Robert M. and Paulette G. Maddox - Page 6

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            reluctance, because he had already consented to one extension and                           
            he believed the tax returns were “clean”.  Ward and petitioners’                            
            representative arranged an appointment for the afternoon of April                           
            23, 1996, at petitioners’ representative’s office.  This                                    
            telephone call was the first contact by IRS personnel with                                  
            petitioners or petitioners’ representative regarding petitioners’                           
            tax returns since the time that the administrative files had been                           
            transferred to Dallas.  During the April 23, 1996, meeting,                                 
            petitioners’ representative and Ward conducted the initial                                  
            examination and reviewed petitioners’ tax returns.  For 2 hours,                            
            Ward asked petitioners’ representative numerous questions                                   
            relating to petitioners’ multiple business interests.                                       
            Petitioners’ representative’s responses to Ward’s questions were                            
            as follows:                                                                                 
                  Schedule E:  Curie Building, Galveston House                                          
                  The Curie Building is an office building owned by Paulette.                           
            It was purchased in 1987 and petitioners are personally liable on                           
            the note obtained to finance the purchase.                                                  
                  Petitioners also owned a rental house in Galveston, Texas.                            
            Paulette inherited the house and allowed her sister to live                                 
            there.                                                                                      
                  Petitioners’ S Corporations                                                           
                  Robert owned 100 percent of four S corporations, as follows:                          








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