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Revenue Agent Vivek Gupta (Agent Gupta) was in charge of the
Internal Revenue Service (IRS) audit of 168 Garment’s and Ms.
Ngo’s tax returns. Agent Gupta repeatedly attempted to contact
Ms. Ngo, but she did not respond. Agent Gupta was subsequently
contacted, however, by petitioners’ tax attorney, Bob Appert, who
provided Agent Gupta with bank statements, canceled checks, and a
disbursement journal relating to 168 Garment. Upon review of
this information, Agent Gupta concluded that 168 Garment’s
records did not account for the checks cashed at Matt’s Liquor
and petitioners failed to report as income the proceeds of these
checks.
On March 5, 2004, respondent issued 168 Garment a notice of
deficiency relating to its 2000 taxes. In the notice, respondent
determined that 168 Garment failed to report income, failed to
substantiate various expenses, and was liable for the section
6662 accuracy-related penalty. On June 4, 2004, 168 Garment
filed its petition, and on July 13, 2004, respondent filed his
answer.
On June 14, 2004, respondent issued 168 Garment a notice of
deficiency determining that 168 Garment understated its 2001
gross receipts and was liable for the section 6663 fraud penalty.
Respondent also issued Ms. Ngo a notice of deficiency determining
that in 2001 she failed to report constructive dividends and was
liable for the section 6663 fraud penalty. Respondent further
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Last modified: May 25, 2011