John J. Burke and Vivian Burke - Page 3

            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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