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(2) paid and deducted the Gilchrists' personal expenses in the
following amounts:
Year Truck Expense Travel/Entertainment Utilities Total
1986 $1,317 $2,076 $3,782 $7,175
1987 2,907 4,513 11,858 19,278
1988 1,694 1,987 2,305 5,986
On their 1986, 1987, and 1988 individual returns, the
Gilchrists reported gross income of $11,237, $13,144, and ($582),
respectively. In each year, they reported that they received no
dividend income. The parties, however, have stipulated:
(1) Door Control made payments relating to the Gilchrists'
personal expenses; (2) the Gilchrists deposited into their
personal bank accounts corporate income of $94,983.42 in 1986,
$66,173.01 in 1987, and $105,891.87 in 1988; and (3) the payments
for personal expenses and diverted corporate income are taxable
to the Gilchrists as constructive dividends.
By information dated March 30, 1993, Mr. and Mrs. Gilchrist
were each charged, pursuant to section 7206(1), with willfully
making and subscribing a return which they did not believe to be
true and correct. The information charged that each of them had
willfully made and subscribed a Form 1040 for 1988 that they did
not believe to be true and correct. It charged specifically that
they failed to report diverted corporate income. Also on March
30, 1993, in accordance with a plea agreement, the Gilchrists
each pleaded guilty to violation of section 7206(1). Pursuant to
the plea agreement, the Gilchrists were required to pay
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