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On March 27, 2000, respondent issued a joint notice of
deficiency to petitioners. In the notice, respondent determined
deficiencies in petitioners’ Federal income taxes together with
penalties as follows:
Year Deficiency Sec. 6662(a) penalty
1996 $10,500 $2,100
1997 10,294 2,059
The deficiencies were based on respondent’s determinations, which
are described in pertinent part below. Respondent determined
that the BVE and Sweetbush Business Trusts, purportedly created
by petitioners, are shams with no economic substance and
increased petitioners’ business income by the gross receipts of
the trusts, less ordinary and necessary business expenses.
Respondent also determined gross income from the bank deposits
method, flowthrough losses from the disregarded trusts, and
increased Social Security benefits. Respondent further
determined that petitioners were subject to self-employment tax,
with a deduction for one-half of the self-employment tax.
Petitioners received the aforesaid notice of deficiency.
Petitioners did not petition the Tax Court with respect to the
notice of deficiency.
By notice of determination dated April 15, 2002, respondent
informed petitioners that the notice of liens filed against them
would not be withdrawn because petitioners’ request for a hearing
did not address legal or procedural errors relating to either the
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Last modified: May 25, 2011