- 5 -
bank account of the sole proprietorship to be transferred to the
name of HIF.2
In November 1990, Mr. Hood was indicted on two counts of
criminal tax evasion under 26 U.S.C. sec. 7201 (1994) and two
related counts of criminal false declaration under 26 U.S.C. sec.
7206(1) (1994). The allegations in the indictment related solely
to the operation of, and Schedule C reporting of income from, the
sole proprietorship for calendar years 1983 and 1984. Neither
HIF nor Mrs. Hood was charged in the indictment. After a jury
trial in May 1991, Mr. Hood was acquitted on all counts. During
its taxable year ended June 30, 1991, HIF paid $103,187.91 in
legal fees incurred in Mr. Hood’s defense and deducted this
amount on its return for that year. At the end of its June 30,
1991, taxable year, HIF had retained earnings of $247,593. HIF
declared no dividends during that year.
Prior to Mr. Hood’s indictment, respondent had issued a
notice of deficiency to Mr. and Mrs. Hood (not at issue in these
cases) in which respondent determined that there were
deficiencies and civil fraud additions to tax applicable in each
of the Hoods’ taxable years 1983 through 1986, based on the
operation of the sole proprietorship in those years. After Mr.
Hood’s acquittal, Mr. and Mrs. Hood entered into a settlement
2 Previously, a substantial check had been drawn on this
account to cover a security deposit and certain conversion costs
for premises leased to HIF.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011