Albert M. Graham and Martha A. Graham - Page 23

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          return.  Lewellen signed it on November 10 or 11, 1998.4                    
          Petitioners did not correct their reporting of the $672 ordinary            
          loss on their 1998 amended return.                                          
               Petitioners’ signatures on their amended 1998 return are               
          dated November 8, 1999.  Petitioners’ amended 1998 return was               
          stamped received by the Fresno Service Center on November 22,               
          1999.                                                                       
               3.   1999                                                              
               Petitioners reported gross receipts of $606,753 from                   
          petitioner’s law practice on their 1999 return.  Petitioners did            
          not report any income from the Anis partnership on their 1999               
          return.  The IRS received petitioners’ 1999 return on September             
          21, 2000.                                                                   
          E.   Audit of Petitioners’ Returns                                          
               During the audit, petitioner told the revenue agent, K.C.              
          Peredo (Peredo), that payments to contractor Bill Thomas (Thomas)           
          were for building a cabinet for the computer in petitioner’s                
          office.  However, petitioner paid Thomas with business checks for           
          remodeling the kitchen of his cabin in Big Bear.                            
               During the audit, petitioner denied that he had improperly             
          deducted personal expenses as business expenses.  For example, he           
          said he paid Kim Sterling for flowers used solely for his office            

               4 Petitioner did not allege in the complaint in the lawsuit            
          he filed against Lewellen that Lewellen had failed to include               
          client fees of $135,422 in petitioners’ original 1998 return.               




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