Dereco, Inc. - Page 2




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          petitioner's Federal income taxes, and additions to tax for                 
          fraud, for petitioner's tax years ended September 30:                       
                                 Additions to Tax                                     
                                   Sec.           Sec.      Sec.                      
               Year    Deficiency  6653(b)(1)(A)   6653(b)(1)(B)    6653(b)           
               1988      $247,112        $185,334            1             --         
               1989      195,154           --              --        $139,746         
               1 50 percent of the interest due on $247,112.                          
               All section references are to the Internal Revenue Code in             
          effect for the taxable years in issue, and all Rule references              
          are to the Tax Court Rules of Practice and Procedure, unless                
          otherwise indicated.                                                        
               At the time the petition in this case was filed by D.J.                
          Marino, an officer of petitioner, petitioner's office was located           
          in Cleveland, Ohio.                                                         
                                     Background                                       
               The petition filed in this case generally disputed                     
          respondent's adjustments to petitioner's income.  Respondent's              
          answer denied the material allegations of the petition and                  
          further alleged:                                                            
                    6.  FURTHER ANSWERING the petition, and in support                
               of the determination that the underpayments of tax                     
               required to be shown on petitioner's tax returns for                   
               the tax years ending September 30, 1988, and September                 
               30, 1989, are due to fraud, the respondent alleges:                    
                    (a)  Donald J. Marino was the president and major                 
               shareholder of, and had direct control over, petitioner                
               during the years at issue.                                             
                    (b)  Petitioner paid certain personal expenses of                 
               Donald J. Marino and his family.                                       
                    (c)  On December 22, 1987, petitioner's president                 
               Donald J. Marino purchased a diamond necklace, diamond                 
               tennis bracelet, and two sets of diamond earrings from                 





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