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Unless otherwise indicated, all section references are to the
Internal Revenue Code for the years in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
The issues for decision are whether petitioners are liable for
the additions to tax and penalty determined by respondent.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference. At the
time the petition was filed, petitioners resided in Austin,
Texas.
Mark J. Hanna (Mr. Hanna) was an attorney for Babb & Hanna,
P.C. (Babb & Hanna), during the years in issue. Deborah A. Hanna
(Mrs. Hanna) worked in the real estate business and as a
consultant for Babb & Hanna during the years in issue.
Petitioners requested and received extensions to October 15,
1988, to file their 1987 income tax return. The 1987 return was
signed by them October 15, 1988. It was mailed on or after
October 15, 1988, but was returned for insufficient postage. It
was thereafter remailed. The envelope in which the 1987 return
was received was not retained by the Internal Revenue Service
(IRS). The return was stamped by the IRS, however, showing the
postmark date of the return as October 31, 1988, and the received
date of the return as November 3, 1988.
On their 1987 return, petitioners reported adjusted gross
income in the amount of $190,280.08. In late 1988, the IRS
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