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Petitioners timely filed joint tax returns for all years in
issue. On or about November 26, 1990, petitioners filed Forms
1040X (Amended U.S. Individual Income Tax Return) for the taxable
years 1986, 1987, 1988, and 1989. The purpose of these amended
returns was to report interest income from several foreign bank
accounts that had previously been unreported. On their original
returns, petitioners failed to report a total of $309,320 in
interest income earned from foreign bank accounts over a 4-year
period.
Petitioner Jacob Kalo was a medical doctor with a specialty
in obstetrics and gynecology and a subspecialty in laser surgery.
Petitioner owned and operated five clinics or offices, including
the East Gyn Medical Clinic (the clinic), through his
professional corporation during the years in issue. During the
taxable years 1986 through 1989, petitioner did not maintain
malpractice insurance coverage.
During 1990 and 1991, petitioner was under investigation by
the Internal Revenue Service Criminal Investigation Division
(CID) for possible Federal income tax violations. On April 18,
1990, petitioner was interviewed by special agents with the CID.
On September 9, 1992, petitioner was charged by the United States
Attorney for the Eastern District of Michigan with four counts of
willful failure to disclose that he had interests in foreign bank
accounts in violation of section 7203. On January 29, 1993,
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