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Joseph was familiar with the peg board and other aspects of
Monterey’s bookkeeping system.
Sales and Bank Deposits
Generally, Monterey received payments for glass by check.
Information as to all receipts was entered on the peg board, and
the receipts were deposited into Monterey’s account at First
National Bank and Trust Company (the Monterey account). Monterey
deposited $994,058.25 and $926,963.35 into the Monterey account
during 1987 and 1988, respectively.
Withdrawals
Monthly, during 1987 and 1988, Joseph examined statements
showing the balance of the Monterey bank account and withdrew
funds in excess of the amount needed to operate the business. He
deposited such excess funds, in the amounts of $111,200 and
$74,880, during 1987 and 1988, respectively, into interest
bearing accounts in his own name.
Original Tax Returns
Petitioners timely filed Forms 1040, U.S. Individual Income
Tax Return, for 1987 and 1988 (the Forms 1040). Attached to the
Forms 1040 were Schedules C, Profit or (Loss) From Business or
Profession, which relate to Monterey (the Schedules C). Joseph
prepared the Forms 1040 (including the Schedules C). In
preparing the Schedules C, as source documents, Joseph had
available the peg board, vendor ledger cards, sales invoices, and
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Last modified: May 25, 2011