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Petitioner’s officers and shareholders are two brothers,
James M. Gibbs (James) and John W. Gibbs (John). James and John
each own 50 percent of petitioner’s stock. James is petitioner’s
vice president and secretary, and John is petitioner’s president
and treasurer. James is primarily responsible for
administrative, financial and tax matters, and his duties include
running the office and dealing with the accountants. In
contrast, John is primarily responsible for sales and promotion.
James and John each attended college for 2 years.
Other than James and John, petitioner employs approximately
8 to 10 individuals. None of these individuals exercises any
managerial responsibility; rather, these individuals perform only
clerical and sales-related duties.
Both James and John spend much of their time traveling on
business. John in particular spends between 30 to 50 percent of
his time traveling, both domestically and internationally.
Although James travels less frequently than John, some of his
destinations are also outside of the United States.
B. Steven Jaffe and the Firm of Coleman, Joseph & Jaffe
Neither James nor John, nor any of petitioner’s other
employees, possessed any expertise in either accounting or
Federal tax matters. Accordingly, from 1991 through 1998,
petitioner retained the accounting and consulting firm of
Coleman, Joseph & Jaffe (CJ&J) to provide both accounting and tax
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