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trust, using trust documents acquired from NTS. Petitioners
hoped that the creation and funding of the trusts would
facilitate the preservation and protection of their assets.3
Petitioners hired James Baker to prepare their 1995 tax
return and the tax returns for their two trusts. Some
chiropractic colleagues, who claimed Mr. Baker was knowledgeable
about trusts and taxes, recommended Mr. Baker to petitioner.
Petitioners did not give Mr. Baker all the information
necessary to evaluate the trusts for Federal income tax purposes
or to complete their 1995 tax return accurately. As a result,
petitioners’ 1995 return understated their correct income tax
liability.
In his notice of deficiency in docket No. 13714-99,
respondent determined that the trusts must be disregarded for
Federal income tax purposes, that petitioner’s income from his
chiropractic business was reportable on petitioners’ 1995 return,
and that petitioners were liable for an income tax deficiency for
1995. Respondent also determined that petitioners were liable
for an accuracy-related penalty under section 6662(a) and (b)(1)
(for negligence or disregard of rules or regulations) or,
alternatively, under section 6662(a) and (b)(2) (for substantial
3Petitioners’ son suffered from physical and psychological
problems resulting from an addiction. Petitioners were concerned
that these and other problems stemming from the addiction would
adversely affect their assets and impair their ability to provide
for their family.
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Last modified: May 25, 2011