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receipts into the business checking accounts; often they used the
receipts to make purchases (such as inventory).
In 1993, petitioners began to experience financial
difficulties resulting in the foreclosure of a rental property. In
contemplation of bankruptcy, on September 15, 1993, petitioner
arranged for Ms. Eagatatt to sign and file a Notice To Creditors of
Bulk Sale pursuant to the Uniform Commercial Code (the bulk sale
notice) in Orange County, California, in which the assets of
Stanton Mexicatessen were purportedly transferred to Ms. Eagatatt.
(Petitioners received no monetary consideration for this transfer,
but the bulk sale notice indicated that Ms. Eagatatt was to assume
all liabilities of the restaurant.) Further, the lease for the
land on which the restaurant operated was amended to reflect the
transfer to Ms. Eagatatt.
On or about September 29, 1993, petitioners filed for
bankruptcy protection from creditors. The record does not reflect
the type of bankruptcy protection petitioners sought.
Preparing and Filing of Tax Returns
Petitioners' 1992, 1993, and 1994 joint income tax returns,
all of which were untimely filed, were prepared by professional
accounting firms. For 1992, petitioners reported on Schedule C,
Profit or Loss From Business, a loss of $23,005 from the operation
of Stanton Mexicatessen. Also for 1992, petitioners reported
investment interest expenses of $12,221 on Schedule A, Itemized
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