Bill McDonald - Page 5

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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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