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and 60 percent of the tax liabilities for 1987 and prior years.
At the time of the agreement, petitioners’ 1987 tax return had
not been filed. Petitioners each received physical custody of
one of their two children and visitation rights as to the other
child.
Financial Statements and Federal Income Tax Returns
1985 through 1987
Petitioners engaged Shinn to prepare the nursery's financial
statements and their 1985 income tax return. Mr. Gandy was
interested in seeing how well the nursery was doing, i.e., what
the income and expenses were and determining what his tax
liabilities would be based on that income. Based on
conversations with petitioners, Shinn assumed that all income was
being deposited into the nursery bank account and that all
expenses were being paid by check. Shinn informed petitioners
that he would be using the nursery bank account information to
prepare the financial statements and the tax return and that
income and expense items would have to go through the bank
account to be picked up for tax return purposes. Shinn used the
computer at his office to prepare the nursery's financial
statements, based on the nursery's bank statements. Shinn
reviewed the financial statements with Mr. Gandy regularly
throughout the year. Mr. Gandy never brought to Shinn's
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