Terri L. Steffen - Page 7

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          Schedules K-17 and other various schedules necessary to prepare             
          the Bilzerians’ individual return, including the schedule                   
          prepared by Peat Marwick.                                                   
               In the fall of 1988, Mr. Norris was contacted by Mike Shaw             
          (Mr. Shaw), an attorney representing Mr. Norris at the time,                
          concerning an omission of income on petitioner and Mr.                      
          Bilzerian’s 1986 return.  As a result, Mr. Norris learned that              
          petitioner and Mr. Bilzerian had failed to include $4,170,1858 of           
          taxable income from gain realized by Mr. Bilzerian from the                 
          purchase and sale of Hammermill stock.  Mr. Norris informed Mr.             
          Bilzerian of this.  Mr. Shaw was alerted to the omission of                 
          income on the 1986 return by an agent of the Federal Government.            
               At Mr. Bilzerian’s request, Mr. Norris prepared an amended             
          return for the Bilzerians for 1986.  On January 5, 1989,                    
          petitioner and Mr. Bilzerian filed a Form 1040X, Amended U.S.               
          Individual Income Tax Return, for 1986.  On the Form 1040X, they            
          increased their taxable income by $4,008,928 and reported                   
          adjusted gross income and total tax liability of $10,108,894 and            
          $5,009,631, respectively.  The increase to income was described             

               7A Schedule K-1 is a schedule attached to a Form 1120S, U.S.           
          Income Tax Return for an S Corporation, or a Form 1065, U.S.                
          Partnership Return of Income, to report a shareholder’s or a                
          partner’s share of income, credits, deductions, etc., from the S            
          corporation or the partnership.                                             
               8The total omission from income was reduced to $4,008,928,             
          due to miscellaneous adjustments.                                           

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