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3. Wises' 1988 Tax Return
a. Pro-Ser's Accounting Fees
The Wises reported on their Schedule C for their 1988 tax
return, gross receipts of $320,838 from Pro-Ser, Wise's sole
proprietorship. Pro-Ser provided services largely to Wesco,
Hersco, WRI, Intent, and Eicher. Pro-Ser did not offer services
to the general public. Included in Wise's gross receipts of
$320,838 was $231,746, which had been billed to WRI but was never
paid in cash or property. Also included was $89,092 that
originated from Wesco, Hersco, Intent, and Eicher. Yearend
journal entries were made in the books and records of WRI which
showed that WRI had paid Wise. Simultaneous journal entries in
WRI's books and records stated that there had been an immediate
“loan back” from Wise to WRI. No evidence was offered regarding
the terms of the "loan backs".
b. Pro-Ser's Expenses
The Wises claimed $56,992 of expenses relating to Pro-Ser on
Schedule C of their 1988 tax return.
c. Investment Income and Expenses
The Wises deducted $55,885 for investment interest expense
on their 1988 joint tax return. They also reported net
investment income as follows:
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