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be funded from the credit line, and assumed certain accounts
payable in the amount of $62,641.
Niesar Pahl’s 1990 Return
For 1990, Niesar Pahl filed Form 1120S, U.S. Income Tax
Return for an S Corporation (Niesar Pahl 1990 return). Attached
to the Niesar Pahl 1990 return are four Schedules K-1,
Shareholder’s Share of Income, Credits, Deductions, Etc. One of
those Schedules K-1 identifies petitioner as a shareholder (the
petitioner K-1) and sets forth that petitioner’s pro rata share
of certain items is as follows: (1) $95,969 of ordinary income
from trade or business activities, (2) $236 of interest, and
(3) $200 of charitable contributions.
Petitioners’ 1990 Return
Petitioners made their joint return of income tax liability
for 1990 on Form 1040, U.S. Individual Income Tax Return
(petitioners’ 1990 return). Petitioners’ 1990 return fails to
include any of the items set forth on the petitioner K-1.
Petitioners’ 1990 return was prepared by a paid tax return
preparer, Clifford Fenske, Jr.
OPINION
I. Introduction
We must decide three issues. First, we must decide whether,
during 1990, petitioner husband (petitioner), an attorney, was a
shareholder in Niesar, Pahl, Cecchini & Gosselin, A Professional
Corporation (Niesar Pahl), a California corporation providing
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