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Petitioners maintained the books and records of Gold. M&M did
not claim expenses, and any expenses concerning petitioners’ tax
accounting businesses were paid and/or deducted by Gold. Gold
had no employees other than petitioners.
Similar to M&M, petitioners maintained no cash receipts
journal, accounts receivable list, or client list for Gold. Also
paralleling the practices at M&M, copies of client billing
invoices were discarded after payment was received from the
clients. Petitioners, however, maintained cash disbursements
records for Gold during 1989.
Petitioners maintained a bank account in Gold’s name at the
Merchants National Bank (Merchants Bank), and some, but not all,
of the receipts from clients were deposited into that account.
Petitioners’ method of determining Gold’s annual income for tax
purposes began by totaling the Merchants Bank deposits and
reducing the total by reimbursements for health insurance. The
difference was then adjusted by picking up net increases or
decreases in accounts receivable to convert to the accrual
method. Finally, the accrual method amount was reduced by
expenses that petitioners had billed to and collected from
clients.
For the 1989 and 1990 fiscal years, Gold’s income was
computed and reported by petitioners as follows:
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Last modified: May 25, 2011