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reported on each of those returns that their mailing address was
3041 Lawrence Road, Redding, California 96002 (Lawrence address).
Petitioners lived at the Lawrence address before 1996 with Ms.
Carey’s mother but did not live there in 1996 or in any
subsequent year. In 1996, petitioners had converted the house at
the Lawrence address into a care home for disabled adults. Mr.
Carey was the administrator of the care home, which was named
Sunshine Residential (Sunshine).
Respondent’s revenue agent, Gil Akers, was assigned to audit
petitioners’ 1995 and 1996 taxable years. He started auditing
those years together but subsequently bifurcated the audit into
its separate years. As to 1996, respondent issued a duplicate
notice of deficiency to each petitioner on June 2, 2000. The
notice determined that petitioners were liable for a $442,993
deficiency in income tax and a $88,598.60 accuracy-related
penalty under section 6662(a). The basis of that determination
was respondent’s disallowance of $455,224 in business deductions,
his $648,443 increase in income stemming from four claimed
trusts, and his $1,066 increase in interest income.1 The claimed
trusts were named Home Health Services (Home Health), Residential
Management Services (Residential), Rancho Residential Program
1 Respondent conceded in his brief that petitioners’
understatement of interest income was $1,065 rather than $1,066.
We consider this concession to be immaterial to our decision.
Accordingly, we do not require a Rule 155 computation to reflect
this concession.
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