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In computing petitioners' estimated tax liability for
1989, petitioners' accountants, Mr. Whittington and
Ms. Ruble, followed the practice that they had established
in prior years. Ms. Ruble contacted Ms. Cates in March or
early April 1990, and they discussed the changes to
petitioners' taxable income for 1988 that were necessary to
estimate petitioners' taxable income for 1989. During this
discussion, Ms. Ruble reviewed petitioners' 1988 return and
Ms. Cates reviewed petitioners' books, records, and other
tax information. They identified a number of changes that
were necessary in estimating petitioners' 1989 taxable
income. These included subtracting the profit reported for
1988 from the cattle feeding business to reflect the fact
that Mr. Harrison had disposed of his investment in the
business during 1988, subtracting the income reported from
the Houston firm to reflect Mr. Harrison's withdrawal from
the firm in 1988, adding payments attributable to the sale
of Mr. Harrison's interest in the Houston firm, as offset
by a carryover of capital losses from the termination of
Cooper's Alley Restaurant, and subtracting the expenses
incurred by Mr. Harrison in connection with his law firm in
Corpus Christi.
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