- 33 -
of those years, and Mr. Kaply assisted him in that investigation.
As part of Mr. Cote's criminal investigation, Mr. Cote and Mr.
Kaply met in July 1990 (July 1990 meeting) with Mr. Dennett and
Ms. Wildes. At that meeting, Mr. Cote asked Mr. Dennett ques-
tions regarding, inter alia, how Mr. Dennett prepared petition-
ers' returns for 1986, 1987, and 1988. Mr. Dennett indicated
that he met with Ms. Olbres shortly before petitioners' return
for each of the years at issue was due, she verbally related to
him the figures to be used in each of those returns, and gave him
the 1987 summary in connection with his preparation of their 1987
return. Mr. Dennett placed those figures on the appropriate
lines in each such return and made the computations called for by
each of those returns. Mr. Dennett informed Mr. Cote and Mr.
Kaply at the July 1990 meeting that petitioners never provided
him with any bank statements or bank records in connection with
his preparation of petitioners' 1986, 1987, and 1988 returns.
Notice of Deficiency
On September 23, 1993, respondent issued a notice to peti-
tioners for 1986, 1987, and 1988 and determined that they had
unreported income for those years in the amounts of $246,948,
$791,927, and $399,606, respectively. Virtually all of the
unreported income for 1986 and all of the unreported income for
1987 that respondent determined in the notice consisted of
certain gross receipts of Design Consultants and certain rental
income paid to petitioners. In addition to certain gross re-
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