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Petitioners’ 1989 Return
Merrietta Fong (Ms. Fong), a certified public accountant
employed by Johnson & Associates, was the preparer of
petitioners’ 1989 tax return. Ms. Fong was aware of the ongoing
discussion regarding the deductibility of the claimed business
bad debt. Ms. Fong saw some documentation, but she does not
recall the exact documents.
Petitioners claimed an $8 million business bad debt
deduction on their 1989 return. On an attachment to the return
is a statement that the “business bad debt relates to sale of
assets from Gulf Marine Services in prior year.” The gross sales
price was $8 million with a “cost or other basis” of zero.
Mr. Johnson signed petitioners’ 1989 return as the preparer.
The $8 million deduction claimed on the 1989 return was his
decision and was based on inquiries and review of the situation
over several years. Mr. Johnson was told that there was no
longer any ability to collect on the debt because the Iranian
period of limitations had run on collectability.
Petitioners were out of the country at the time that the
1989 return was due. Tony Thomas (Mr. Thomas), a certified
public accountant at Johnson & Associates, signed petitioners’
return under a power of attorney.
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