Edward and Ruth Kelly - Page 10

                                                 - 10 -                                                   

            Mr. Kelly entertained business associates at restaurants,                                     
            Mrs. Kelly sometimes accompanied him.  On these occasions she and                             
            other women present would carry on their own conversations.  At                               
            Mr. Kelly's request, Mrs. Kelly sometimes assisted him in                                     
            maintaining records of the entertainment expenses for purposes of                             
                  Mrs. Kelly took no part in the preparation of the joint tax                             
            returns for the years at issue.  Each of the returns was prepared                             
            and signed by the accountant, and then delivered to petitioners                               
            for their review.  Mrs. Kelly signed the returns without review                               
            or inquiry.  Mrs. Kelly made no attempt to inform herself of                                  
            their contents because she trusted Mr. Kelly completely, not                                  
            because he in any way hindered or discouraged her from doing so.                              
            She endorsed the refund checks they received, but neither asked                               
            nor cared what Mr. Kelly would do with the money.                                             
                  In 1989 Mrs. Kelly learned that Mr. Kelly was in a                                      
            controversy with the Internal Revenue Service.  She signed a                                  
            power of attorney to authorize lawyers to represent them in                                   
            administrative proceedings.  Mr. Kelly did not show her any                                   
            correspondence with the lawyers regarding the nature of the                                   
            controversy, and she remained ignorant of the details until after                             
            the years at issue.                                                                           
                  Petitioners experienced no marked changes in their lifestyle                            
            during or after the years at issue.  Mrs. Kelly received no                                   

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Last modified: May 25, 2011