income tax return for each of the years in issue; and, if so, (6) whether Mrs.
Burke is entitled to "innocent spouse" protection pursuant to section
6013(e)(1); (7) whether petitioners are liable for an addition to tax under
section 6651(a)(1) for delinquent filing of their Federal income tax returns
for 1986; and (8) whether petitioners are liable for an addition to tax for a
substantial understatement of income tax under section 6661(a) for each of the
taxable years in issue.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The
stipulation of facts and attached exhibits are incorporated herein by this
reference. At the time the petition was filed, petitioners resided in
Setauket, New York.
I. Background
During the years in issue, Mr. Burke was a licensed insurance agent and
the sole owner of two insurance brokerage agencies, John J. Burke &
Associates, and Burke-Shepis & Co. (Burke Insurance Agencies).
In 1985, Mr. Burke acquired a 50-percent interest in a restaurant known
as Jury's of Setauket (Jury's). Jury's was organized as an S corporation
pursuant to section 1366 and operated under the name "Ard Rhei, Inc." (Ard
Rhei).5 The remaining 50-percent interest in Jury's was owned by Bernard
Hillick. Mr. Burke eventually purchased Mr. Hillick's interest in Jury's.
During the years in issue, Mr. Burke frequently made large wagers at
casinos and with bookmakers. In addition, Mr. Burke used cocaine and
marijuana.
II. John Burke's Agreement with U.S. Life
5The names "Jury's" and "Ard Rhei" are used interchangeably throughout
this opinion.
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