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Frank and Katherine filed timely joint Federal individual
income tax returns for 1983 through 1985. They filed late
returns for 1986, 1987, and 1988 on December 5, 1989, after
Internal Revenue Service (IRS) Revenue Officer Robert Budde
(Revenue Officer Budde) served a summons requesting information
needed to prepare delinquent tax returns for 1986 through 1988.
Frank and Katherine filed timely joint Federal individual income
tax returns for 1989 and 1990. On their returns for the years in
issue, Frank and Katherine claimed exemptions for themselves and
no exemptions for dependents.
On Schedules C, Profit or Loss From Business, filed with the
returns for 1983 through 1985 and for 1990,4 Frank and Katherine
reported the following gross receipts, expenses, and net income
from the palmistry business:
Gross Business Net
Year Receipts Deductions Income
1983 $16,550 $10,069 $6,481
1984 15,800 9,609 6,191
1985 19,550 11,009 8,541
1990 8,000 250 7,750
Frank and Katherine did not file any Schedules C with the returns
for 1986 through 1989. Business deductions claimed on the
4 The Schedules C filed with the 1983 through 1985 returns
listed Frank and Katherine as the proprietors of the business,
but the Form SE, Computation of Social Security Self-Employment
Tax, identified Katherine as the self-employed person. The
Schedule C filed with the 1990 return listed Frank as the
proprietor of the business. No Form SE was included with the
copy of the 1990 return admitted into evidence at the trial.
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