Darrell L. Gaines - Page 10

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               Petitioner timely filed his Federal income tax returns for             
          each year in issue.  He reported adjusted gross income of                   
          ($1,914) in 1993, $1,844 in 1994, and $3,559 in 1995.                       
          Petitioner’s reported tax liabilities were $362 in 1993, $280 in            
          1994, and $600 in 1995.  Each of the returns petitioner filed               
          during the years in issue, as well as those filed in 1991 and               
          1992, includes a Schedule C, Profit or Loss From Business, for              
          Grand Video.  Income, deductions, and profits or losses reported            
          on the Schedules C are as follows:                                          
                              1991      1992      1993      1994      1995            
          Gross income      $19,459   $27,998   $47,722 $47,488     $43,956           
          Deductions         19,629    28,103    45,157    45,504    39,713           
          Net profit (loss)   (170)     (105)     2,565     1,984     4,248           
               With the possible exception of 1995, no deductions are                 
          claimed for wages paid in cash to petitioner’s employees during             
          any of the years listed above.                                              
               Each return was prepared by a paid income tax return                   
          preparer.  With respect to the items listed on the Schedules C,             
          petitioner provided the return preparer with the cash journal and           
          bank records for the business account.  For at least 1995, the              
          return preparer relied upon petitioner’s statement as to the                
          amount of income he earned through Grand Video.                             











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