Dennis C. Gandy - Page 32

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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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