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liability was calculated using the information from petitioner’s
Schedule K-1.
In July 1989, petitioner filed his P.C.'s Federal income tax
return for the fiscal year ended October 31, 1988. This return
was also prepared by Mr. Fettkether. It did not include any gain
from the sale of the ranch or income from the partnership.
In October 1989, petitioner filed an amended corporate
income tax return for the P.C. The amended return was prepared
by a different return preparer, John Henss. It contained the
following statement:
Reason for Amended Return.
On August 1, 1988 it was the intent of Michael C.
Hollen to transfer to Michael C. Hollen, D.D.S., P.C.
certain investment assets including an interest in
Bluebird Ranch, a partnership. That partnership equity
was in a deficit position. It was the intent of the
parties that Michael C. Hollen would issue his note
payable to Michael C. Hollen, D.D.S., P.C. in an amount
equal to the deficit in Bluebird Ranch which was
assumed by Michael C. Hollen, D.D.S., P.C. over the
value of the other assets assumed by Michael C. Hollen,
D.D.S., P.C. Due to a scrivener error the assumption
of the Bluebird Ranch deficit was not recorded in the
corporate records. Upon detection of said scrivener
error the verbal agreement was confirmed and made a
matter of record.[5]
5At trial, petitioner testified that he took steps to
protect petitioners’ personal assets in the event that Mr. and
Mrs. Lentz foreclosed on the note and obtained a judgment against
petitioners. Specifically, petitioner claimed that, in August
1988, petitioners transferred most of their personal assets to
his P.C. in connection with the establishment of an Employee
Stock Ownership Plan (ESOP). Although petitioner testified that
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