Polly M. Cherry - Page 4

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          hand-copied the information from the original cards onto blank              
          cards that she subsequently presented to the Court as evidence              
          that the children lived with her during 1993 and 1994.                      
               Petitioner reported her income for 1993 on a Form 1040.                
          Respondent received that return on July 20, 1994, almost 3 months           
          after it was due.  On the Schedule C attached to her 1993 return,           
          petitioner reported business income in the amount of $1,856.22              
          and claimed Schedule C deductions in the amount of $23,411.65.              
          Petitioner reported her income for 1994 on a timely filed Form              
          1040.  On the Schedule C attached to her 1994 return, petitioner            
          reported business income in the amount of $4,509 and claimed                
          Schedule C expenses in the amount of $22,518.  Petitioner                   
          completed Form 4822, Statement of Annual Estimated Personal and             
          Family Expenses (Form 4822), on which she listed total estimated            
          personal and family expenses for 1993 in the amount of $43,729.56           
          and total estimated personal and family expenses for 1994 in the            
          amount of $40,066.92.                                                       
               Pam Ranew, a tax auditor with the Albany office of the                 
          Internal Revenue Service, audited petitioner's 1993 and 1994                
          income tax returns.  During the course of the audit, Ms. Ranew              
          reconstructed petitioner's income and expenses for both 1993 and            
          1994 by adding (1) petitioner's salary from teaching, (2) her               
          stated Schedule C income, and (3) her Federal and State tax                 
          refunds.  To reconstruct petitioner's expenses, Ms. Ranew added             
          (1) petitioner's Schedule C purchases and expenses, (2) expenses            




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