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corporations’ employees and wrote checks for the corporations’
combined employment tax liabilities. In exchange for these
services, petitioners’ corporations paid SWAS a handling fee.
Petitioners’ Federal income tax returns have never included a
Schedule C, Profit or Loss From Business, for a sole
proprietorship known as SWAS or a partnership return on Form
1065, U.S. Partnership Return of Income, for a partnership known
as SWAS.
Mr. Kanz began working for petitioners and their
corporations in 1981. At that time, Mr. Kanz had known
petitioners for approximately 10 years. Mr. Kanz, then a
licensed public accountant, performed services as an independent
contractor for petitioners’ corporations. His responsibilities
included preparation of payroll tax returns and financial
statements, the reconciliation of bank statements, and management
of petitioners’ corporations’ financial affairs. He performed
these services for petitioners’ corporations and SWAS from 1981
to July 1990. He billed each corporation for professional fees
based on his number of hours of service for that corporation.
Initially, SWAS maintained a payroll checking account at
Brooks Field National Bank in San Antonio, Texas. In March 1987,
SWAS opened another account at Trinity National Bank in San
Antonio, Texas. Petitioners and Mr. Kanz were the only persons
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Last modified: May 25, 2011