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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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