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supports herself and the three children with full-time employment
and has a modest standard of living.
In June of 1991, petitioner graduated from the College of
San Mateo with a degree in business.
For 1986, 1987, and 1988, petitioner and Mr. Makalintal
filed joint Federal income tax returns. These returns were
prepared by Katie Yue, an independent certified public
accountant. The table below summarizes for 1986, 1987, and 1988,
the gross income, itemized deductions, and taxable income that
were reported on these joint Federal income tax returns.
Gross Itemized Taxable
Year Income Deductions Income
1986 $34,006 $89,352 $-0-
1987 33,945 29,268 -0-
1988 73,544 72,236 -0-
On the tax return for 1986, no income was reported with
respect to Mr. Makalintal’s sale in the Philippines of his stock
in ICPI for $3 million.
When Ms. Yue prepared Mr. Makalintal and petitioner’s 1986
joint Federal income tax return, Ms. Yue expressed concern to her
supervisor at the accounting firm that income reported on the
return was not sufficient to support Mr. Makalintal and
petitioner’s lifestyle. Ms. Yue's supervisor then questioned
Mr. Makalintal specifically with respect to the income reported,
and Mr. Makalintal explained that additional nontaxable financial
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