,' given in 1962 in support of his proposed stipulation.

(5) Plaintiff’s testimony at the trial in 1963 in support of his trial computations.

38. (a) As indicated in finding 4(a), plaintiff timely filed income tax returns, Form 1040, for each of the years 1945-1950, and paid the amount of the tax liability shown on such returns.

(b) As preliminaries to the preparation of these returns,, plaintiff read portions of the Instructions, conferred with. representatives of the Internal Revenue Service in the Springfield office, and assembled notes of his income, expenses, and items of personal deductions.

(c) None of these preliminaries can be precisely identified in the evidence. Plaintiff could not say what portions of the Instructions he had read. The agent of the Internal Revenue Service identified by plaintiff as the official with whom plaintiff conferred left the Service in 1942, and testified at the trial that he had never conferred with plaintiff about his returns. Plaintiff himself described the so-called work papers placed in evidence by defendant as random notes and not the notes from which he prepared his returns.

(d) The inferences warranted by the evidence as a whole are: (1) that plaintiff maintained no organized system of records pertaining to his income, expenses, and deductible outlays; (2) that as the March 15 filing date approached, he would begin (as of March 1 or later) to reconstruct from sketchy records and his own recollection the information needed to report income, deductions, and exemptions; (8) that on the basis of meager notes and such advice as he had obtained from others, he would prepare a return as a work sheet; and (4) that in some years he signed and filed the work sheet returns while in others he made copies to sign and file.

39. (a) As indicated in finding 28, summarizing plaintiff’s conference with the Internal Revenue agents on April 21, 1952, plaintiff a,t that time told the agents (1) that with respect to the so-called work papers, he had worked backward from his gross income to arrive at the net income reported on his returns, having estimated the cost to be attributed to writing in an amount sufficient to work back to the net income shown on his returns; (2) that he was preparing amended returns which would show his correct income and expenses; and (3) that he wanted a Reader’s Digest lawyer in Washington to go over the amended returns before he filed them.

(b) During the 2 years of the investigation, plaintiff had assembled records (including canceled checks, tax receipts, and other items) at the insistence of the revenue agents, and had. participated in the final formulation of the check spread. The revenue agents, meanwhile, had assembled from third-party sources records of plaintiff’s bank deposits, income received from writing and other sources, and reimbursed expenses. All of these records had been discussed by the agents, and plaintiff in their various conferences, and plaintiff had a general but not a detailed knowledge of the points (“audit badges”) wherein his original returns were deemed deficient.

(c) Two specific items of money received by plaintiff, which he had not listed as income and as to which he had been questioned at length by the revenue agents, were the payments to plaintiff by the Reader’s Digest of $2,500 in 1949 and $5,000 in 1950. Plaintiff insisted that both payments were gifts. He stated that a revenue agent in Washington had so advised him with respect to one of them. The Reader’s Digest lawyer, on the other hand, advised plaintiff that in each instance the payment was a bonus, and should have been reported as income. Plaintiff told the revenue agents, in connection with his anticipated amended returns, that he had concluded that both payments should have been, and in the amended returns would be reported as income.

40. (a) On August 12,1952, plaintiff addressed the following letter to the Collector of Internal Revenue, at Kansas City, Missouri:

Through kindness of Mr. John C. Boals, chief of the office here in Springfield, I am sending herewith amended income tax reports for the years 1946 through 1950, with total payments to accompany same in amount of $3,857.20.
Full explanations will accompany this letter and the reports.
Following the table of payments which this check represents:
Since I must return to Washington today to remain for some days, I shall plan to be in Kansas City at my first opportumty? and shall come by your office to check further and see if these payments are correct.

(b) In addition to the amended tax returns and covering check, plaintiff enclosed with his letter the following “General Explanation to accompany amended forms for 1946-1950 inc

As a professional writer, I have been producing magazine articles since 1927. Recently most of my work has been done for the Readers Digest. I also have been writing and editing book manuscripts. The Readers Digest has an arrangement whereby the editors pay me for expenditures incurred in travel, research, etc. on the basis of monthly expense accounts. For all other work I do, including articles for other magazines, I must pay my own expenses from my income.
It has been my practice to enter for income tax purposes those amounts remaining after my yearly expenditures. I am informed that the proper procedure is to list all my receipts, whether earned income or expense accounts, together with all other gross income; then deduct for reimbursements, and for personal expenses.
Accordingly, I have followed that method in these amended forms for the years under question. I have secured from the Readers Digest office the entire schedule of payments, and have also secured from every magazine I have written for in this period the same information. I have also received complete reports of income from all other sources, such as reimbursements from the LeTourneau Foundation for travel and writing a book and several booklets. I checked also on every speech made for which there was reimbursement for expenses or honorarium. Also, I checked accurately on amounts received for such work as teaching a night class in Drury College for a few months, and every other possible source of income, gross or net.
In securing and organizing writing material, whether for magazines or books, I do a great amount of traveling. The Digest keeps me reimbursed monthly for such expense. I have been advised it is permissible to deduct only such expenses in addition as I can prove were made not at Digest expense. Accordingly, I have entered in the listing of professional expenses only such as do not duplicate travel and research already reimbursed by the Digest. It is understandable that without keeping accurate records on all mileage, etc., for such expense, I am without recourse for proof of much work I did and paid for out of my income. In comparison with usual practice of other professional and self-employed writers, this leaves me at a great disadvantage, according to my legal adviser in Washington who is a Headers Digest attorney. But I have carefully eliminated from consideration all expense items not provable from canceled checks, or from my records of travel, as not in duplication of Digest reimbursement.
Miscellaneous income was derived occasionally from speaking, and for 1946-1947 from work done for the LeToumeau Foundation. All such gross income is entered, with expenses not reimbursed subtracted and net income thus ascertained.
Investment income is entered in detail.
Rent receipts are from two small apartments, one connected with my home and the other over the garage. They are separate homes, rented on monthly basis, with agreement for rent of the house apartment for lessee’s life. Depreciation has been figured for these apartments on 20-year basis; permanent improvements also on a 20-year depreciation basis. Each tenant pays for electricity and gas, while I pay for the water for my house and for the apartments also. I have not deducted for water expense, since it was in the agreement at time of renting that I would pay this item.
Mother’s dependency: After my wife’s death in 1947 my mother kept house for our family much of the time. In November 1948 she broke her hip, and was under my care, in my home until she left for her own home in late June 1949. During that time, of course, I was. her support for food, lodging, doctor bills, etc. I continued to contribute to her support during 1949 and 1950. I presumed that I was entitled to claim her as an exemption for 1948, 1949 and 1950. However, my unmarried sister, Delta Armstrong, a school teacher in Georgia, has always contributed to upkeep of our mother and our late father. Unknown to me, she claimed my mother as her dependent for the years in question. Therefore I have withdrawn my mother’s name as dependent for any year.
Auto expense: In view of the fact that the Headers; Digest has reimbursed me for all travel by auto or otherwise for work done for them, I have made no claim for credits for car purchase, upkeep, repairs or depreciation, and no charge for gas tax. Travel by car for other writing is specifically indicated.
Joint return for 1950: My wife is. a professional writer, and it was her intention to file joint return for 1949 and succeeding years. However, since she filed separate return for 1949, I have filed single return for that year, and joint return for 1950.
Explanation of allowances for office expense are given.
I can assure you that these reports are as complete and as accurate as is humanly possible to make them, to my knowledge and belief. I have had the advice of counsel, and the occasional assistance of agents of the Bureau of Internal Kevenue assigned to members of Congress to assist them in tax matters. Also the courteous assistance of Mr. Boals and Mr. Kidge.

(c) A further attachment to the letter set forth in paragraph (a) of this finding was a memorandum on “Allowance for Office Expense,” as follows:

Since I moved into my home in 1934,1 have used one of the largest rooms solely and entirely as my office, with private telephone extension, special lighting, files, cabinets, and other necessary facilities.
I am informed that I cannot charge a flat amount per month for this expense, but must account each year for all allowable items. Accordingly, I have broken down these items into Depreciation, Permanent Improvements, Utilities (electricity and gas, fuel, and water), Insurance, and Maid Service.
Since I have charged communications expense to the Headers Digest, I have made no deducation [sic] for telephone service in my office.
Since I have charged off property taxes as provided each year, I have made no charge for taxes in my office expense.
My office comprises about one-eighth of the total space of my home, and therefore I have been advised to compute one-eighth of these items as allowable for office expense.
Depreciation: Cost of my home in 1934 was $5400.00. (Actual value about $10,000). Total improvements since 1934 to January 1, 1946 totaled in round figures $4,000.00. Value at January 1, 1946, $8,900.00. On basis of 20-year depreciation, $445.00 annually. Chargeable to office expense, one-eighth of that amount, $55.63.
Permanent Improvements. These items were taken from canceled checks, or notations of cash payments, for improvements of permanent nature, such as papering and decorating, new floors, attic fan, new windows, building of storage room in attic, new bathrooms and fixtures, painting of the house, and so on.
Totals for the five years: 1946—$213.73. 1947—$425.35. 1948—$223.29. 1949—$647.87. 1950—$718.09. Depreciation was figured for the years remaining from 1946, on 20-year basis. Then,one-eighth of that amount was taken as chargeable to office expense.

41. The amended returns, filed as stated in the preceding finding, were prepared by plaintiff. He had the benefit, as he advised the Collector, of advice of counsel (the Washington attorney for the Reader’s Digest) and of discussions with the revenue agents during the investigations. He did not employ or consult an accountant or a personally retained attorney. He did have the further benefit of a much improved assembly of records from which to work. As later developments were to reveal, however, his records were not complete, and he still relied heavily on his recollection in piecing together the parts of a 5-year jigsaw puzzle.

42. (a) As indicated in finding 26, plaintiff, accompanied by his attorney, attended a meeting in the office of the United States Attorney in Kansas City on March 1, 1954, at which time he presented an audit report prepared for him by the accounting firm of Roper and Atkins. This report contained fro forma returns for the years 1947-1949.

(b) This report had been submitted to plaintiff, by the Springfield accountants on February 26, 1954, with the following covering letter:

We have examined the cancelled checks, bank statements, and other supporting data relative to your income tax returns for the years 1947, 1948, and 1949. Based on our examination of these documents, we. have prepared and attach hereto the following exhibits:
Pro-Forma Income Tax Returns, 1947-1949
Statement of Cash Receipts and Disbursements, 1947-1949
Comparative Personal Balance Sheets, December 31, 1947-1949
Depreciation Schedule, January 1,1947, to December 31, 1949
We verified all receipts from the Readers Digest Association by direct correspondence with that organization, and tested other items of income in the same manner. We were not able to examine invoices in support of deductible expenses, but assured ourselves of the reasonableness of such deductions by scrutiny of all available cancelled checks and by discussion with you. We verified the apportionment of expenses which were not wholly deductible, and computed depreciation on all depreciable business property. We examined correspondence and other evidence supporting the nature of gifts received.
In our opinion, the accompanying Pro Forma Income Tax Returns reflect with reasonable accuracy your income tax liability for the years 1947,1948, and 1949, on the basis of the evidence of income and expense presented to us.

(c) Plaintiff supplemented the accountants’ data with further detailed explanations of his own.

43. (a) As indicated in finding 32(a), plaintiff submitted to defendant, in December 1961, in connection with the present litigation, a proposed stipulation of tax computations and liability for the years 1945-1950.

(b) The computations so presented were prepared by the attorney who first represented plaintiff in the present litigation. This attorney exercised his professional skill and judgment in determining the validity of such items as claimed exemptions, professional expenses (reimbursed and unreimbursed), and allowable personal deductions; but he, like the auditors who prepared the fro forma, returns for 1947-1949, had to depend upon information and advice from plaintiff as to the identities, amounts, and purposes of receipts and disbursements and other source material.

(c) Plaintiff, in his deposition taken by defendant in 1962, supported in detail the recollection and recall by which he had advised the attorney who prepared the proposed stipulation.

44. (a) In his requested findings of fact, submitted to the trial commissioner following the trial pf this case in November 1963, the fifth and final set of computations is presented.

(b) The trial computations were prepared by the attorney who represented plaintiff at the trial of the action. Again, the attorney exercised his professional skill and judgment in determining the validity of such items as claimed exemptions, professional expenses (reimbursed and unreimbursed), and allowable personal deductions; and, although he used the proposed stipulation as a basic starting point, he too had to depend upon information and advice from plaintiff concerning receipts and disbursements and other source material.

(c) Plaintiff, in his testimony at the trial of the case, supported in detail the recollection and recall by which he had advised the trial attorney.

45. (a) When plaintiff prepared his original returns, during each of the years 1946-1951, the records he had before him were meager, scattered, and sketchy. The subsequent investigation of his tax returns, begun in April 1951 and carried over into April 1952, compelled him to assemble more records: canceled checks, receipts, invoices, and other current notations of many transactions. He had the benefit of these in the preparation of his amended return's, filed in August 1952, and this benefit was a carryover for the auditors who prepared the fro forma returns in 1954. After the fraud conviction in 1955, plaintiff persevered further in the assembly of records for the years in issue. By the time of the preparation of his proposed stipulation in 1961, he had assembled as much of his recorded data as could reasonably be expected. Even so, his recollection and recall continued to be refined during the preparation of his trial computations in 1963.

(b) Plaintiff’s memory was freshest at the time he prepared his original returns. In the preparation of his amended returns, he had before him for reference a fair portion of his full record assembly, and in point of time he was only 1 year removed from the preparation of his 1950 return and 5 years from the preparation of his 1946 return. He appears to have relied rather heavily upon his 1952 review in advising the auditors who prepared the fro forma returns in 1954. By 1961-1963, when his proposed stipulation and trial computations were prepared, he was 10 to 12 years removed from his original return for 1950, and 15 to 17 years removed from the original return for 1946. He nevertheless asks the court to accept his later handiwork in preference to his earlier efforts.

(c) Plaintiff’s recollection and recall are materially involved in each of the 5 tax computations he has submitted over the years. The vagaries of the computations are matched by inconsistencies and contradictions in the statements he has made at various times based on his recollection and recall. Throughout these statements, however, there is one consistent thread: intelligence, rationality, and assurance, expressed in language calculated by its sincerity to be informative and helpful.

(d) When the revenue agents worked with plaintiff on the check spread, they were impressed with his positive attitude in making check identifications. He seemed to them never to be vague in his recollection as to the purpose of the checks. When plaintiff submitted his amended returns in 1952, he assured the Collector that “these reports are as complete and as accurate as is humanly possible to make them, to my knowledge and belief.” The auditors who prepared the fro forma returns in 1954 were assured of the reasonableness of their conclusions by their discussions with plaintiff. His deposition in support of the proposed stipulation and his testimony in support of his trial computations are in similar vein. His two attorneys had been as much assured as bad bis auditors by discussions witb him. The trial commissioner, who presided at the trial, saw no indication of dissembling or concealment in plaintiif’s demeanor as a witness.

(e) Surely, a hurried review of the many inconsistencies' and contradictions in plaintiff’s various computations and explanatory statements would suggest that he is, at the least, careless with the truth or, at the worst, a congenital liar. Either inference would be both superficial and erroneous. The only conclusion that will stand the test of careful analysis is that, by some strange and unusual psychological quirk, plaintiff was able to believe and did sincerely believe in the truth of each statement as it was m'ade.

(f) The appraisal therefore follows that plaintiff’s reliance on his recollection and recall is compulsive. His appearance as a witness demonstrated that on any occasion he is ready and willing, almost eager, to address himself to any question or matter affecting his recollection and recall, and to do so without hesitation or reflection.

CONCLUSIONS

46. (a) Defendant has failed to sustain the burden, which rests upon it, of proving fraud for 1945,1946, and 1950, because of insufficient proof of wrongful intent.

(b) Plaintiff has failed to carry the burden, which rests upon him, of proving an overpayment of taxes for any year at issue (1945-1950), for lack of credibility of his own testimony.

CONCLUSION OP LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law plaintiffs are entitled to recover the deficiencies, penalties, and interest assessed against them for alleged fraudulent returns for the years 1945 and 1946, and fraud penalties for 1950. Judgment is entered to that effect and the amount of recovery will be determined under Rule 47(c). The court further concludes that as a matter of law plaintiffs are not entitled to recover the deficiencies, penalties, and interest assessed against them for fraudulent returns for the years 1947, 1948, and 1949; nor are they entitled to recover alleged overpayments of taxes for the years 1945-1950, inclusive; as to these portions of their claim the petition is dismissed. The counterclaim is also dismissed. 
      
      The words “in part” were added by Order dated March 18, 1966.
     
      
      
         As noted in finding 1, this suit is concerned altogether with the actions and claims of the plaintiff, O. K. Armstrong. The joinder of Mrs. Armstrong as a plaintiff is a formality, resulting from the filing of a joint return for the year 1950. References to the claimant are in the singular throughout the findings and in this opinion.
     
      
       He had remarried in December 1949. His mother bad lived at bis borne during 6 months of 1949. He made no claim of an exemption for bis wife, and claimed only 6 months on account of bis mother. All this was explained in an attachment.
     
      
       Findings 13-26.
     
      
       Findings 27-30.
     
      
       Findings 31-34.
     
      
       Findings 31-35.
     
      
       Plaintiff, in Ms testimony at the trial of the ease, challenged the validity of the cheek spread on the ground that he could not have recalled, with accuracy, the purpose of so many checks written so long before.
     
      
       The total income reported by plaintiff on his original returns was almost $30,000, instead of $20,000.
     
      
       At this time, plaintiff apparently did not realize that his 1945 return was in issue.
     
      
       Tie significance of tMs statement lay in tie fact that Special Agent Ridge was positive that plaintiff had proffered the notes described in finding 18 as original work papers. So, apparently, was Agent Boals at this time.
     
      
       This petition sought recovery of $14,223.50, representing $12,053.89 allegedly due as a result of the deficiency assessments and $2,169.01 allegedly due as a result of overpayments- of tax reported on the amended returns. No reconciliation of the minor variations in figures reflected herein is in evidence. A second amended petition asks for a total of $15,315.14, of which $3,261.25 represents alleged overpayments. In his requested findings of fact, plaintiff computes the amount of the recovery to which he is entitled as $15,240.62.
     
      
       Plaintiff employed the auditors to prepare the pro forma returns in anticipation of his meeting with the united States Attorney on March 1, 1954, to whom he gave copies of these tax computations.
     
      
       The failure to report this payment was a factor in the trial for criminal fraud. Armstrong v. United States, 228 F. 2d 764 (8th Cir., 1956).
     
      
       The writer [Commissioner Evans] is a native of the region, and grew to maturity there. He had never met plaintiff, however, prior to the trial of the case.
     
      
       While it cannot be denied that plaintiff reasonably should have known that the payments by Reader’s Digest were bonuses and not gifts, neither can it reasonably be found that he did know the difference.
      In the stage portrayal of Lightnin’ by George M. Cohan some years ago, Lightnin’ solemnly averred that he had once driven a swarm of bees across the country and never lost a bee. Who is to say, knowing Lightnin’, that he did not believe what he said?
     
      
       The whole of section 293 was derived from the Act of May 28, 1938, ch. 289, § 293, 52 Stat. 541. In the original enactment, the concluding phrase of § 293(b) read “* * * in lieu of the 50 per centum addition to the tax provided in section 3176 of the Revised Statutes, as amended.” Otherwise, the text (of the whole section) is identical in 52 Stat. 541 and in 26 U.S.C., 1952 edition. The Internal Revenue Code of 1939 substituted for “section 3176 of the Revised Statutes, as amended,” the words “section 3612(d)(2)” which appear in 26 U.S.C., 1952 edition. 53 Stat. 88. The latter provision, section 3612(d)(2), provides: "Fraud. In case a false or fraudulent return or list is willfully made, the Commissioner shall add to the tax 50 per centum of its amount.” 53 Stat. 438, 26 U.S.C., 1952 ed., § 3612(d) (2).
     
      
      
         Defendant contends that, In conformity with Its reconstructions of income, the total tax liability was $8,000, an increase of 2,222 percent.
     
      
       Every careful, conscientious taxpayer Is entitled to look with a jaundiced eye upon the carelessness and indifference displayed by plaintiff’s ilk, since his own rendition to Caesar may be more than It might be except for such carelessness and indifference.
      There is a penalty for deficiencies resulting from negligence or Intentional disregard of rules and regulations “without Intent to defraud.” 26 U.S.C. § 293(a) (1952ed.). But negligence is not fraud.
     
      
       Act of May 28, 1938, ch. 289, § 54, 52 Stat. 477. Cf. § 6001, Internal Revenue Code of 1954, title 26, united States Code.
     
      
       Act of June 9, 1943, ch. 120 § 2 (a), 57 Stat. 126.
     
      
       26 U.S.C. § 1621 (Supp. III, 1940 ed.).
     
      
       26 U.S.C. § § 58, 59 (Supp. III, 1940 ed.).
     
      
       Plaintiff was subjected to withholding by the State of Missouri in connection with his salary as a member of the State legislature in 1943-1944. Moreover, among the penalties assessed against him by the Commissioner of Internal Revenue was one for failure to file an estimate of tax.
     
      
       The Commissioner assessed a civil fraud penalty against the taxpayer under the Internal Revenue Code of 1939, § 293 (b). Taxpayer was an optometrist who kept a single-entry ledger in which he entered at the end of each year a summary of his annual income and expenses. He also had extensive transactions in real estate mortgages during the years involved, 1943-1948. In determining the factual issue of intent to evade taxes, the court said (p. 1036) : “A strong indication of petitioner’s intention is found in the consistent pattern of understatements of income over a period of years” ; and “[t]he failure on the part of petitioner to maintain adequate books and records, when coupled with other evidence of record, provides convincing evidence of his fraudulent intention to evade taxes.” [Emphasis supplied.]
     
      
       The Tax Court upheld the Commissioner’s assessment of a civil fraud penalty under § 293(b) on the basis of the facts (1) that taxpayer had taken a bookkeeping course; (2) that she did not retain permanently supporting documents, did not keep a general ledger with investments nor with accounts receivable and payable, but relied on a single-entry bookkeeping system; (3) that she failed to report income from an estate, gain from the sale of timber, and gain from the sale of an automobile; (4) that improper deductions were repeatedly taken for taxes, travel, and legal expenses; and (5) that there were large amounts of unreported income. The Court of Appeals reversed, saying (p. 321) : “The matters mentioned and other circumstances reflected in the record do not, singly or in the aggregate, meet the measure of proof which is required in the fraud issue. The fraud which the Commissioner was required to prove to sustain the penalty is actual and intentional wrongdoing with a specific intent to evade the tax. Mitchell v. Commissioner of Internal Revenue, 5th Cir. 1941, 118 F. 2d 308. It is never imputed or presumed, and findings of fraud should not be sustained upon circumstances which at most create only suspicion. * * *” At another point (p. 320) the court said: “The Commissioner has the burden of proving fraud by clear and convincing evidence.”
     
      
       In Moore v. United States, 235 F. Supp. 387, 392-93 (W.D. Va., 1964), the district court disagreed with the Lefkowitz decision, preferring the earlier Tax Court rulings (which had not then been overruled).
     
      
       In its tiriefs, defendant asks judgment on its counterclaim for $955.50 (the amount of Mr. Armstrong’s fine, in the criminal case, which is alleged to be still unpaid). But the trial commissioner made no findings on this point, and defendant did not except to this omission. There is therefore no basis for a judgment on the counterclaim.
     
      
       The joinder of Mrs. (Marjorie Moore) Armstrong is a formality. She is a plaintiff for the year 1950 only, and by reason of the filing of a joint return for that year.
     
      
       Two of the articles were “Omaha’s Taxpayers” and “Church versus Taxes,” the latter dealing with cooperatives and their tax problems and supports.
     
      
       His duties were to assemble a group of citizens versed in the expenditures of Government for the purpose of making a study of the civil service and the costs of Government, with a view toward reducing taxes in the united States.
     
      
       He was a member of the Kiwanis Club, the American Legion, and the Chamber of Commerce, in Springfield.
     
      
       He was a member of the University Heights Baptist Church.
     
      
       He was chairman of the Springfield Council of Churches, Commission on Social Action; chairman of the American Baptist Commission for Missouri on Christian Social Concerns; member of the Association for a United Church; member of the International Christian Leadership Council; and member of the Springfield Gideon Band.
     
      
       During the trial of this case, the Springfield papers gave it extensive and detailed coverage.
     
      
       At the time of trial his home was in Republic, Missouri.
     
      
      
         Their ages in 1945 were 20, 18, 12, 6, and 5.
     
      
       Each of the returns hears the stamp “Rec’d with Remittance, Mar. 15 * * *." Taxpayer’s dates varied from March 9 to March 14. Summaries of these returns appear on Table 1, appended hereto, and by reference incorporated herein. (See finding 36.)
     
      
       Summaries of the amended returns for these 5 years appear on Table 1, appended hereto, and by reference incorporated herein. (Rinding 36.)
     
      
       Under 26 U.S.C. § 140 (b).
     
      
      
        Armstrong v. United States, 228 F. 2d 764 (8th Cir. 1956).
     
      
      
        Armstrong v. United States, 351 U.S. 918 (1956).
     
      
       He would thus, Inferentially, have conceded a tax liability for these years of $1,328.62 Instead of the $256.37 paid with his original returns, a difference of $1,072.25.
     
      
       Small variations in amounts, such as the $31.23 difference between the $12,053.89 listed in this paragraph and the $12,022.66 listed in finding 8(a), and the $2.41 difference between the $2,169.61 listed in this paragraph and the $2,172.02 listed in finding 7(c), occur frequently throughout the evidence.
     
      
       In his requested findings of fact plaintiff computes the amount of recoverj-to which he claims he is entitled as $15,240.62.
     
      
       At the trial defendant assumed the burden of proof on this issue.
     
      
       At the trial plaintiff assumed the burden of proof on this issue.
     
      
       Defendant concedes that the general 3-year period of limitations bars the deficiencies and penalties for all years except 1950 (as to which plaintiff filed waivers) unless any part of the deficiency of tax shown on the return was due to fraud. Plaintiff has not undertaken to show that, assuming the establishment of fraud for any year, the assessment for that year was nevertheless erroneous. He demands recovery only of (1) the deficiency assessments (including penalties and interest) on the assumption that there was no fraud and (2) overpayments, alleged to have resulted primarily from the payments made in 1952 on the basis of amended returns.
     
      
       1948 and 1949.
     
      
       In the light of subsequent developments, including some of plaintiff’s own testimony, this statement was an exaggeration.
     
      
       During the course of the investigation Agent Ridge, while obtaining copies of all of the returns here in issue, had occasion to examine a copy of plaintiff’s original return for 1944, and personally made a handwritten copy thereof.
     
      
       Findings 31 and 30.
     
      
       Among these papers was a typewritten note for 1947, which he asked to submit as a replacement for the 1947 sheet previously delivered. Agent Boals attached the new sheet to the old one, marked the old one “void,” and retained both.
     
      
       Periodically, over the course of the several meetings, various members of plaintiff’s family had delivered additional cheeks to the agents.
     
      
       As stated in finding 6, tie fraud indictment against plaintiff was returned on March 11, 1954. Immediately foHowing the return of the indictment, plaintiff suffered a nervous breakdown.
     
      
       The specific items method required reconstruction of income from detailed information obtained from third-party sources, including bank deposits, as to specific items of income.
     
      
       The net worth method required preparation of balance sheets reflecting plaintiff’s total assets and liabilities for the entire period, from December 31, 1944, through December 31,1950.
     
      
       A third method, known as the bank deposit method, was not used, since it places the burden on the taxpayer to prove that items deposited are other than taxable income.
     
      
       Since plaintiff had expressed to the agents his fear that the analysis of his canceled checks would not reflect his total expenses, the agent (Mr. Boals) gave him the benefit of the doubt by carefully analyzing the items in his account with special identification of the items cashed. All cash deposits and checks converted to currency (checks cashed) were allowed to plaintiff as business expenses.
     
      
       In other words, all of the cash plaintiff had at his disposal as reflected in the specific items computation for the years in issue was allowed to him as business expense, irrespective of the possibility that some of this money may have been used for other purposes.
     
      
       For a summary of defendant’s specific items net income computation, see Table 1, annexed hereto and incorporated herein. (Finding 30.)
     
      
       He selected the net -worth method over the specific items method because the net income figure derived from the former was smaller (by $99.67) than the figure derived from the latter.
     
      
       The agent’s reconciliation set forth the corrected tax in the amount of $8,073.91, credited the payment of $357.91, to arrive at a net additional tax of $7,716.00 and then added penalties totaling $5,125.56.
     
      
       The proposed stipulation was prepared by an attorney (not the present trial attorney) for plaintiff on the basis of information supplied by plaintiff. There are likewise inconsistencies between entries in the proposed stipulation and entries in the trial computations (hereinafter identified) prepared by the present trial attorney on the basis of information supplied to him by plaintiff.
     
      
       Still another typewritten sheet for 1947, which plaintiff stated was in error soon after he gave it to the agents, listed: Jenny Lind, $608.50 ; Le Tourneau, $380; Decisive Battles, $178.95; for a total of $1,167.45. None of the handwritten notes reflects any of the above expenses.
     
      
       Still another typewritten sheet presented by plaintiff as an exhibit listed for 1949: Boohs, $668.
     
      
       Plaintiff further testified at the trial that he had never, up to the time of trial, read the Instructions as a whole or studied them.
     
      
       These computations are summarized in Table 1. (Finding 36.)
     
      
       These computations are summarized In Table 1. (Rinding 36.1
     
      
       These computations are summarized in Table 1. (Finding 36.)
     