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After concessions, the issues for decision are:
(1) Whether a partnership, Beaufort Leaf Tobacco Co.
(hereinafter referred to as Beaufort Leaf), in which each
petitioner held an interest, failed to report tobacco sales
of $888,528 in 1990 and $1,054,576 in 1991; (2) whether
respondent erred in disallowing alleged tobacco purchases
of $429,421 in 1990 and $1,173,203 in 1991 that were
included in Beaufort Leaf's cost of goods sold; and (3)
whether petitioners are liable for the penalties and
addition to tax determined by respondent. The parties have
stipulated that Mrs. Pridgen and Mrs. Gaskins are entitled
to innocent spouse relief "under section 6013(e)". Thus,
it appears that respondent concedes that Mrs. Pridgen and
Mrs. Gaskins are eligible for relief from joint and several
liability with respect to their joint returns for 1990 and
1991 under section 6015(a)(1), assuming that an appropriate
election is made as required by section 6015(b)(1)(E).
The deficiencies determined in the notices of
deficiency are based upon adjustments to each petitioner's
distributive share of the net income of Beaufort Leaf for
taxable years 1990 and 1991. Respondent adjusted Beaufort
Leaf's net income without a proceeding at the partnership
level. See generally section 6221 through 6233. It
appears that all parties agree that Beaufort Leaf is a
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