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Mr. Garrett's intention to transfer ownership of the muscle cars
to FGMCI as well.
Preparation of Petitioners' Tax Returns
Petitioners' tax returns were prepared in accordance with
information that Mr. Garrett supplied to his certified public
accountant, James Knutzen. Mr. Knutzen's firm performed
accounting work for petitioners from 1978 until 1991. In
addition to preparing petitioners' Federal income tax returns,
Mr. Knutzen's firm prepared monthly financial statements, as well
as quarterly and annual payroll tax returns for FGI and TTI. In
preparing these documents, Mr. Knutzen's firm relied on bank
statements, coded checks, receipts, and other information
provided by Mr. Garrett or a representative of his corporations.
Knutzen never audited petitioners or any of Mr. Garrett's
companies. Although Mr. Knutzen was aware of Mr. Garrett's
muscle car collection activities, his firm never reflected those
activities as a business on petitioners' income tax returns for
the years in issue.
OPINION
Issue One: Basis in the Muscle Cars Sold in 1989
The first issue for decision involves petitioners' proper
basis in a collection of muscle cars sold in 1989 for $1.2
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