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On June 6, 1988, 6 days after respondent’s representative
first contacted petitioner to initiate the audit of petitioners'
Federal income tax returns and of Cal Ben's partnership tax
returns for 1985 through 1988, petitioner closed the Lloyds/Sanwa
account.
On October 24, 1986, petitioner signed an application for a
credit card on which he represented that Cal Ben had gross sales
for 1985 of $2.1 million.
On Cal Ben’s 1986, 1987, and 1988 partnership tax returns,
costs for various personal items and for items that, during
respondent’s audit, petitioners could not substantiate were
claimed as deductions.
On petitioners' 1985 through 1988 joint Federal income tax
returns, petitioners underreported petitioner's share of the net
income of Cal Ben, as follows:
Year Amount
1985 $333,931
1986 337,606
1987 257,871
1988 79,799
On their 1987 joint Federal income tax return, petitioners
underreported gain realized on sale of petitioners' residence
located in Aptos, California. The gain was underreported as a
result of petitioners’ inclusion of nondeductible repair expenses
and recurring items in the calculation of their adjusted tax
basis in the residence and of petitioners’ failure to adjust the
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