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asserted he set aside in an attempt to satisfy reserve
requirements relating to employee benefit accounts he managed.
Respondent questioned petitioner about whether he had
embezzled from First Tennessee five checks made payable to Trust
Investment (i.e., representing a relatively small portion of the
underreported income in issue). Petitioner failed to report the
proceeds from these checks, but respondent did not establish that
petitioner embezzled these amounts or intended to evade tax.
Respondent further challenged petitioner’s assertion that a
portion of the underreported income was attributable to funds
petitioner set aside (i.e., into certificates of deposit,
municipal bonds, and a cash management fund) in an attempt to
satisfy reserve requirements. Petitioner acknowledged that he
did not formally set up a reserve account but established that he
believed he could defer income on amounts set aside and
subsequently report these amounts as income when they were no
longer needed to meet reserve requirements. Petitioner’s
contention, regarding the reserve account, related to only a
portion of petitioner’s underreported income (e.g., petitioner
deducted, as returns and allowances, on his returns only the
amounts set aside in 1993). Inexplicably, respondent failed to
address (i.e., did not question petitioner or his accountant and
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Last modified: May 25, 2011