Donald Ferry and Sharon Ferry - Page 3

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            of $4,180.69, interest income of $206.31, and unemployment income                              
            of $2,533.  They claimed a child care credit of $81 and showed a                               
            tax liability of zero.  They also claimed (and apparently                                      
            received as a refund) an earned income credit in the amount of                                 
            $851.  Petitioners claimed two children as dependents, Sean D.                                 
            Ferry and Brent R. Ferry.  On line 6(c)(3), requesting the                                     
            children's Social Security numbers, petitioners stated, "applied                               
            for".                                                                                          
                  On their joint Federal income tax return for 1988                                        
            petitioners reported wages of $5,665.10, interest of $63.80, and                               
            unemployment income of $4,920 for a total of $10,648.90.  They                                 
            claimed and received as a refund an earned income credit of $793.                              
            Again, they listed the children as dependents and showed their                                 
            Social Security numbers as "applied for".                                                      
                  Forms W-2 were attached to the returns.  The Forms W-2 for                               
            Donald D. Ferry showed wages from Wayanne, 1108 South College                                  
            Avenue, Newark, Delaware 19713, in the amount of $3,910.69 in                                  
            1987 and $5,665.10 in 1988.   These forms were prepared by                                     
            petitioner himself, not by Wayanne's normal payroll preparer, and                              
            petitioner's business associate, Wayne Wilberding, was not aware                               
            of them.                                                                                       
                  Using a combination of the bank deposits and specific items                              
            methods, respondent originally determined that petitioners                                     
            understated their income for 1987 by $130,232 and for 1988 in the                              





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