Richard T. and Catherine L.. Lites - Page 3

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          company.  He was terminated from that position in April 2002; he            
          did not secure full-time employment again until October 2002,               
          making about $9,500 per month.  As of the time of trial, Richard            
          was earning about $10,000 per month; i.e., about the same as                
          before his 1997 job change.                                                 
               After his 1997 job change, Richard began liquidating his               
          Individual Retirement Account (IRA).  Between 1998 and 2000, he             
          took out $382,577 in early distributions.2  He used these IRA               
          distributions partly to cover living expenses and partly for                
          things such as making payments of about $700 per month on a                 
          recreational boat.3  In 1999, petitioners refinanced their                  
          residence and used the $37,500 proceeds principally to pay off              
          credit card debts.                                                          
          1999 and 2000 Federal Tax Returns                                           
               Petitioners’ 1999 Federal income tax return was due, after             
          extensions, on October 15, 2000; petitioners filed it on                    
          October 24, 2000.  Petitioners’ 2000 Federal income tax return              
          was due, after extensions, on October 15, 2001; petitioners filed           
          it on November 14, 2001.                                                    


               2 Richard withdrew $198,107 from his IRA in 1998, $107,735             
          in 1999, and $76,735 in 2000.  He elected to have Federal income            
          taxes withheld (in the amounts of $48,207 and $8,300,                       
          respectively) from the 1998 and 1999 withdrawals but not from the           
          2000 withdrawal.                                                            
               3 Richard testified that he had continued making payments on           
          the boat until some 3 months before the trial in this case.                 





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