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Accordingly, for two of the reporting periods, McDonald received
about two-thirds and Maynard about one-third of M&M’s income. In
the third reporting period, Maynard received about 85 percent and
McDonald about 15 percent.
Respondent’s agents analyzed the ratio of hours spent during
1989 by Maynard and McDonald in preparing returns of M&M's
clients and found it to be about 60 percent for Maynard and 40
percent for McDonald. Respondent, in the notices of deficiency,
determined $214,393 of 1989 partnership income and attributed
$79,661 to McDonald and $134,732 to Maynard.
M&M did not have any employees, and petitioners were solely
responsible for maintaining M&M’s books and records.
Petitioners’ billing approach was to send a bill for services to
clients and retain a copy for M&M’s records. When they received
payment of a particular bill, M&M’s retained copy of the bill was
discarded. Petitioners’ billing approach made it virtually
impossible to verify whether M&M’s income was accurately
reflected on its books and Federal partnership tax return and on
petitioners’ Schedules K-1.
M&M’s rate schedule, as of January 1, 1989, was $130 per
hour for tax consulting or compliance work and a $275 minimum
rate for individual tax return preparation. Petitioners would
charge for giving advice, including advice given during telephone
calls, with a one-tenth-hour minimum charge. The printed rate
schedule contained the notation that, where advice resulted in
substantial savings or was out of the ordinary, the billing might
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