Laura E. Austin - Page 4

          contracted rate.  The clients usually pay ASAP within 30 days               
          after they receive the bills.  ASAP has no inventory, has never             
          had gross receipts that exceeded $5 million, and has always used            
          the cash method of accounting.                                              
               Respondent issued petitioners a notice of deficiency on June           
          3, 1994, reflecting her determination that they were liable for             
          an $85,835 deficiency in their 1990 Federal income tax and a                
          $17,167 penalty under section 6662(a).  Prior to issuing the                
          notice of deficiency, respondent's revenue agent, Mr. Willie                
          Wimbish, conducted an examination of ASAP and had several                   
          interviews with petitioner and her accountant, Mr. Currie.  After           
          the examination, the revenue agent proposed the deficiency in               
          petitioners' 1990 income tax, and prepared a Form 886-A                     
          (Explanation of Items) to explain the proposed adjustments.  The            
          agent's explanation included the adjustments, along with a                  
          statement of facts, law, and petitioners' position and the                  
          agent's conclusion as to each item of adjustment.  The revenue              
          agent's report provided the legal and factual bases for the                 
          issuance of the notice of deficiency.                                       
               The adjustments in the notice of deficiency were primarily             
          attributable to respondent's determination that ASAP's use of the           
          cash method of accounting did not produce a clear reflection of             
          income (the method of accounting issue).  Respondent determined             
          that the proper method of accounting was the accrual method, and            
          using that method respondent increased ASAP's taxable income for            

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