Lesly Cohen v. Commissioner of Internal Revenue

This matter is before us on a taxpayer’s petition to review a decision of the Tax Court redetermining income tax deficiencies and penalties for 1948, 1949, and 1950. The principal question we have to decide is this: Where the Tax Court has rejected the deficiency determination of the Commissioner of Internal Revenue, may it redetermine the deficiency by finding that “it is not likely” that gross income exceeded a certain figure (substantially below that found by the Commissioner) and then utilize that figure as actual gross income because petitioner failed to establish a lesser amount ?

During the years in question the petitioner, Lesly Cohen, operated the Kingston Club, a San Francisco card room. During the same period and using the same premises as his headquarters, Cohen operated as a so-called “betting commissioner.” The latter activity was in violation of both state and local law. Either as a part of this latter activity (as appellant contends) or as a separate venture in which appellant engaged in personal betting (as the Tax Court found), Cohen also received income from a San Francisco establishment known as the Film Row Club.

As betting commissioner, Cohen would obtain…