Wayne Payne and Dorene J. Payne - Page 6

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          tax return and an amended 1995 S corporation return for HRDC.  On           
          its 1994 partnership return, HRDC elected the cash method of                
          accounting for tax purposes.  Although it appears that the cash             
          method was used in 1993 and 1995 as well, HRDC’s 1993 partnership           
          return and 1995 S corporation return do not reflect which methods           
          of accounting were elected in those years.                                  
               Ms. Enerson was employed by HRDC from 1985 until April 1995.           
          During the time Ms. Enerson was employed by HRDC, Mr. Gunderson             
          was HRDC’s tax return preparer.  At HRDC, part of Ms. Enerson’s             
          job was to gather information for Mr. Gunderson to complete the             
          returns.  Mrs. Payne helped Ms. Enerson gather this information.            
          Ms. Enerson and Mrs. Payne did not provide Mr. Gunderson with any           
          information about the money earned from extras; they gave him               
          only bank records to determine HRDC’s income.  Mr. Gunderson                
          signed HRDC’s 1995 S corporation return on March 3, 1996.  Ms.              
          Enerson testified that she provided the information for Mr.                 
          Gunderson to complete the 1995 return.  Ms. Enerson left HRDC in            
          April 1995 to work for Mr. Gunderson.                                       
               After Ms. Enerson left HRDC, petitioners hired Mr. Campion             
          to prepare their individual 1995 return and to amend HRDC’s 1995            
          return.  Mr. Campion signed the amended return on June 4, 1996.             
          Petitioners provided Mr. Campion only the original 1995 return              
          (prepared by Mr. Gunderson) and HRDC’s bank records to complete             
          the amended return.  The amended 1995 return reported slightly              

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