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Pursuant to the contract, petitioner worked on approximately
300 service stations per year and completed its work in the fall
of 1997. Shortly thereafter, petitioner’s president, Carlton
Laxton (Laxton), went to California and shipped to Tennessee at
least some of the equipment remaining on the lot. The record
does not indicate that petitioner documented the assets which it
shipped to Tennessee. Petitioner later sold some or all of the
assets which it shipped from California to Tennessee.
On July 12, 2001, petitioner filed with the Commissioner its
Federal income tax return for its 1997 taxable year (1997
return). The 1997 return was prepared by Dan R. Tacker (Tacker),
a certified public accountant (C.P.A.), and was signed by Laxton
in his capacity as petitioner’s president. As of the time of
trial, Tacker had been a C.P.A. for almost 20 years, and he had
worked for petitioner as its outside accountant for approximately
the same amount of years performing audits, tax work, and other
services. Tacker stopped working for petitioner as its
accountant effective with its operation after May 31, 1997.
Petitioner reported on its 1997 return that its taxable
income before NOL deduction was $234,265 and that its NOL
deduction was the same. Petitioner had incurred a $621,456 NOL
in its 1996 taxable year and applied $206,955, $106,115, and
$308,386 of that loss to its 1993, 1994, and 1995 taxable years.
Petitioner mistakenly reported on its 1997 return that the NOL in
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