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gambling income. The 1989 return was filed following the execution
of search warrants by the Baltimore County Police Department at
petitioners' residence, a bank, and one of Mr. Zaban's businesses,
in which evidence of illegal gambling and bookmaking activities was
seized.
In October 1990, Mr. Zaban entered into a closing agreement
with the IRS, terminating the 1990 tax year as of March 24, 1990.4
Mr. Zaban agreed to report the net profits from his gambling and
bookmaking activities. The 1990 return (signed by both
petitioners) reported gross income before adjustments of $289,560
and gambling income of $240,700 (before expenses) on Schedule C in
accordance with the closing agreement.
Mrs. Zaban provided Messrs. Breschi and Fidati with records
and other information necessary to prepare petitioners' returns for
1984 through 1990. She never reviewed their work to determine
whether the returns were true and accurate. At times, Mr. Fidati
would provide Mrs. Zaban with returns prepared in pencil and would
have her sign blank returns.
4 Closing agreements resolve liability issues only for
the taxable years covered by the agreements. Sec. 7121; sec.
601.202(a), Statement of Procedural Rules. Thus, the termination
of the 1990 tax year on March 24, 1990, conclusively resolved,
for purposes of the closing agreement, only the issues for that
period. Respondent was permitted to issue notices of deficiency
relating to issues and time periods not covered by the agreement.
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