C. Mr. Burke's Indictment
In May 1987, Mr. Burke informed Ms. Romano that he was under
investigation by the New York State Department of Insurance. Mr. Burke then
instructed her to collect the insurance agency checkbooks, destroy them, and
report them as stolen. Ms. Romano refused to carry out these instructions.
The records of the Burke Insurance Agencies were seized by the Suffolk
County District Attorney's office pursuant to search warrants authorized on
May 11, 1987. Mr. Burke was indicted on two counts of grand larceny for
embezzling more than $1.2 million from his insurance premium account.
However, Mr. Burke was neither tried nor convicted for this indictment.
Instead, pursuant to a plea agreement with the Suffolk County District
Attorney, Mr. Burke pled guilty to Grand Larceny 4 (a felony) for his failure
to remit sales tax from Jury's to the New York State Department of Taxation
and Finance. In exchange for his guilty plea, the embezzlement charges were
dismissed.
III. Tax Returns Filed for 1985, 1986, and 1987
A. The Alleged Joint Returns
On March 29, 1991, Mr. Burke filed untimely Federal income tax returns
for the taxable years 1985, 1986, and 1987. These returns purport to be joint
returns. Although a signature for Mrs. Burke appears on the returns at issue,
the parties stipulated that Mrs. Burke did not sign any of the returns, and
Mrs. Burke had no involvement in the preparation of the delinquent returns or
in the audit process leading up to the issuance of the notice of deficiency.
Mr. Burke signed Mrs. Burke's name to the returns without asking for or
receiving her consent. Prior to the filing of the returns in issue, Mr. Burke
had never signed his wife's name to a tax return.
Mrs. Burke, individually, was not required to file a Federal income tax
return of her own for any of the years in issue. In March 1991, Mrs. Burke
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