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French was in possession of AHC’s financial records for taxable
year 1988 at the time their 1988 return was prepared.
C. Refund Check and Certificates of Deposit
In January 1990, petitioner and Mr. French received a refund
check in the approximate amount of $226,000 from the Internal
Revenue Service (IRS). The refund was for taxable year 1986 and
resulted from the NOL carryback which occurred in 1988.
Petitioner and Mr. French also received two refund checks from
the State of Maryland, totaling $47,000, in December 1989. In
February 1990, petitioner and Mr. French used the proceeds from
the three refund checks to purchase three certificates of
deposit. Two of the three certificates of deposit were in the
amount of $100,000 and the third was in the amount of $70,000.
Each of these certificates of deposit was issued jointly to
petitioner and Mr. French. Sometime thereafter, a portion of
these certificates of deposit was cashed, and petitioner used
some of the proceeds for personal and family living expenses.
Mr. French also retained some of the proceeds for use in a
business venture he was undertaking in Florida. In December
1990, the remaining portion of the three certificates of deposit
purchased in February 1990 was rolled over into two new
certificates of deposit, one in the amount of $100,000 and the
other in the amount of $50,000. Both of these certificates of
deposit were issued solely in petitioner’s name.
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