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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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