OPINION.
Van Fossan:
In this case the Government charges that for each of the tax years 1929 and 1930 petitioner filed a false and fraudulent return with intent to evade tax. The years stand separately. The establishment of fraud in the particular year is a prerequisite to further consideration of the case for that year. If there was no fraud, the statute of limitations has run against any deficiency for such year. If fraud be proven the case is before us on all issues for the year in question. Sec. 276 (a), Revenue Act of 1928.
Under the revenue laws every taxpayer is, in the first instance, his own assessor. He determines the amount of tax due. This privilege carries with it a concurrent responsibility to deal frankly and honestly with the Government — to make a full revelation and fair return of all income received and to claim no deductions not legally due. This responsibility is not properly discharged by resolving all doubts against the Government, or by giving effect to studied efforts to wipe out taxable income by secret and questionable practices. It is a maxim of our law that, in dealing with the Government, taxpayers must turn square corners.
The responsibility of making a tax return is personal and rests squarely on the shoulders of the taxpayer. When he makes oath to the correctness of his return he assumes responsibility therefor. Only in rare instances can the consequences incident thereto be delegated to another.
Section 293 (b) of the Revenue Act of 1928 provides:
SEO. 293. ADDITIONS TO THE TAX IN OASE OE DEFICIENCY.

(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 3176 of the Revised Statutes, as amended.
To determine whether or not fraud exists, a case must be studied, not alone for conformity to definition, nor with a blind adherence to syllogistic reasoning. Fraud is a fact to be proven by clear and convincing evidence. Seldom does all the evidence point one way. There are usually facts that tend to support petitioner's theory of the case — that tend to clear him of any fraudulent intent; and there are other facts that point in the opposite direction and tend to prove fraud. Likewise, the proof of fraud by the citation of one single specific act is seldom possible. It is usually to be determined by viewing a whole course of conduct involving many acts and inferences. In this process of analysis the old illustration of the strength of a bundle of sticks is apt. Separate facts may be reasoned away and their force broken by plausible explanations, but when all of the facts in proof are bound together, the weak with the strong, they may create such an aggregate of strength as to defy refutation.
Nor is the absence of fraudulent intent necessarily established by the protestations of innocence of the parties, however vigorous. Sydney M. Shoenberg, 30 B. T. A. 659; affd., 77 Fed. (2d) 446; William C. deMille Productions, Inc., 30 B. T. A. 826. It is to be gleaned from all the facts and the normal and reasonable inference therefrom. Though intent is a state of mind, its character is to be established, as other facts are established, by weighing all of the evidence and applying the proper measure of proof.
In this situation the trier of the facts is charged with the responsibility of passing on the credibility of the evidence. This duty involves the winnowing of the wheat of truth from the chaff of untruth — the sorting of the real from the seeming. This duty is not without its inherent difficulty. In cases such as this, almost without exception, the taxpayer testifies categorically to the purity of his motives and the absence of fraudulent intent. And if, on the whole record, he convinces those charged with decision of his forthrightness of purpose, his innocence of improper motive, the impenetrable honesty of his position — if neither contradictory circumstance nor inherent lack of probability weakens his credibility, he must prevail. On the other hand, if, after listening to the taxpayer's protestations of innocence and hearing his explanations of his conduct, the trier of the facts is unable to give such protestations full weight and such explanations full credence, if on the whole record of fact, inference, and circumstance there abides in the mind of the trier a conviction, based on clear and convincing evidence, that fraud has been committed; then the decision must be against him. P. B. Fouke, 2 B. T. A. 219; L. Schepp Co., 25 B. T. A. 419.
The specific items in controversy for the year 1929 are the alleged sale by petitioner to his wife and the failure to report as income the large payment from the management fund.
The transaction with Mrs. Mitchell had its inception in an admitted desire and a purpose to reduce or obviate the payment of taxes. It has been said many times that there is nothing illegal or reprehensible in an honest effort to reduce taxes to the minimum required by law. United States v. Isham, 17 Wall. 496; Bullen v. Wisconsin, 240 U. S. 625; Chisholm v. Commissioner, 79 Fed. (2d) 14. Theoretically, at least, there can be but one correct amount of tax due and it is in the ascertainment of this correct amount that most tax controversies have their origin. But the courts and the Board have also often said that a transaction solely designed to save taxes, especially one between husband and wife, will be subjected to strict scrutiny to determine whether the transaction is real or is merely a pretense. Commissioner v. Hale, 67 Fed. (2d) 561; Carl P. Dennett, 30 B. T. A. 49; Joseph E. Uihlein, 30 B. T. A. 399.
Before he took up with Mrs. Mitchell the question of a possible sale to her of the stock, petitioner had come to the conclusion, by whatever process of reasoning employed, that the payment of $666,-666.67 received from the management fund was not income. There remained approximately $2,800,000 in income which he desired to wipe out. He determined to accomplish this end by " registering a loss " (to use his words) on the 18,300 shares of National City Bank stock. He decided on a sale to his wife, subject to getting the advice of his attorney. In this matter petitioner protests that he would not have gone ahead had his attorney advised against such procedure, but here we are unable to give full weight to his declarations.
There are conceivable instances in which a taxpayer may shield himself behind the advice of counsel, but the facts in this case do not present such a situation. Petitioner was fully experienced in the business of making sales. It is not to be believed that he did not know the basic essentials of such a transaction, and that "A sale must rest on a genuine intention to dispose of property without reservation or evasion of mind." Sidney M. Shoenberg, supra. Moreover, despite his contention that he sought legal advice, intending to rely thereon, the record does not sustain such contention. Counsel told him the necessary requirements of a valid sale, and were these elements present in the facts we should hold the sale valid. However, petitioner did not reveal to counsel all of the necessary facts to enable him to advise definitely as to this particular sale, nor did counsel, with full knowledge of the facts, attempt or purport to advise petitioner to make the sale. By clear inference counsel suggested doubt as to the proposed sale. Moreover, petitioner did not choose to follow such advice as was given. Although counsel told him that a very carefully drawn agreement was necessary, petitioner determined to follow his usual practice and exchange letters with his wife. We are convinced that he had chosen his course of action and that he proceeded to follow it, notwithstanding the cautionary advice of counsel. "Advice of counsel " affords him no shelter from the consequences of his conduct under the facts in this case.
The record reveals many facts of consequence. At the time of the alleged sale Mrs. Mitchell's total resources amounted to less than a million dollars. The sale price of the stock approximated four million dollars. The total amount of cash in Mrs. Mitchell's hands consisted of some $32,000. The so-called " interest " due to petitioner on account of the alleged sale amounted to approximately $196,000 per year. The dividends on the stock amounted to but $73,200 per year. The difference between these sums was furnished by petitioner to his wife, who in turn paid the same, and all money received as dividends, to petitioner. The stock was all pledged to secure a large loan with Morgan & Co.; therefore, no delivery was made or ivas possible. Though advised to notify Morgan & Co. of the alleged sale petitioner did not do so. Though advised that internal revenue stamps were required, no stamps were affixed. No bill of sale was executed. No payment on account of principal was ever made. There was no entry by Mrs. Mitchell on her books of any indebtedness to petitioner. Although Mrs. Mitchell claims to have bought in order to resell at a profit, she did not sell although the market improved to such an extent that she could have sold at a profit of three quarters of a million dollars, thereby nearly doubling her fortune.
That petitioner deemed himself the owner of the stock at all times appears by clear inference in his efforts to have the National City Co. recognize the validity of his claim for relief and assume his obligation on the stock. It is significant that he did not reveal to his business associates during these negotiations the alleged disposition of the stock nor suggest that the claim had been sold to his wife.
The alleged repurchase corroborates the plain deduction from the above facts. Though the market had fallen to $45 per share, the price at which petitioner " reacquired " the stock was $212 per share, the price at the time Mrs. Mitchell was alleged to have bought. This transaction occurred at a time when petitioner was insolvent to an amount of $3,000,000. Had the sale been real, the relief of Mrs. Mitchell from the burden of interest could more simply have been accomplished by releasing Mrs. Mitchell from the alleged obligation to pay interest.
Over against this array of circumstances, stand the protestations of petitioner that the entire transaction was bona fide; that the sale was actual; that title passed; and that the repurchase arose solely from petitioner's desire to protect his wife's separate estate. Explanations of some plausibility are offered of each step. But on the entire record of the transaction, according to each fact such weight as in our judgment it deserves, drawing such inferences as logically flow from each circumstance, we find ourselves impelled to the conclusion that petitioner never intended to part with title; that no real sale was made ; and that at all times he was the true owner of the stock. We are of the opinion that the Government has proved by clear and convincing evidence that the transaction between petitioner and his wife was a sham, a mere pretense conceived and carried out for the fraudulent purpose of evading taxes. The petitioner sustained no loss on thq transaction and the alleged loss is disallowed. See D. A. Belden, 30 B. T. A. 601, and cases there cited; Albert W. Finlay, 17 B. T. A. 828.
The other item in the 1929 situation is the failure to report for taxation the sum of $666,666.67 received as a distribution from the management fund in July 1929. The primary facts as to this item may be briefly summarized. The National City Co. in 1921 established a bonus system for certain officers of the company under the name " Management Fund." It was continued from year to year and payments or distributions were made therefrom. Under corporate resolution the fund was built up by monthly accretions from profits. At the close of the current year, or at any time, or from time to time during the year, the executive committee was empowered to make distributions from the fund to the beneficiaries, one half in accordance with fixed percentages, and the remaining one half at the close of the year in such proportion as the committee should fix. The percentage of the president was fixed at 33ys percent of the entire fund and was not subject to the discretion of the committee. On January 3, 1929, the sum of $1,450,000 was distributed, petitioner receiving $483,333.33 of such sum. This was reported as income. There remained in the 1928 fund after such payment the sum of $140,938.98.
On July 1, 1929, petitioner received a distribution of $666,666.67 from the 1929 management fund.
There were additional accumulations in the fund through the months following, until November. There were no credits to the fund in November and December and the losses of the company during those months exceeded the profits earned during the first ten months of the year.
After various conferences in December 1929, initiated by petitioner, concerning the status of the fund and the payments therefrom, the recipients, including petitioner, signed the so-called "receipts ", by the terms of which the signer acknowledged that the payment " represented an overpayment to be repaid from future additions to said management fund before [he became] entitled to any further payments therefrom." Book entries and corporate resolutions reflecting the action were made. •
Petitioner did not report the sum so received from the management fund in his 1929 return.
On January 2, 1931, the sum of $140,938.98 remaining in the 1928 fund was distributed, petitioner receiving $50,515.53. This sum was not credited against the alleged overpayment for 1929. Subsequently the alleged obligation to repay was written down on the books of the company to $1.
That the payment received by petitioner was taxable as income seems beyond question. It was paid not as a loan or advance (cf. Lorenzo C. Dilks, 15 B. T. A. 1294; William H. Stayton, Inc., 32 B. T. A. 940), but without apparent qualification or restriction. Siegel Co., 27 B. T. A. 62, and cases there cited. It was received and treated by the recipients as their own. It was not repaid during the taxable year or at any subsequent time. The changed condition in the finances of the company which led to the signing of the receipts was not anticipated and could not have been foreseen. The resolutions creating the fund and providing for its distribution did not provide for such a contingency. Nor did the signing of the receipts or the making of entries on the books of the company characterizing the payment as an overpayment subject to repayment out of future earnings alter the taxable character of the payment so received by petitioner. Its taxability was fixed at the time of payment. North American Oil Consolidated v. Burnet, 286 U. S. 517, and cases cited therein; James M. Butler, 19 B. T. A. 718; Jackson v. Smietanka, 272 Fed. 970; Harry B. Hurd, 12 B. T. A. 368; T. W. Hewritze, 28 B. T. A. 1173; Siegel Co., supra. None of the cases cited by petitioner present parallel situations or are authoritative here. He lays special emphasis on the case of Gallin et al. v. National City Bank of New York et al., a case in the Supreme Court of New York County, New York, in which certain stockholders charged that the directors of the bank and the National City Co. had breached their statutory or common law duty in certain claimed respects, to the damage of the bank and the company. Among the alleged breaches were the establishment and distribution of management funds, it being claimed that the same resulted in the payment of exorbitant sums to officers and the waste and spoliation of corporate assets. Petitioner has culled certain expressions from the opinion of the court in that case which he claims sustain his position here in respect to the management fund. Singularly enough, respondent also points to certain statements of the court as strongly supporting his position.
We have examined the opinion with care and have come to the conclusion that it is neither pertinent nor authoritative in the case before us. There are expressions in the opinion which, taken from their context, seem to lend support to one side or the other in the present controversy but which, if read in their context and considered in the light of the questions involved and decided by the court, are found to be of no help in determining the taxability of the management fund payment.
When the "receipt" is subjected to study, it is readily seen that it created no definite obligation to repay. Any repayment was dependent wholly on the continuance of the fund and its future earnings. But the fund existed only from year to year. It was subject to any corporate action that might be taken either extending it for another year, or, in corporate discretion, abolishing it entirely. The " receipt " was valueless without further action in its support, and was wholly dependent on future earnings. In no sense was it an enforceable, unqualified obligation to repay.
The conferences with counsel and other officers respecting the possibility of repayment, the signing of the receipts, the corporate action and the making of book entries were largely at petitioner's initiation and followed his own decision that the payment should not be considered as income. The springing into existence of these subsequently conceived facts in support of petitioner's determination already arrived at suggests the employment of deliberate artifice to give color to his action in not reporting the payment for taxation. They appear as mere gestures lacking in the spark of reality that distinguishes the genuine from the pretended.
When all the facts pertinent to this item are considered and it is noted that petitioner's tax accounting for 1929 was characterized by an apparent indifference to the right of the Government to receive its toll in the form of taxes; that all doubts were resolved against the Government; that the taxpayer omitted from income a large payment received and enjoyed by him and failed to reveal to the Government the fact of such payment, although, as he testifies, he considered its taxability a close question, and now defends such concealment on the patently lame excuse of a possible obligation to repay — when such a review is made — there can be little doubt as to the intent of the taxpayer. The omission of the item was due to an intention to defraud the Government of taxes. M. Rea Gano, 19 B. T. A. 518; D. C. Clarke, 22 B. T. A. 314; Joseph Carroro, 29 B. T. A. 646; Charles F. Long, 12 B. T. A. 488.
We conclude that the omission of the item of $666,666.61 from his tax return for 1929 was fraudulent.
When we examine the proof respecting the sale in 1930 and repurchase in 1931 of Anaconda Copper Co. stock we find a very different situation from that obtaining in the transaction involving National City Bank stock heretofore discussed.
Though the motive suggesting the sale was the reduction of taxes, as already pointed out, this motive alone does not condemn a sale. If the sale be actual, judged by the normal criteria of the law of sales, and there be nothing to indicate a lack of bona fides in the transaction, such a sale may give rise to a lawful deduction. The same law that requires the reporting of profit received on a sale of property allows the deduction of a loss suffered in such a transaction. The test is the reality of the claimed loss and the genuineness of the factors involved.
Although there is a certain parallelism between some phases of the two transactions, there are vital differentiating elements. There was in each case an alleged sale for tax purposes and a subsequent repurchase at approximately the same price. In this the transactions are similar, but there the resemblance appears to end. In the 1929 " sale " the facts failed to integrate with the legal principles on which a sale must rest. In the 1930 sale there is a reasonable and satisfactory integration of the facts and governing principles. The evidence reveals that the several persons concerned in the 1930 sale were motivated by lawful impulses and that the design was to accomplish lawful ends. The repurchase likewise is found to rest on a reasonable and normal basis. It was closed at the market. It is not shown by fact, circumstances, or inference to have been a part of a preconceived plan by which the semblance of reality was given to a transaction by the implicit terms of which title never .was intended to pass.
We find the sale of Anaconda Copper stock to have been bona fide and lawful. Petitioner was, therefore, entitled to deduction of the loss so sustained. It follows that the claim of loss on this item afforded no basis for a finding of fraud.
We have indicated our conclusion that in 1929 petitioner conceived and carried out the alleged sale of National City Bank stock with the fraudulent purpose of evading taxes. This transaction involved various steps. On execution, each step became a part in a fraudulent plan and is stamped with the character of the plan. Among the steps taken were the arrangement to have the dividends paid to petitioner's wife and the return of the same by her for taxation. Since the stock was never sold these dividends at all times belonged to the petitioner. They should have been reported by him for taxation. Their omission from his return in 1930 in conformity with and in support of the fraudulent plan to evade taxes for 1929 is, in itself, fraudulent. Section 293 (b) of the Revenue Act of 1928 provides that " if any part of any deficiency is due to fraud with intent to evade tax " the penalty shall apply to the whole of such deficiency. We conclude that the return of petitioner for 1930 was false and fraudulent with intent to evade tax.
We come now to the final issue. Petitioner asserts that the identical matters here in controversy were involved in the case of United States v. Mitchell, in which he was acquitted by a jury in the Federal District Court for the Southern District of New York, and that the verdict in that case constitutes a bar against a decision in this proceeding. He argues, in effect, that the imposition of the penalties prescribed in section 293 (b) of the Revenue Act of 1928, supra, would constitute a second punishment for the same offense for which he was indicted and of which he was acquitted under the provisions of section 146 (b) of the same revenue act.
A careful study of the two sections convinces us that they are basically different in character and were enacted for wholly different purposes. The language of the two sections differs widely and contemplates situations which may require entirely dissimilar proof.
Section 146 (b) is a statute defining a felony and establishing punishment and penalties for the commission of a crime. It is a punitive statute and prosecution thereunder is strictly a criminal proceeding initiated by the United States. Section 293 (b) imposes an additional 50 percent of the deficiency if any part of the deficiency is due to fraud with intent to evade the tax. Proceedings thereunder are civil in character and are initiated by the taxpayer. The penalties contained therein are likewise civil and were inserted in the taxing statutes to aid in collecting revenue. Dorsheimer v. United States, 7 Wall. 166; Murphy v. United States, 272 U. S. 630; McDowell v. Heiner, 9 Fed. (2d) 120. They become a part of the deficiency in tax and are collected in the same manner as the deficiencies. Ely & Walker Dry Goods Co. v. United States, 34 Fed. (2d) 429; Thomas J. McLaughlin, 29 B. T. A. 247.
In William R. Scharton, 32 B. T. A. 459, the situation resembled that now before us, with the exception that the indictment of the petitioner was quashed. We there said:
Even if the quashing of the indictment in the criminal proceeding might be said to be a judgment of acquittal, it is not res judicata in this proceeding. It is not even admissible as evidence of the truth or falsity of the facts decided in the prior proceeding. See Coffey v. United States, 116 U. S. 436; Stone v. United States, 167 U. S. 178; 34 Corpus Juris 971; 15 R. C. L. 1000-1003, and cases cited.
Although the quoted statement was perhaps obiter in view of the question there presented, we believe it to be a correct statement of the law. Stone v. United States, 167 U. S. 178. We are of the opinion that the indictment and acquittal of petitioner under section 146 (b) in the Federal District Court do not stand as a bar to decision in this proceeding.
The respondent, on brief, raises a question of the burden and necessity of proof as to the fraud charges, directing attention to the fact that the petitioner failed to file a reply to the charges of fraud until after the close of the hearing in chief and the filing of respond ent's affirmative brief. In this situation he claims that the charges of fraud stand admitted under the pleadings and under the rules of the Board. Although our holding on the merits of the case probably makes this question academic, we deem it worthy of discussion.
The hearing was held April 30 to May 4, 1934. No motion for judgment on the issue of fraud was made at any time and the hearing was had and .evidence was produced by the parties as though a reply to respondent's charges had been filed. On July 2, 1934, respondent filed his affirmative brief, in which he took the position that in the posture of the pleadings the charges of fraud stood admitted by petitioner. On July 20, 1934, petitioner filed a motion for leave to conform the pleadings to the proof or, in the alternative, to file a reply nunc pro tuno. On August 6,1934, hearing with argument was had on the motion, at the conclusion of which the Division hearing the case granted the motion of petitioner for leave to file his reply denying respondent's allegations. The reply was forthwith filed.
We deem the action of the Division in permitting the filing of the reply to have been a proper exercise of its discretion and to dispose effectively of respondent's contention. The rules of the Board were thereby satisfied and the burden and requirement of proof rest normally. The burden of proving fraud rested on the Government. James Nicholson, 32 B. T. A. 977.
Beviewed by the Board.
Decision will he entered under Bule 50.
Black, Teammell, Ajrttndell, and Leech concur in the result reached in the majority opinion and, while agreeing that the item of $666,666.67 received by petitioner as a distribution from the management fund in July 1929 constituted taxable income to him in that taxable year, do not agree that the evidence establishes fraud as to this item.
SEC. 146. PENALTIES.
(b) Any person required under this title to oollect, account for, and pay over any tax imposed by this title, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution.