Bruce L. Helmich - Page 4




                                        - 3 -                                         

                    The 1099 that I received from Mr. Vaughan was a                   
               bonus for that year.  As your records indicate, I was                  
               an employee of Mr. Vaughan for several years prior to                  
               this time.  I realize that the 1099 may have been                      
               completed with the notation as non-employee                            
               compensation, but that would have been an error on the                 
               part of Mr. Vaughan, and not my error.  Mr. Vaughan                    
               stated to me that the taxes were taken care of.  I do                  
               not feel that I should be held responsible for errors                  
               committed by Mr. Vaughan.  I realize that Mr. Vaughan                  
               is now deceased, and I believe that the reason that the                
               IRS is attempting to get this from me since [sic] they                 
               cannot get it from him.                                                
               On December 15, 1998, petitioner responded to proposed                 
          changes by the Internal Revenue Service and stated that:                    
          as I have explained, the bonus was employee compensation,                   
               regardless of how it was reported to your office.  As I have           
               explained to your office on several occasions, this income             
               was a bonus from my employer and he informed me that he                
               would be taking care of the taxes. * * * I do know that my             
               records for 1995 will reflect that I received a bonus that             
               year and that bonus reflected the pay was for employee                 
               compensation.                                                          
               Respondent determined that the $10,638 should be included in           
          petitioner's income.  The notice of deficiency contains the                 
          following statement:  “A bonus is considered taxable income and             
          must be included on the tax return.  It is not subject to self-             
          employment taxes nor FICA taxes.  We have deleted the self-                 
          employment tax and your share of the FICA tax."                             


               Petitioner stated in his petition that he disagreed with the           
          adjustments in the notice of deficiency because the $10,638 "was            
          erroneously marked on 1099 as non-employee compensation when it             
          should have been marked as employee compensation."                          




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