Dennis J. and Teresa Deneault - Page 5

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                    6.   Petitioners maintained no sales invoices or                  
               other records relating to the illegal sales of                         
               narcotics during 1991.                                                 
                    7.   On June 18, 1991, Dennis J. Deneault was                     
               arrested by the St. Lucie County Sheriff's Office for                  
               the possession and attempted sale of marijuana.                        
                    8.   During questioning by the St. Lucie County                   
               Sheriff's officers on June 18, 1991, Dennis J. Deneault                
               disclosed that on June 17, 1991, he had purchased ten                  
               pounds of marijuana for $18,500, and that on June 18,                  
               1991, he had purchased 17 pounds of marijuana for                      
               $25,000.                                                               
                    9.   During the execution of a search warrant in                  
               1991, $300.00 in cash was seized from a pickup truck on                
               the petitioners' real property.                                        
                    10. The petitioners filed a joint 1991 Federal                    
               income tax return on April 15, 1992, on which they                     
               reported adjusted gross income of $5,882.00.  The                      
               petitioners reported $3,177.00 in wages, and $2,976.00                 
               of business income from Dennis J. Deneault's business                  
               as a wire lather.                                                      
                    11. The respondent has determined petitioners'                    
               correct taxable income for 1991 on the basis of the                    
               source and application of funds method based on                        
               information provided from petitioners' joint 1991                      
               Federal income tax return, information secured from                    
               files relating to the arrest and conviction of Dennis                  
               J. Deneault in 1991, and information provided by                       
               petitioners during a hearing with the Appeals Division,                
               as follows:                                                            
                                       SOURCES                                        
                         (a) Petitioners reported taxable interest                    
               income of $3.00 on their joint 1991 Federal income tax                 
               return.                                                                
                         (b) Petitioners reported gross receipts of                   
               $4,500 from their Schedule C activity for 1991 on their                
               joint 1991 Federal income tax return.                                  
                         (c) During 1991, the petitioners received a                  
               Federal tax refund in the amount of $1,253.00, relating                
               to the taxable year 1989.                                              




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