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When most of Laney’s consulting work related to R.K., his
practice was to pay himself a “salary”, “my typical salary at the
time”. Petitioners reported these “salary” amounts on their tax
returns. See infra table 2 note 1. Petitioners did not report
as income the amounts in excess of this “salary” that Laney
received for his consulting work related to R.K. In particular,
petitioners did not report on their 1977 tax return at least
$14,162.73 that Laney had received for consulting work and that
he spent on R.K. For the years 1977 through 1982, petitioners
omitted to report, in this manner, about $480-490 thousand of
Laney’s consulting fee receipts.
When Laney asked the accountant for advice on the treatment
of expenditures, Laney did not ask for and did not receive advice
about the treatment of receipts.
Laney understood from his questioning of the accountant that
there would come a time when petitioners could deduct their
capitalized R.K. expenditures. However, Laney did not believe
that he would ever have to include in income the 1977 through
1982 consulting fees that petitioners had omitted to report when
received; petitioners did not include these amounts in income on
their 1983 tax return, even though they did report their
capitalized R.K. expenses on that tax return.
Laney bought a Data General computer. In 1981 Laney sold it
to Sterling-Winthrop and made a profit of about $18,000 on the
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