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Petitioners’ S corporation, Continuum Health, Inc. (Continuum),
exercised daily management functions and operated the business.
Petitioners’ wholly owned C corporation, Continue Care
Corporation (CCC), processed the business’s payroll. Petitioner
Catherine Keil (Ms. Keil), a licensed physical therapist, handled
the business’s daily operation and finances. Ms. Keil also dealt
with the business’s accountants and lawyers. Petitioner Johann
Keil (Mr. Keil) handled the business’s development and public
relations. Mr. Keil had no involvement in the business’s daily
operation.
In or around 1999, respondent audited petitioners’ personal
1993 and 1994 Federal income tax returns and the related returns
of Continuum and CCC. Through a referral, Ms. Keil met
Montgomery in the summer of 2000, and petitioners and CCC
retained him to handle the audits. Ms. Keil was Montgomery’s
contact person for petitioners as to this representation, and she
informed him at the time of his retention that he could not
accept any settlement as to the case without her consideration
and approval of it. Until December 15, 2004, Montgomery dealt
exclusively with Ms. Keil as to the subject matter of the audits.
His only interaction with Mr. Keil before December 15, 2004, was
that they spoke with each other on several occasions in October
2004 about an unrelated matter concerning a nonprofit foundation.
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