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correspondence with respect to the Coopers & Lybrand audit of
CPRT; (6) responding and communicating with the media; and (7)
communication with petitioner’s criminal defense attorney,
William Goodman. All of the billing statements sent to
petitioner from RJO&Q for services performed in June, July,
August, and September of 1994 were, according to their heading,
regarding the “State audit of CPRT and Dr. Braun”.
Between July and November 1994, petitioner and her lawyer
consulted with a public relations firm regarding media response
strategy and the preparation of press releases on behalf of
petitioner. As a result of the adverse publicity being printed
in the San Francisco news media, petitioner put the incorporation
and development of SLS on hold. Around this time, Physio-Control
also put its plans to fund SLS on hold.
Petitioners’ Tax Return
Petitioners’ 1994 Federal income tax return was prepared by
Ronald Stern, a certified public accountant (C.P.A.). Mr. Stern
had prepared petitioners’ income tax returns for 15 years.
Before preparing petitioner’s Schedule C for the 1994 tax year,
Mr. Stern discussed with petitioner the purpose of the legal and
professional services proposed to be deducted.
For the 1994 tax year, petitioners deducted $87,300 on
Schedule C for legal and professional fees. Respondent
determined that petitioner’s legal fees, in the amount of
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