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The Shanes are husband and wife, and they own all the stock
of Shane Michael, a C corporation. At the time of trial, Mr.
Shane was 81 years old. Shane Michael retails and wholesales
optical merchandise, and its business requires that its
salespersons travel frequently and worldwide. Shane Michael
generally requires that its salespersons pay their travel,
entertainment, and other business expenses out of pocket and seek
reimbursement from it for those expenses.
Shane Michael and the Shanes use the same accounting firm to
perform their accounting and tax work, and they have used this
firm in each of the past 52 years. As relevant herein, the
accounting firm reviews Shane Michael's records and prepares its
financial statements and income tax returns. A bank/lender
requires that the firm "review" Shane Michael's records every
year. The firm also prepares the Shanes' personal income tax
returns. Each year, Mr. Shane places his tax records in a desk
drawer and, when tax time comes around, gives those documents to
the accounting firm to prepare his personal tax returns. Mr.
Shane relies on the firm to prepare his personal and corporate
income tax returns correctly.
Shane Michael's tax returns for the subject years claim
deductions totaling $1,697,206, $1,446,621, and $1,544,323,
respectively. Of those amounts, respondent determined that Shane
Michael could not deduct the following amounts claimed for
travel, automobile, and insurance expenses because it lacked
substantiation:
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Last modified: May 25, 2011