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Shinn used Forms 1099 to calculate petitioners' interest
income. For 1985 and 1986, Schedule B listed interest from
institutional sources only. In 1988, for preparation of their
1987 tax return, petitioners provided to Shinn a list of the
mortgage notes and payment amounts from which Shinn calculated
additional interest income. On petitioners' 1987 Federal income
tax return, they reported a $10,000 capital gain on the
destruction of the lake house ($125,000 insurance proceeds less
$115,000 basis).
Mrs. Gandy did not review or discuss the completed tax
returns with Shinn. Mr. Gandy never reviewed the returns with
Shinn prior to signing them. Later, Mr. Gandy brought to Shinn's
attention that the interest income on the 1987 tax return had
been overreported. After reviewing the list of mortgages, Shinn
realized that the 1987 interest income was overstated and also
that mortgage interest had been received in 1986 and not reported
on the returns for that year. Shinn informed Mr. Gandy of this.
Petitioners did not file amended returns for 1986 or 1987.
1988 and 1989
Mr. Gandy filed tax returns for 1988 and 1989 reporting a
filing status of single. His 1988 tax return was prepared by
Shelby L. Davidson (Davidson). Davidson was not a certified
public accountant at that time. Davidson prepared Mr. Gandy's
1988 tax return from information supplied by Mr. Gandy, including
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