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and they began inquiring. Soon thereafter and at the request of
the Muhichs, Mr. Martin attended one of Heritage's seminars.
Mr. Martin left the seminar with concerns about the legitimacy of
the trust scheme, and he conveyed his concerns to petitioner.
Petitioner dismissed Mr. Martin's concerns and indicated he would
rely on the advice given by the trust promoters. Notwithstanding
their concerns, the Martins prepared the trusts' 1995 returns.
After 1995, the Martins prepared the 1996 Charitable Trust return
but refused to prepare any other trust returns.
Petitioners' Tax Reporting and Respondent's Determination
Midwest
Midwest filed Federal income tax returns (Forms 1120) for
its fiscal years ended June 30, 1994, 1995, and 1996. In its
1994 return, Midwest deducted the $12,000 it paid to Bartoli in
connection with setting up the multitrust system. During the
1996 fiscal year, Midwest paid to Aegis and deducted $5,500 in
fees related to administration of the trusts.
During fiscal years 1994, 1995, and 1996, Midwest paid the
Asset Trust $60,000, $103,238, and $132,766, respectively,
pursuant to the consulting contract. Midwest labeled the
payments "consulting fees" and deducted these amounts in its
income tax returns.
By notice of deficiency dated August 6, 1997, respondent
determined the above-described payments were not ordinary and
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