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shell, petitioners repaired it and spent about $300,000 more to
finish the building. King’s Appliances was located there from
1990 until the time of trial.
D. Petitioners’ Income Tax Returns for the Years in Issue
From 1977 to 1997, Mrs. King submitted records of sales,
purchases, and expenses for King’s Appliances to H&R Block.
Glenda Williams (Ms. Williams) of H&R Block prepared: (1) Forms
1040, U.S. Individual Income Tax Returns, for petitioners for
1995, 1996, and 1997; and (2) Forms 1120S, U.S. Income Tax
Returns for an S Corporation, for King’s Appliances, Inc., for
1996 and 1997.
Ms. Williams referred petitioners to Harold C. Ingram (Mr.
Ingram), a certified public accountant (C.P.A.), to prepare: (1)
Form 1040X, Amended U.S. Individual Income Tax Return, for
petitioners for 1997; (2) Form 1040 for petitioners for 1998; and
(3) Form 1120S for King’s Appliances, Inc., for 1998.
Petitioners gave a power of attorney to Mr. Ingram on a date not
specified in the record. Petitioners filed their Forms 1040 (1)
for 1995, on October 15, 1996; (2) for 1996, on October 20, 1997;
(3) for 1997, on October 19, 1998; and (4) for 1998, on October
18, 1999.
E. Respondent’s Audit of Petitioners’ Tax Years 1995-98
In 1998, Revenue Agent Angela Davis (Agent Davis) audited
petitioners’ tax years 1995 and 1996. Agent Davis asked
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