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presumably in her capacity as controller of Knappco. Every check
drawn on the Orad account was endorsed by petitioner. There was
no activity in the Orad account from August 1985 until May 1986,
when petitioner endorsed a check payable to herself for $1,300,
leaving a balance in the account of $13.69. Thereafter, there
was no activity from June 1986 through January 1987, when the
account was closed by the bank for failure to pay service
charges.
Orad did not file a Form 1065, U.S. Partnership Return of
Income, for tax year 1985. Orad had gross receipts of $18,471 in
1985. Petitioner included one half of Orad's gross receipts on
her 1985 Federal income tax return, or $9,235. Daro, however,
did not include any of Orad's gross receipts on her 1985 Federal
income tax return.
Petitioner's employment with Knappco terminated on August
27, 1985, when she was fired for allegedly stealing from Knappco.
Subsequently, petitioner was charged with two felony counts of
stealing by deceit money owned by Knappco. Count 1 charged
petitioner with issuing an unwarranted check in the amount of
$6,576 payable to Orad, and count 2 charged petitioner with
issuing an unwarranted check in the amount of $3,405 payable to
Cena. On June 6, 1986, petitioner pled guilty to both felony
counts of stealing by deceit from Knappco.
Petitioner testified that she owned three vehicles during
1985: A 1965 Ford Mustang, a 1976 Chevrolet pickup truck
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