Samuel T. Seawright and Carol A. Seawright - Page 5




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          Revenue and Taxation, Division of Motor Vehicles (DMV) an                   
          “Owner’s/Rebuilder’s Affidavit”, certifying, among other things,            
          the fair market value of each rebuilt vehicle, as estimated in              
          the National Automobile Dealers Association (NADA) Official Used            
          Car Guide (blue book).3  Four of these affidavits were filed in             
          1995.  On these affidavits, Samuel certified NADA estimated fair            
          market values for four of the rebuilt vehicles in amounts                   
          totaling $32,100.4                                                          
          Petitioners’ Federal Income Tax Returns                                     
               Carol prepared petitioners’ 1994 and 1995 joint Federal                
          income tax returns.  On the Schedule C, Profit or Loss From                 
          Business (Sole Proprietorship) (Schedule C), attached to their              
          1994 return, petitioners reported that Columbia had $500 gross              
          receipts and zero cost of goods, showing no opening inventory, no           
          purchases, and no ending inventory.  For 1994, petitioners                  
          reported that Columbia had a net loss of $3,486.                            
               On the Schedule C attached to their 1995 return, petitioners           
          reported that Columbia had $20,852 in gross receipts, cost of               


               3 Petitioners did not have a car dealer’s license.  In order           
          to sell the six rebuilt vehicles, Columbia North East Used Parts            
          (Columbia) first transferred title to petitioners’ son, Monty               
          Seawright (Monty), for no consideration.  Monty then made                   
          application for certificates of title/registration with the South           
          Carolina Department of Revenue and Taxation, Division of Motor              
          Vehicles (DMV).                                                             
               4 The two remaining affidavits were filed in March and April           
          1996.  On these affidavits, Samuel certified fair market                    
          values of the other two rebuilt vehicles totaling $9,925.                   





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