Compact Equipment Company - Page 7

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               Because petitioner paid the wages of the construction                  
          workers, their names were added to petitioner’s payroll list                
          pursuant to Atkinson’s instructions.  As directed by Atkinson,              
          Woodle required the workers to fill out weekly timecards with the           
          number of hours worked.  Woodle then forwarded the names of the             
          workers, with the corresponding number of hours worked, to the              
          clerk or petitioner’s controller (the controller).  Because                 
          Woodle was also on petitioner’s payroll, Woodle also informed the           
          clerk or the controller of the number of hours he worked for that           
          particular week.  A professional payroll processing firm,                   
          thereafter, prepared the payroll checks for the general manager’s           
          or Atkinson’s signature.  After the general manager or Atkinson             
          signed the payroll checks, the clerk mailed the payroll checks to           
          a post office box in Lake Tahoe for Woodle to distribute.                   
          Atkinson’s Discussions With Petitioner’s Accountants                        
               Petitioner hired an accounting firm to prepare its Federal             
          corporate income tax returns (corporate tax returns) for the                
          taxable periods ending March 31, 1985, March 31, 1986, and May              
          31, 1986.  A certified public accountant at the accounting firm,            
          David Dunkin (Dunkin), had primary responsibility for preparing,            
          reviewing, and submitting the corporate tax returns to                      
          petitioner.  Dunkin also prepared the Atkinsons’ 1985 and 1986              
          Federal individual income tax returns (individual tax returns).             

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Last modified: May 25, 2011