John P. & Teresa Hennen - Page 4

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          farming, Mrs. Hennen was to perform bookkeeping, run errands for             
          the business, and help with livestock chores and field work.  In             
          essence, the Agreement memorialized almost the same duties that              
          Mrs. Hennen had been performing since Mr. and Mrs. Hennen began              
          farming together.  The Agreement also said Mrs. Hennen could                 
          participate in her husband's Health and Accident Insurance Plan,             
          according to the terms and provisions of that plan.  Mrs. Hennen             
          would have continued to do the same farming jobs even if there               
          had been no Agreement.                                                       
               For all 3 years in issue, petitioners filed their Forms 1040            
          income tax returns on a married, filing jointly basis.  On their             
          Schedules E, Supplemental Income and Loss, petitioners reported              
          that they received net rental income for 1994, 1995, and 1996,               
          from "FARM AND HOUSE", "FARMS", and "FARMS", respectively, in the            
          amounts of $14,322, $12,940, and $12,766, respectively.  On line             
          7, Wages, salaries, tips, etc., of their Forms 1040, petitioners             
          reported that Mrs. Hennen received wages from Mr. Hennen in the              
          amounts of $3,137.11, $3,250, and $3,487 for 1994, 1995, and                 
          1996, respectively, and, in 1994, petitioners also reported that             
          Mrs. Hennen received wages from World Book, Inc. in the amount of            
          $221.45.  The amounts deducted as labor hired on the respective              
          Schedules F, Profit or Loss From Farming, for the 3 years in                 
          issue exceeded the amounts purportedly paid to Mrs. Hennen.  Mr.             
          Hennen failed to withhold Federal income taxes, State income                 

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