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transferred to petitioners’ business or personal accounts. For
example, petitioners transferred $5,000 relating to Del Anderson
from their trust account to their personal joint account in
October 1992, and they transferred $10,000 relating to Allan
Potter from their trust account by check payable to petitioner in
November 1992. In 1993, petitioners transferred a total of
$40,000 relating to Allan Potter from their trust account to
their business account.
Neither petitioner filed a tax return for 1992 until
November 30, 2000, after the petition in this case was filed and
shortly prior to trial. Petitioners filed a timely return for
1993 and filed an amended 1993 return on November 30, 2000. In
June 1996, a revenue agent commenced an audit of petitioners’
income tax liability for 1992 and 1993. The revenue agent
reconstructed petitioners’ income after meeting with petitioners
and their representative. The revenue agent did not include
deposits into the trust account as income in her reconstruction.
She did, however, include transfers from the trust account into
petitioners’ business or personal accounts. The items that were
included as transfers were in many instances identified on
written lists of income items provided to the revenue agent by
petitioners or their representative. In determining the amount
of unreported income, the revenue agent deducted the amounts that
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