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filed a civil suit against petitioner seeking payment. During
1991, petitioner paid $3,952.90 to Spirit Harley Davidson in
settlement of the suit.
Nontaxable Sources of Income
During 1987, petitioner received welfare benefits of $3,224.
Petitioner did not receive any welfare benefits during 1988,
1989, 1990, or 1991.
During 1988, 1989, and 1991, petitioner received insurance
proceeds in the amounts of $172.28, $1,829.99, and $2,595.10,
respectively. Petitioner did not receive any insurance proceeds
during 1987 and 1990.
Petitioner's Tax Returns
Petitioner used the calendar year for tax reporting and the
cash method of accounting. Petitioner's Federal income tax
returns for 1987, 1988, 1989, 1990, and 1991 were prepared by
paid return preparers. Petitioner did not keep books and records
of his illegal drug sales during the years in issue. Petitioner
did not inform his return preparers of the income that he derived
from illegal drug sales, and he failed to report such income on
his Federal income tax returns for the years in issue.
The tax return that petitioner filed for 1987 reflects a
Schedule C, Profit or Loss From Business, loss of $3,608.85,
rental income of $595.50, and taxable income of zero. The tax
return that petitioner filed for 1988 reflects a Schedule C loss
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