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these checks at the Money Exchange, a check-cashing store. The
Money Exchange charged a fee of 2.5 percent of each check’s
value. HRDC’s bank did not charge a fee to deposit checks.
Generally, if an employee other than Mr. Payne had performed the
work on an extra, one-third of the payment went to that employee,
one-third of the payment went to materials, and one-third of the
payment was retained by HRDC. If Mr. Payne performed the extra,
he kept 100 percent of the payment. Occasionally, Ms. Enerson
would cash the checks and send Mr. and Mrs. Payne the cash while
they were on vacation in Florida. The amounts of the checks
cashed by Mr. Payne were not deposited into HRDC’s bank account
and were not reported as income on HRDC’s Federal income tax
returns. In 1993, Mr. Payne cashed a total of $83,623.87 in
checks at the Money Exchange. In 1994, Mr. Payne cashed a total
of $98,258.21 in checks made out to HRDC at the Money Exchange.
HRDC’s extra journal for 1994 reflects that Mr. Payne performed
extras of $45,060.50. HRDC’s extra journal for 1995 reflects
that Mr. Payne performed extras of $36,989. The extras were not
reported in HRDC’s sales journal.
Vern Gunderson (Mr. Gunderson), a tax return preparer,
prepared petitioners’ 1993 and 1994 joint income tax returns.
Mr. Gunderson also prepared HRDC’s 1993 and 1994 partnership
returns, and HRDC’s 1995 S corporation return. Tim Campion (Mr.
Campion), an accountant, prepared petitioners’ joint 1995 income
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Last modified: May 25, 2011