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tax, a section 6662 accuracy-related penalty, and a section 6673
penalty for advancing frivolous and groundless arguments.
FINDINGS OF FACT
Petitioners, husband and wife, resided in Fresno,
California, at the time their petition was filed.
In 1994, petitioners created, and diverted their taxable
income to, seven trusts. Petitioners funded the trusts with
their real property and businesses, including rental properties,
two day care centers, and a print shop. Payments for services
rendered, rental income, and other funds were deposited in the
trusts’ bank accounts. Petitioners drew numerous checks on these
accounts.
Petitioners, on May 30, 1997, filed their 1994 income tax
return and reported no Federal income tax liability. U.S.
Fiduciary Income Tax Returns for the taxable year 1994 were filed
on June 24 and 25, 1997 for the seven trusts. Collectively, the
trusts reported as their gross receipts all income earned by
petitioners in 1994. In 2000, respondent audited petitioners
1994 return, reconstructed their income, disallowed their
unsubstantiated deductions, determined income and self-employment
tax deficiencies, and imposed a section 6651(a) addition to tax
and a section 6662(a) penalty.
Petitioners failed to comply with this Court’s April 27,
2001, Order to File Response to Request for Admissions and May 1,
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