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title (which in Texas is a car’s proof of ownership). Under the
plan, Concord gave Washington Car possession of up to $100,000-
worth of cars, thus giving Cox an inventory of vehicles that he
could work on. In return, Cox promised to pay Concord $2,000 a
week. These payments would accumulate from week to week, and Cox
would draw on their accumulated value by periodically taking back
drafts and titles for cars so that he could resell them to third
parties at a profit.
Cox and his wife reported Washington Car’s income and
deductions on a Schedule C to their 2000 income tax return, which
was prepared by Roman Spiller, their long-time accountant.
Spiller was a former IRS auditor, and had prepared both the
Coxes’ personal and business returns since 1986. Before this
case they had never had any reason to doubt the quality of his
work.
The Schedule C for Washington Car’s 2000 tax year reported
sales of $118,900, and aggregate expenses of $92,892. But
Spiller got his signs confused and reported the difference as a
net loss. The Commissioner’s service center noticed the math
error, made the appropriate correction, and notified the Coxes
that the resulting adjustments required them to pay tax due on
the increase in taxable income, plus a penalty and interest.
Spiller prepared and submitted an amended tax return on which the
Coxes flipped the numbers from their original return, reducing
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Last modified: May 25, 2011