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due to lack of capacity after the State of California had
suspended its charter.
Respondent’s agent, Arthur Pease (Pease), examined M&M’s
partnership returns for the taxable year ended September 30,
1987, and the calendar years 1987, 1988, and 1989. Petitioners
did not provide the identification of their clients, and Pease
was forced to reconstruct client information by using Internal
Revenue Service computer data (return preparer information) and
by canvassing third parties (petitioners’ clients and banks).
Pease obtained copies of clients’ returns prepared by petitioners
that reflected the fee for tax preparation. Pease also received
a rate sheet for M&M from one of petitioners’ clients. In
addition, Pease received numerous letters that contained
information about the fees charged for return preparation. Pease
also engaged in numerous telephone conversations with
petitioners’ clients concerning the fees that petitioners charged
them.
Based on his research, Pease prepared a schedule of clients,
referencing the accumulated information along with references to
sources for respondent’s reconstruction of petitioners’ income
for the 1989 taxable year. Where Pease determined that an
individual return had been prepared and that no invoice, deposit
information, canceled check, or client information was available
to reflect the fee charged, he used a $275 preparation fee, the
minimum charge for an individual return reflected on M&M’s rate
schedule. Based on the information available to him, Pease
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