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alleged, inter alia: (1) Information provided to the IRS
regarding PCCL was improperly reported; (2) petitioner sold items
from PCCL's inventory and payments for such items were made to
petitioner and not reported by petitioner or PCCL; (3) some of
petitioners' personal expenses were paid by PCCL, including
payments for improvements to their home; (4) PCCL's books were
"being fixed" so as to report little or no tax liability; and (5)
petitioners formed a shell company, Dorrial, Inc., to divert
funds from PCCL.
In support of his allegations in the letter Paige included
summaries of (1) equipment removed by petitioner from PCCL's
inventory; (2) petitioners' personal expenses paid by company
checks and company credit cards; and (3) company equipment
installed at petitioners' home. In addition, Paige attached
schedules, PCCL's balance sheets, and PCCL's financial statements
to support the above summaries. Paige also provided the IRS with
names of witnesses to support his allegations and with names of
individuals and businesses to whom Paige believed petitioner was
selling the inventory items for personal gain.
2. IRS Examination and Investigation
Beginning in October 1994, the income tax returns for
petitioners, PCCL, and Dorrial, Inc. (a related entity) were
examined. The exam included the 1993 tax year as well as prior
years. The revenue agent conducting the examination interviewed
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