Alice Avery v. Commissioner of Internal Revenue

Avery sold heroin to a Drug Enforcement Agency agent three times in the Fall of 1972. She has served a prison term resulting from these sales, and now challenges an Internal Revenue Service tax deficiency assessment.

Avery sold $4,000 worth of heroin to the DEA agent, but the IRS estimated that she sold a total of $60,000 in a three-month period. After deductions for the cost of the goods sold and other proper computations, the unpaid tax was found to be something over $12,000. The Tax Court upheld the Commissioner’s determination; we affirm.

Avery filed a preliminary motion to shift the burden of proof at trial from her to the Commissioner. To succeed she had to prove that the Commissioner’s determination of deficiencies was arbitrary and capricious. The major evidence at the hearing on the motion was the testimony of Sid J. Starr, the IRS agent who made the original determination. Starr testified that he relied heavily on information from Ben Coleman, who was involved in Avery’s activities, and from other sources. Coleman had died, and none of the other sources testified; thus Starr’s statements were hearsay inadmissible to show the truth of the matters asserted. The Tax Court…