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On their joint income tax return for 1990 (1990 return),
petitioner and intervenor reported the following sources of
income and loss:
Source Amount of Income (Loss)
Taxable interest $13,484
Dividends 4,223
Net long-term capital loss (76,107)
Other losses (840)
Universal Painters 366,583
Atrium Homes & Development (75,492)
Petitioner and intervenor received the dividends that they
reported on the 1990 return from “Founder Funds”. Petitioner and
intervenor reported taxable income of $277,213, total tax of
$79,916, and an estimated tax penalty of $5,261 for 1990.
Petitioner and intervenor signed the 1990 return on December 14,
1996. The IRS received the 1990 return on December 18, 1996.
Alex P. Martinez, C.P.A. (Martinez), prepared the 1990 return.
On their joint income tax return for 1991 (1991 return),
petitioner and intervenor reported the following sources of
income and loss:
Source Amount of Income (Loss)
Taxable interest $2,438
Long-term capital loss carryover (73,107)
Universal Painters 353,435
Atrium Homes & Development (189,922)
Petitioner and intervenor reported taxable income of $137,141,
total tax of $35,629, and an estimated tax penalty of $2,049 for
1991. Petitioner and intervenor signed the 1991 return on
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