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FINDINGS OF FACT
In 1968, petitioner began operating McGowan Construction
Company, Inc. (the Company), an S corporation. Petitioner is the
president and sole shareholder of the Company.
In 1987, petitioner married Bonnie Cason, owner and operator
of Bonnie’s Sportswear, a wholesale garment manufacturing
business. Soon after they were married, petitioner hired Leonard
Kisalus, Ms. Cason’s accountant, to set up the Company’s
accounting and payroll records and prepare tax returns. Mr.
Kisalus prepared the Company’s 1987 through 1993 returns and
petitioner’s 1985 through 1993 returns.
In 1990, petitioner purchased a computer for the Company,
and Mr. Kisalus installed, on the computer, an accounting
software program to record general ledger, payroll, invoice, and
accounts receivable information. Petitioner’s secretaries did
not have any previous bookkeeping experience, but Mr. Kisalus
trained them to manage the Company’s bookkeeping
responsibilities.
Each year petitioner and his secretaries maintained a
handwritten ledger to record all work performed, invoices
prepared, and customer checks received. The secretaries opened
the Company’s mail and collected customer checks. They would
match each check with its corresponding invoice and record, in
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Last modified: May 25, 2011