Kazimir C. And Anna M. Bahoric, Anna M. Bahoric, and Kazimir C. Bahoric v. Commissioner of Internal Revenue

The Bahorics have been caught on an Internal Revenue net-worth escalator where the Commissioner of Internal Revenue has assessed them additional income taxes, interest and fraud penalties.

According to the Internal Revenue projections, the Bahorics’ opening net worth at the end of the year 1938 starts with $3,700.35 and progresses with annual gains of net worth, some years small but often substantial, until at the end of 1957 their net worth on a cost basis was $369,535.64. In the computations, the Bahorics (the taxpayers) and the Commissioner reached an agreement as to the couple’s living expenses for each year 1939 to 1957 inclusive. For these, an allowance was made.

Eventually the Commissioner came up with a table for the Bahorics as follows:

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Note: The taxpayers filed separate returns for the year 1947. The 1947 figure above represents the totals for the two returns. In all other years, the taxpayers filed a joint return.

The Commissioner asserted, because of fraud, there was no statute of limitations. Included in his assessment were 50% fraud penalties. Without adding up the annual deficiencies, we can say that if the taxpayers still have their net worth…