Joseph B. Leonard and Dorothy A. Cole Leonard - Page 7

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          Robert and Suzette were evicted from their residence in June 1984,          
          and at that time they were unemployed.  By November 1984, their             
          only asset was a 1973 Chevrolet automobile, and their only source           
          of funds came from family members.  By the end of 1984, petitioners         
          had been informed by Robert that he and Suzette had no money and            
          petitioners had no reason to believe that Robert would be able to           
          repay them.                                                                 
          Accountant’s Advice                                                         
               Clyde N. Freeman, a certified public accountant, prepared              
          petitioners’ tax returns from 1983 through 1987.  Mrs. Leonard              
          typically reviewed major items in the returns for errors and                
          personally typed the returns.  Freeman knew about the transactions          
          with Robert.  Petitioners presented all information about the               
          transactions with Robert to Freeman when their 1985 return was              
          being prepared.  Freeman advised petitioners that a loss with               
          respect to those transactions should not be claimed, and that he            
          believed if a deduction for the losses incurred were to be taken,           
          the deduction would be disallowed because of  the  family                   
          relationships involved.  Petitioners did not claim a loss with              
          respect to their transactions with Robert on their 1983, 1984, or           
          1985 returns.                                                               
               In April 1989, just before the period of limitations for 1985          
          was to expire, petitioners filed an amended return for 1985                 
          claiming a $650,000 "embezzlement loss" arising from their                  
          transactions with Robert in 1983.  The amended return was prepared          
          by Betty White, another accountant, with Freeman’s assistance.              






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