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Background
Petitioner is a Maryland corporation, organized on
November 8, 1991. At the time of the petition, petitioner’s
mailing address was in Rockville, Maryland. During the period
relevant to this case, petitioner was owned equally by Norman E.
and Aline J. Duquette (together, the Duquettes; individually,
Norman and Aline, respectively).
From 1968 until 1986, Norman was employed as an auditor by
the Defense Contract Audit Agency (DCAA). In 1986, he left the
employ of DCAA, and he opened a consulting business (the
consulting business), offering advice to Government contractors
in connection with their dealings with DCAA. Initially, Norman
carried on the consulting business as a sole proprietorship.
Norman’s activities as a proprietor were subject to examination
by respondent in May 1991. That examination led to a criminal
investigation of Norman for tax crimes committed in connection
with the sole proprietorship (the criminal investigation). The
criminal investigation was resolved by Norman’s pleading guilty
to two counts of filing a false income tax return, for 1989 and
1990, in violation of section 7206(1). As a result of his guilty
pleas, Norman paid a fine, but he did not serve a prison
sentence.
In November 1991, Norman organized petitioner to carry on
the consulting business. Norman testified that petitioner was
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