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The operation of the newspaper was an expensive venture,
which was financed by petitioner. In 1987 the newspaper had a
net loss of $8,184 and in 1988 it had a net profit of $6,046.
Mrs. McKenna was able to operate the newspaper and continue to
maintain her lifestyle, household, and children's education
because of petitioner's medical practice.
Mr. Bruno and his accounting firm performed full accounting
services for Mrs. McKenna's newspaper business. This service
included a compilation of the accounting records, general ledger,
and annual financial statements. For 1988, the compilation work
was performed by Marie Walters.
When Mrs. McKenna started her newspaper in 1985, she decided
to have full accounting services performed. This decision was
made because she did not feel comfortable handling this aspect of
the business by herself. Once Mrs. McKenna turned the newspaper
records over to Bruno and Tervalon, she relied upon the
accounting firm to process the records properly.
When Mrs. McKenna received revenues from the sale of
advertisements in her newspaper, she deposited those revenues
into her bank account. By giving her bank statements to Bruno
and Tervalon, it was her belief that Mr. Bruno's firm had
sufficient information to determine the newspaper's income.
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