Jeffrey L. Beecroft and Carol Larkin-Beecroft - Page 3

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                    Individual Income Tax Return, using the filing status of "Married                                                                                      
                    filing joint return".                                                                                                                                  
                              Mr. Beecroft is a production designer.  Petitioners' Form                                                                                    
                    1040 reports that Mr. Beecroft received $207,559 of wages during                                                                                       
                    1993 from the following payees:                                                                                                                        
                                        EP Production Services.................$94,066                                                                                     
                                        Time Warner Entertainment..............  1,549                                                                                     
                                        First Premiere Co...................... 70,425                                                                                     
                                        The BonBon Picture Co.................. 41,519                                                                                     
                                        Total                               207,559                                                                                        
                    Respondent determined that petitioners failed to report $21,025                                                                                        
                    of wages paid to Mr. Beecroft in 1993 by EP Management Services,                                                                                       
                    Inc.  EP Management Services, Inc., issued Mr. Beecroft a 1993                                                                                         
                    Form W-2, Wage and Tax Statement, for these wages.  Petitioners                                                                                        
                    claim that they did not report these wages because they did not                                                                                        
                    receive this Form W-2, and they believed that any wages Mr.                                                                                            
                    Beecroft received from EP Management Services, Inc., were                                                                                              
                    included in a Form W-2 that he received from EP Production Co.2                                                                                        
                    The notice of deficiency states that "We have adjusted your gross                                                                                      
                    wages to agree with the amounts shown on Forms W-2."                                                                                                   
                              Petitioners' 1993 Form 1040 also reports a deduction for a                                                                                   
                    $24,661 loss from Mr. Beecroft's sole-proprietor business (the                                                                                         
                    Business).  The Business provided services on production design,                                                                                       


                              2 Petitioners received pay stubs for the respective checks                                                                                   
                    tendered to Mr. Beecroft from EP Production Services and EP                                                                                            
                    Management Services, Inc., and petitioners now concede that the                                                                                        
                    Form W-2 from EP Production Services did not list wages and                                                                                            
                    withholding credits attributable to EP Management Services, Inc.                                                                                       




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