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injury cases in connection with the accident. Their net
settlement proceeds were as follows:
Theron Livingston, Sr. $3,333
Michelle Livingston 3,523
Itesha Livingston 667
Total 7,523
On or about August 10, 1990, petitioners used these
settlement proceeds to purchase a 1988 Alfa Romeo Milano in the
name of petitioner wife. Of the $10,547 total purchase price,
they paid $7,547 cash and financed the balance.
For taxable year 1989, petitioner husband filed no Federal
income tax return, and petitioner wife filed a Federal income tax
return with a filing status of married filing separately,
reporting wages of $12,290. For taxable year 1990, petitioners
filed a joint Federal income tax return. The Schedule C, Profit
or Loss From Business, included as part of the 1990 joint return
reported $10,300 gross receipts and $632 net income from
petitioner husband’s disc jockey business. Petitioners’ 1990
joint return also reported petitioner wife’s wages of $12,356.
On June 11, 1994, petitioner husband signed a plea agreement
in which he agreed to plead guilty to income tax evasion pursuant
to section 7201 for taxable year 1990 and to a May 1993 offense
for distribution of cocaine base. Petitioner husband was
sentenced to 60 months of incarceration on the tax evasion count,
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