Albert R. Cujas, Jr., & Susan W. Cujas - Page 4

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            1993 tax years.  He did not, however, notify petitioners that                                
            they were being audited for 1992 and 1993 and did not request                                
            records from them relating to these years.  During the audit, he                             
            obtained information returns (i.e., Forms 1099) indicating that                              
            petitioners had received income in 1992 as follows:                                          


                                          Albert R. Cujas, Jr.                                           
            Payor                                            Type of Payment          Amount             
            Maultsby Orthopedic Clinic PA                    Compensation             $1,867             
            St. John Neuromuscular Therapy Seminars          Compensation             13,214             
            Matol Botanical International Ltd.               Compensation             630                
            State of N.C. Health Plan                        Compensation             2,302              
            Hartford Life Insurance Co.                      Compensation             677                
            State Employees Credit Union                     IRA distribution         25,623             
            State Employees Credit Union                     Interest                 493                
                                             Susan W. Cujas                                              
            Payor                                            Type of Payment          Amount             
            Northwest Child Development Council, Inc.        Compensation             $4,702             
            The Investment Company of America                Dividends                95                 
            State Employees Credit Union                     Interest                 114                
            State Employees Credit Union                     IRA distribution         10,973             
            Capital Guardian Trust Co.                       IRA distribution         4,902              
            After receiving this information, Agent Gardner contacted some of                            
            the payors and obtained written verification of the items.                                   
                  Agent Gardner did not obtain any evidence that petitioners                             
            received income relating to 1993.  He proceeded to reconstruct                               
            petitioners' income for that year using data published by the                                
            Bureau of Labor Statistics (BLS) and determined that each                                    
            petitioner incurred personal living expenses and received self-                              
            employment income of $21,339.  He also determined that:  (1) For                             
            1992, petitioners were each liable for a 10-percent additional                               




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