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G. The Audit
Revenue Agent Adoraliese Klimkiewicz (hereinafter sometimes
referred to as Klimkiewicz) conducted the examination of
petitioners’ tax returns. She initially examined only Michael’s
1994 tax return, but about the end of 1996 or the beginning of
1997, she expanded the examination to include Michael’s 1995 tax
return. Klimkiewicz did not begin to audit Sandra’s tax returns
until sometime between March and May of 1997.
Klimkiewicz’ first meeting with petitioners or their
representatives was on or about June 19, 1996, when Klimkiewicz
met with Sandra in Duh�’s office. At Klimkiewicz’ request,
Sandra brought to the meeting both business and personal records,
the major records being the following: (1) All the 1994 invoices
from the plumbing business that were reported on Michael’s 1994
tax return; (2) adding-machine tapes categorized by month; (3)
Forms 1099; (4) the plumbing business and personal bank account
statements; (5) some credit card statements; and (6) some
automobile insurance documents. At that meeting, in response to
Klimkiewicz’ question about petitioners’ cash on hand at the
beginning of 1994, Sandra said that they would have had cash on
hand from the sale of the Newman property, and that they probably
had spent all the Newman property proceeds by the end of 1994.
On July 17, 1997, Klimkiewicz met with both petitioners and
their then representative, Sean Dawson, at Dawson’s office. Both
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