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On June 21, 1990, acting upon information provided by Mr.
Hooks and Mr. Kanz concerning unpaid corporate employment and
fuel excise taxes, IRS special agents executed a Federal search
warrant at petitioners’ offices in San Antonio, Texas.
Subsequently, Mrs. Grothues was indicted and convicted of
wilfully failing to file required excise tax returns and to pay
excise taxes of SWOJ for the quarters ending June 30, 1986,
through September 30, 1988, and of SWOEP for the quarters ending
March 31, 1989, through December 31, 1990. Mrs. Grothues was
incarcerated in a Federal prison camp from February 1, 1994, to
January 21, 1995.
Shortly after June 21, 1990, when the IRS had served its
search warrant, petitioners hired Martha Simpson (Ms. Simpson), a
certified public accountant, to analyze the corporate employment
tax liabilities. The purpose of Ms. Simpson’s analysis was to
compute SWAS’s underpayments of the corporate employment taxes.
On April 23, 1991, two of petitioners’ corporations and SWAS
filed suit against Mr. Kanz and Mr. Hooks in Southwest Oil Co. v.
Kanz, No. 91-CI-05751 in the District Court, 57th Judicial
District, Bexar County, Texas (hereinafter, SWAS v. Kanz). Ms.
Simpson prepared exhibits A, B, and C, which were attached to the
complaint in SWAS v. Kanz (exhibits A, B, and C). Exhibits A, B,
and C listed checks written by SWAS in 1984, 1985, and 1986 to
pay the corporate employment tax liabilities to the IRS and the
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