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D. Tax Returns
Dunning prepared petitioners’ Federal individual income tax
returns for 1995-98 and returns for petitioners’ trusts. He
relied on summaries of income and expenses that he had received
from Spencer Rogers. Dunning saw (but did not read) petitioners’
trust documents.
Petitioners operated their Nikken sales distributorship as a
sole proprietorship in 1995 and 1996. In those years,
petitioners reported income and expenses from their Nikken sales
distributorship on Schedules C, Profit or Loss From Business,
attached to their Forms 1040, U.S. Individual Income Tax Return.
Petitioners’ 1995 Form 1040 was filed on a date not stated
in the record. Petitioners reported gross receipts of $315,270,
gross income of $330,049, and net profit of $97,200 for their
Nikken activity in 1995. Petitioners’ 1996 Form 1040 was filed
on October 19, 1998. Petitioners reported gross receipts of
about $385,710, gross income of about $370,400, and net profit of
$53,999 for their Nikken activity in 1996.
Petitioners did not report Nikken income or expenses on
their Forms 1040 for 1997 and 1998. Petitioners filed their 1997
Form 1040 on June 1, 1999, reporting zero tax due. Petitioners
signed their 1998 Form 1040 on October 16, 2000, and filed it on
a date not stated in the record. In it, they reported tax due of
$769.
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