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At the time the petition was filed, petitioners resided in
Alameda, California.
In 1980, petitioners formed Columbia Cosmetics
Manufacturing, Inc. (CCMI), as a California corporation to market
and distribute cosmetics. CCMI was formed and operated as a
subchapter C corporation. Petitioners were the sole shareholders
and officers of CCMI. Petitioner David Rendel (David) was
president, and petitioner Rachel Rendel (Rachel) was vice
president of CCMI. The offices and principal place of business
of CCMI were located in San Leandro, California.
Petitioners' books and records were maintained on the cash
method of accounting. CCMI's books and records were maintained
on the accrual method of accounting. Both sets of books and
records were maintained by Crudup C. Howard (Howard), an
accountant petitioners hired for that purpose. Howard met
monthly with Rachel to reconcile CCMI's bank statements and to
discuss with Rachel the accounting for various transactions.
By late 1981, CCMI was earning a significant profit. In
late 1981, Howard and petitioners consulted with a number of tax
shelter promoters (namely, Gil Armstrong (Armstrong) who was a
representative of the American Law Association (ALA),1 John Green
(Green), and Michael Panatelli (Panatelli)). These individuals
1 The ALA was founded by Karl Dahlstrom for the purpose of
promoting offshore trusts.
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