Floyd L. Garrett and Dorothy G. Garrett - Page 13

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                    And the last item was Mr. Garrett had bought and                  
               sold some real estate.  He was also a shrewd investor                  
               in real estate, and I presumed that some of those                      
               profits from real estate transactions had probably gone                
               into this.                                                             
                    So I satisfied myself that he could have put up to                
               that 800,000, and I was--and on that basis, I--you                     
               know, our firm did prepare the return.  [Emphasis                      

               It is clear from his testimony that Mr. Knutzen did not have           
          any independent knowledge of the origin of the funds used to                
          acquire the muscle car collection.  Rather, he relied solely on             
          the representations of Mr. Garrett.  His presumptions regarding             
          the source of the funds for the muscle car collection do not rise           
          to the level of fact.  Mr. Knutzen testified that he never                  
          audited Mr. Garrett's corporations.  He also admitted on cross-             
          examination that Mr. Garrett could have expended $200,000 of the            
          corporations' funds for personal expenses in 1987 or 1988 without           
          Mr. Knutzen's knowledge.                                                    
               Furthermore, FGI, TTI, and BEL made substantial expenditures           
          for the benefit of petitioners that were claimed as deductible              
          business expenses by these corporations.  These expenses total              
          $755,827 for the 3 years in issue, most of which relate to Mr.              
          Garrett's muscle car collection.                                            
               Based on our review of the entire record in this case,                 
          including the lack of any documentation supporting petitioners'             
          expenditures for the purchase and renovation of the muscle cars,            
          the pattern of disallowed deductions taken during the years in              

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