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6, 1996, that is not disclosed by the record, revenue agent
Powell received petitioners’ 1995 joint return from the Internal
Revenue Service Center in Cincinnati, Ohio. Revenue agent Powell
reviewed that return and compared it with petitioners’ 1994 joint
return. That comparison disclosed to revenue agent Powell that
in the 1995 joint return there were: (1) A significant decrease
from 1994 to 1995 in the gross receipts that petitioners reported
in the respective Schedules C of petitioners’ 1994 joint return
and 1995 joint return, (2) an ending inventory for Barbara’s Gift
Shop for 1994 of $442,197 and an ending inventory for that
business for 1995 of $0, and (3) an increase from 1994 to 1995 in
the expenses that petitioners claimed in the respective Schedules
C of petitioners’ 1994 joint return and 1995 joint return. As a
result, revenue agent Powell formally commenced an examination of
petitioners’ 1995 joint return.
Although revenue agent Powell became aware through the CID
report of certain employment tax issues involving Barbara’s Gift
Shop and Sandbar Wholesale Trust, he concluded that that informa-
tion did not affect his examination of petitioners’ 1994 and 1995
joint returns, and he did not make any inquiries of petitioners
regarding Sandbar Wholesale Trust during his examination of those
joint returns. Nor did petitioners allude to Sandbar Wholesale
Trust or to any purported transfer of the two businesses to that
trust during that examination.
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