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In preparing petitioner's 1990 return, the accountant
erroneously deducted $263,700 from gross receipts.2 The
accountant reduced petitioner's gross receipts by the amounts
transferred from the main account to the refund account. The
accountant thought that checks with the notation of "rent" were
for petitioner's payment of rent to the hospital. Those rent
payments, however, were for petitioner's personal residence. On
the Schedule C attached to his 1990 return, petitioner reported
gross income of $1,165,076 from his business, computed by
reducing gross receipts of $1,194,606 by $29,530 for returns and
allowances. On the Schedule C, petitioner reported total
business expenses of $521,980 and a net profit of $643,096. On
petitioner's 1990 return, in addition to $643,096 of net profit
from his practice, petitioner reported $52,810 of interest
income, of which $3,695 was from First Interstate Bank, and
$5,309 of dividend income.
In computing petitioner's 1991 Washington State excise tax,
the accountant did not use petitioner's bank statements, although
he had those records. Instead, the accountant estimated
petitioner's 1991 State excise tax on the basis of petitioner's
1990 income, taking into account the fact that petitioner
2The accountant erroneously assumed that interest paid to
petitioner by James & Associates had been deposited into the
business account. The accountant also made an adjustment of
$200,000 but could not recall to what transaction the adjustment
related.
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