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account at First Interstate Bank (the refund account) to handle
the payments refunded to patients. Petitioner would transfer
funds from the main account to the refund account and his friend
Julie Anne Stanbery (Ms. Stanbery) would then write a check from
the refund account to reimburse the patient for the overpayment.
By late 1989, petitioner agreed to pay the hospital up to
$1,500 per month for clerical and other services. Petitioner
also paid other radiologists for professional services they
rendered in the radiology department of the Highline Community
Hospital. He treated the radiologists as independent contractors
and filed Forms 1099 with the Internal Revenue Service (IRS) to
report the payments he made to them. For the taxable years 1990
and 1991, he deducted the payments made to other radiologists as
an outside services expense on the Schedules C attached to his
income tax returns.
During the taxable years 1990 and 1991, petitioner wrote
checks to Ms. Stanbery totaling $49,685 and $45,700,
respectively. On the Schedules C attached to his income tax
returns for those years, petitioner deducted the amounts paid to
Ms. Stanbery as business expenses for outside services.
Petitioner, however, did not file a Form W-2 or a Form 1099 for
the amount paid to Ms. Stanbery for either year.
Petitioner did not employ a bookkeeper or use a bookkeeping
system. Petitioner's accountant has prepared petitioner's tax
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Last modified: May 25, 2011