Melvin J. Laney and Carolyn A. Laney - Page 13

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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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