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president, and Wilson was its secretary-treasurer during the
years in issue. Badell and Wilson were the only attorneys B&W
employed during the years in issue.
B&W is engaged in the general practice of law, and is a
fiscal year, cash-basis taxpayer. B&W represents clients in
minor criminal matters, divorces, bankruptcies, and personal
injury cases. B&W also prepares income tax, Federal estate tax,
and Indiana inheritance tax returns for its clients. Wilson
usually prepares those tax returns.
C. B&W’s Payment of Client Costs
B&W paid various expenses for its clients during the years
in issue such as court fees, fees for court reporter services,
witness fees, and charges for medical records and inquiries to
the Indiana Bureau of Motor Vehicles. B&W recorded these
expenses on its books as “Costs Advanced.” B&W also made cash
advances during the years in issue to clients whom they believed
were destitute.
B&W required its personal injury clients to agree to
reimburse B&W for any costs advanced to them and to pay B&W a
percentage of any recovery. B&W’s personal injury clients agreed
to reimburse B&W for any costs it paid on their behalf,
regardless of the outcome of their case. B&W expected its
clients to reimburse B&W for these advances. However, B&W’s
clients did not always do so in the taxable year in which B&W
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Last modified: May 25, 2011