Michael T. Chappell - Page 8




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          H.   Respondent’s Audit and Determination                                   
               Respondent’s tax auditor, Shirley Todd (Todd), audited                 
          petitioner’s 1994 and 1995 income tax returns.  Petitioner gave             
          Todd his Colonial Bank statements for January to November 1995.             
          He did not produce any other bank statements.  Petitioner did not           
          give complete records of his income and deductions for 1994 and             
          1995 to Todd.  Petitioner told Todd that he employed only one               
          individual in his tax preparation activity and that the                     
          individual was an independent contractor.                                   
               Petitioner deducted as rent on his 1994 and 1995 Schedules C           
          mortgage payments he made for the Lower Wetumpka Road house.                
               Petitioner told Todd that he received no gifts or                      
          inheritances in 1994 and 1995.  He also said that he calculated             
          gross receipts for his tax return activity based on deposits into           
          his Colonial Bank account.                                                  
               Respondent determined petitioner’s gross receipts from the             
          tax preparation business from deposits into petitioner’s Colonial           
          Bank account.  Respondent averaged petitioner’s deposits for                
          September, October, and November 1995 to estimate an amount for             
          December because petitioner did not give respondent his December            
          1995 bank statement.                                                        











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