16 T.C. 981">*981 The Commissioner determined deficiencies in income taxes and additions for fraud under section 293 (b) as follows:

1951 U.S. Tax Ct. LEXIS 202">*203 16 T.C. 981">*982 The following issues are presented for decision:

(1) Whether certain bank deposits of the petitioners represented unreported income;

(2) Whether the petitioners are entitled to deductions for alleged automobile and entertainment expenses;

(3) Whether the petitioners are entitled to adjustments under section 3801 of the Internal Revenue Code for reimbursements allegedly made by them for taxes paid by nominees on income realized by the petitioners but reported by the nominees;

(4) Whether a part of each deficiency was due to fraud with intent to evade tax.

FINDINGS OF FACT.

The petitioners, Sam D. Hecht (hereafter called Hecht) and Susan Hecht (hereafter called Susan), husband and wife, filed separate returns on a community property basis for 1943, 1944, and 1945 with the collector of internal revenue for the sixth district of California. All of their income was community income.

Hecht was employed from 1934 until June 30, 1945, by Calvert Distillers Corporation (hereafter called Calvert), as the district manager for southern California, Arizona, New Mexico, and one county of Nevada. The company prohibited its employees from owning any interest in any business engaged in1951 U.S. Tax Ct. LEXIS 202">*204 the sale of liquor for beverage purposes.

Hecht, during parts of 1943 and 1944, owned a one-third interest in a partnership known as Sunshine Liquor Store in Los Angeles. His distributive share of its net income was $ 2,997.80 for 1943 and $ 5,391.16 for 1944. He also had a gain of $ 1,571.13 from its liquidation in 1944. The business was then taken over by Normandie Beverage Co., a corporation in which Hecht owned a one-third interest. Susan received $ 5,000 from that corporation in 1944 which the petitioners reported as salary. Hecht sustained a loss of $ 2,357.13 from the liquidation of that corporation in 1944. The business was next taken over by Sunshine Liquor Company, a partnership in which Hecht owned a one-third interest. That partnership, during its existence of 10 months, sustained a loss of which Hecht's share was $ 726.07. Hecht owned a one-half interest in a partnership known as S & B Liquor Company for 12 months in 1944 and 1945. His distributive share of its net income was $ 5,037.96 for 1944 and $ 5,682.28 for 1945. He also had a profit of $ 7,948.05 from a sale of the business in 1945. Hecht owned a one-fourth interest in a partnership known as Cole's 1951 U.S. Tax Ct. LEXIS 202">*205 Liquor Store, for a short time in 1945. His distributive share of its net profits for that period was $ 588.73. He owned a one-sixth interest in a partnership operating a cocktail lounge for 6 months in 1944. His share of its loss during that period was $ 135.26. 16 T.C. 981">*983 He sustained a loss of $ 250 in 1944 from an unsuccessful attempt by him and another as equal partners to purchase an interest in another cocktail lounge. Hecht received his share of the income and gains from the above-described businesses and transactions and paid his share of the losses.

Hecht did not allow his name to appear as the owner of the interests described in the preceding paragraph, but had his interests appear in the name of one or more of the following: Merriam Brady, his sister; Samuel Gelman, Susan's brother; Susan Gelman, Susan's maiden name; and Kaufman, one of his partners. He did that so that Calvert would not know he was engaging in the sale of liquor. Income, gains, and losses from the various activities in which those persons appeared as dummies for Hecht were reported on returns of those persons and the tax shown thereon was paid. Hecht paid amounts to Brady, Gelman, and Kaufman which1951 U.S. Tax Ct. LEXIS 202">*206 approximated the tax on his income reported by them. Hecht and Susan did not report any income, gain, or loss from the partnerships and did not report any loss from the liquidation of the corporation.

Susan was familiar with all of the circumstances above described, and as executrix of Samuel Gelman, who died in January 1946, filed a return for 1945 for him, reporting thereon income and deductions to which Gelman was not entitled because he was acting as a dummy for Hecht.

The Commissioner, in determining the deficiencies, included in the income of the petitioners Hecht's correct share of the income, gains, and losses from the activities of the partnerships and of the corporation in accordance with the Hecht's real interests in those activities, and the petitioners concede that the adjustments made by him in those respects are correct.

The Commissioner has not allowed the petitioners any credits or adjustments for the taxes paid by the others on income belonging to Hecht or for amounts paid by Hecht to those persons to reimburse them for the payment of those taxes.

Susan maintained two bank accounts during the taxable years. The Commissioner, in determining the deficiencies, held1951 U.S. Tax Ct. LEXIS 202">*207 that unexplained deposits in those accounts amounting to $ 560.99 for 1943, $ 698.93 for 1944, and $ 751.50 for 1945, represented income which the petitioners had failed to report for those years. $ 29.63 of the amount which he included in income for 1943, $ 40.84 for 1944, and $ 22.50 for 1945 represented interest received and not reported. $ 300 of the amount which he included in income for 1943 represented a redeposit of funds previously withdrawn and was not income. Most of the remaining deposits represent money given to Susan by Hecht for her own use and none of the remaining deposits represent income.

16 T.C. 981">*984 Hecht had a bank account during the taxable years. The Commissioner, in determining the deficiencies, held that unexplained deposits in that account amounting to $ 2,515 for 1943, $ 858.98 for 1944, and $ 219.50 for 1945 represented income which the petitioners had failed to report for those years. A $ 2,000 deposit for 1943 represented a redeposit of an amount previously withdrawn and was not income. $ 215 of the remaining deposits for 1943 was not income of Hecht. The petitioners have failed to show that the balance of $ 300 was not income to Hecht for 1943. 1951 U.S. Tax Ct. LEXIS 202">*208 $ 250 of the 1944 deposits did not represent income of Hecht and the petitioners have failed to show that the balance of $ 608.98 did not represent income to Hecht. $ 100 of the deposits for 1945 did not represent income of Hecht and the petitioners have failed to show that the balance of the deposits in the amount of $ 119.50 did not represent income to Hecht.

The Commissioner, in determining the deficiencies, disallowed a deduction of $ 300 claimed as entertainment expense for 1943, $ 175 claimed as "entertainment and promotion -- January to May 1945," and $ 713 for 1943, $ 920.64 for 1944, and $ 562.14 for 1945, the total amounts claimed as automobile expenses. Hecht was engaged in the wholesale liquor business during the last 6 months of 1945. He was fully reimbursed for all entertainment expenses incurred by him on behalf of Calvert at all times material hereto. The record does not show the amount, if any, expended by Hecht during 1943 or during 1945 for entertainment or promotion of any business carried on by him for which expenditure he was not reimbursed by Calvert. The deduction for automobile expense claimed for each year was shown as 90 per cent of the total of several1951 U.S. Tax Ct. LEXIS 202">*209 items such as gasoline and oil, repairs, insurance, washing and parking, license, and depreciation. It was claimed on the basis of 90 per cent use of his automobile for business purposes. Calvert reimbursed Hecht in each year for the use of his automobile by an amount equal to the mileage put on his car during each year, or period of employment, times 4 cents. The amount of that reimbursement was never taken into account in computing the deductions claimed on the returns. The record does not show the extent to which Hecht used his automobile in any of the taxable years in connection with any business carried on by him. The petitioners are entitled to divide deductions for automobile expenses of $ 150 for 1943, $ 250 for 1944, and $ 150 for 1945.

The petitioners each claimed on their return for 1943 one-half of a total deduction for medical expenses of $ 127.52, which was the excess of medical expenses of $ 327 over 5 per cent of the total net income reported by them before taking the deduction. The Commissioner, in determining the deficiencies for 1943, did not allow any deduction for medical expenses because the total medical expenses did not exceed 5 per cent of the total 1951 U.S. Tax Ct. LEXIS 202">*210 net income of the petitioners 16 T.C. 981">*985 as computed by the Commissioner, and the petitioners concede that they are not entitled to the deduction.

The petitioners consented in writing to the extension to June 30, 1949, of the time within which deficiencies for 1943 and 1944 could be assessed or collected. The deficiency notices were mailed on February 21, 1949.

A part of each deficiency for 1943, 1944, and 1945 in the case of each petitioner is due to fraud with intent to evade tax.

The facts stipulated by the parties and those shown by joint exhibits are incorporated herein by this reference.

OPINION.

It is conceded that six of the unexplained bank deposits in the accounts of Susan represented unreported interest and, therefore, the Commissioner was right in adding those to income. Susan testified in regard to the other questioned deposits and her testimony satisfies the Court that they did not represent income. Hecht was questioned about his unexplained deposits and in a few instances gave explanations which, if he can be believed, would indicate that the deposits did not represent income to him. However, his testimony in regard to many of the deposits was vague and leaves real1951 U.S. Tax Ct. LEXIS 202">*211 doubt in the record as to what the deposits represented. The Court has made findings which eliminate some of the deposits from income and leave others in. It felt that probably a number of the deposits did not represent income, but that it had to bear most heavily upon the petitioners, who had the burden of proof and had failed to come forward with reasonably convincing explanations in regard to a number of the items.

The petitioners claimed a deduction of $ 300 for entertainment expenses for 1943. If it was claimed in connection with Hecht's employment by Calvert, it is not a proper deduction because the record shows that Calvert reimbursed Hecht for all entertainment expenses incurred by him in connection with that employment. He testified that he had to do some entertaining in order to get liquor for the various stores in which he had a concealed interest. But the record does not show how much money, if any, he spent, what he spent it for, or why he would spend money in 1943 but not in 1944. In short, for these and other reasons the record does not show that the Commissioner erred in disallowing the deduction of $ 300 for 1943. The situation in regard to the claimed deduction1951 U.S. Tax Ct. LEXIS 202">*212 of $ 175 for 1945 is much the same and requires the same result.

Hecht undoubtedly used his automobile in connection with his business activities in each of the taxable years. He did not give any indication of how many miles he drove his automobile or how many miles it would carry him on a gallon of gasoline. Calvert reimbursed 16 T.C. 981">*986 him at the rate of 4 cents per mile for any driving which he did on its behalf, yet the petitioners did not take that reimbursement into account in computing the deductions which they claimed for automobile expense. It seems reasonable to believe, as Hecht testified, that 4 cents per mile did not fully compensate him for the use of his automobile in his business. Here, again, the Court has allowed a part of each deduction claimed, although the result is only an approximation resorted to because of the indefiniteness of the record as to a more exact amount.

Income which belonged to Hecht and which he received was reported during the taxable years on returns of others. Hecht paid those three other persons money to reimburse them for the additional taxes which they had to pay because they had included the petitioners' income in their returns. The1951 U.S. Tax Ct. LEXIS 202">*213 petitioners now claim that they are entitled to some credit or adjustment under section 3801 of the Internal Revenue Code. It provides that when a determination requires the inclusion in the income of a taxpayer of an item which was erroneously included in the income of a related taxpayer, and correction of the effect of the error is prevented by provisions other than section 3761, then the effect of the error should be corrected by an adjustment made under section 3801. A related taxpayer is defined as one who stood in one of the following relationships to the taxpayer: (A) husband and wife; (B) grantor and fiduciary; (C) grantor and beneficiary; (D) fiduciary and beneficiary, legatee, or heir; (E) decedent and decedent's estate; or (F) partner. The persons who reported the income which belonged to the petitioner were not related taxpayers within the meaning of that section. Merriam Brady does not meet any of the requirements in order to make her a related taxpayer. Samuel Gelman was at times, just like his sister, merely a dummy for Hecht and in such instances he was clearly not a related taxpayer. Kaufman was a partner of Hecht in the S & B Liquor Company, and Gelman was 1951 U.S. Tax Ct. LEXIS 202">*214 a partner in one or more of the ventures. But in so far as those persons acted as dummies for Hecht, they were not his partners and section 3801 was never intended to cover a situation where, in order to conceal the truth, one person reports income which he and the other party know belongs to the other party and should have been reported by that other party. The petitioners are not entitled to any credits or adjustments under section 3801, and if Hecht is ever to get back or get credit for any of the money which he paid to his dummies, it will have to be in some other way.

The remaining issue is whether the Commissioner has shown that a part of each deficiency is due to fraud with intent to evade tax. The petitioners admit that they failed to include in their returns for each year large amounts of income which they should have reported. Therefore, it is not necessary to consider lesser irregularities in their 16 T.C. 981">*987 returns in connection with this issue. Both petitioners were just about as fraudulent as two people could be in reporting their income tax for each of the taxable years. They tried to conceal income, which belonged to them, behind others and they had those others1951 U.S. Tax Ct. LEXIS 202">*215 report that income instead of reporting it themselves. They make two arguments in opposition to the imposition of the fraud penalties. One is that they were not trying to defraud the Government out of tax, but were trying to conceal from Hecht's employer the fact that he was violating its rule that an employee could not own an interest in any business which sold liquor for beverage purposes. Hecht was not employed by Calvert after June 30, 1945, and at the time the 1945 returns were filed there was no purpose to deceive Calvert. It is no doubt true that Hecht deliberately deceived his employer by having his interests in the various businesses engaged in the selling of liquor in the names of others. But when he had those others report his income as if it were theirs, and when he and his wife failed to report the income which they knew was theirs, they were deliberately falsifying their own returns and they were deliberately attempting to deceive the representatives of the Government who would receive and examine those returns. It is not clear that the petitioners had any other purpose in so far as their returns were concerned. But even if the false returns were also intended1951 U.S. Tax Ct. LEXIS 202">*216 to deceive Calvert, nevertheless, that would be immaterial so long as they were designed to deceive the taxing authorities. Spies v. United States, 317 U.S. 492">317 U.S. 492; National City Bank of New York v. Helvering, 98 F.2d 93. If the Government authorities had not been alert, the fraud would never have been discovered. The petitioners' other argument is that the difference in tax between the amount which they owed for each year and the amount which was paid by their dummies because those dummies reported the petitioners' income in their returns, for which amounts the dummies were reimbursed by Hecht, is so small that it negatives any intention on the part of the petitioners to evade taxes. They point out in this connection that the shares of two or more partners were sometimes reported by one dummy and that the income of the Kaufmans was greater than the income of the petitioners. They say that since greater savings could have been gained by having more or lower bracket dummies report the income, it is obvious that there was no intent to evade taxes. The fact is, however, that the effect of the scheme in each year1951 U.S. Tax Ct. LEXIS 202">*217 was to evade taxes and the petitioners intended to take all of the advantages which might flow from having others report income which they should have reported. Their arguments against the imposition of the fraud penalties are unsound. The Commissioner has fully sustained his burden of proof in regard to fraud and the additions to the tax under section 293 (b) are proper.

Decisions will be entered under Rule 50.