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Third, did the Lenzens have unreported gambling losses
offsetting their unreported gambling income in 1999? We hold
that they did not.
Fourth, are petitioners liable for accuracy-related
penalties under section 6662? We hold that they are.
FINDINGS OF FACT
Some of the facts are stipulated. The stipulation of facts,
supplemental stipulation of facts, and attached exhibits are
incorporated herein by this reference. At the time the petition
was filed, the Lenzens resided in Prior Lake, Minnesota, and
RAF’s principal place of business was in Le Center, Minnesota.
In 1991, Mr. Lenzen and James A. Schoenecker incorporated
RAF under Minnesota law. RAF produced a variety of gourmet
desserts, specializing in cheesecakes, marketed under the trade
name “Lady Dianne’s Desserts”. RAF’s products were produced in a
plant in Le Center, Minnesota, and were marketed in several
regions of the country by sales representatives to grocery
stores, restaurants, and other food distributors. In 1999, Mr.
Lenzen and Mr. Schoenecker were the only two officers and
directors of RAF. Mr. Lenzen owned 59.5 percent of RAF’s stock
and Mr. Schoenecker owned 25.5 percent of RAF’s stock in 1999.
In addition, Steven Lenzen and David Lenzen, the Lenzens’ two
sons, and Steven Countryman were employees and 5-percent
shareholders of RAF in 1999. RAF issued only common stock. In
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