Phyllis J. Merendino - Page 14

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          12, 1997.  Petitioner admitted to both Mr. Swartz and this Court            
          that she was aware that Dr. Merendino did not receive any                   
          significant cash proceeds from the sale of the business.                    
               Petitioner contended at trial that she expected the funds              
          from the overpayment would pay the 1996 liability.  Dr. Merendino           
          stated during the Appeals process that he was notified about the            
          overpayment, but those funds were never available to him.  There            
          is evidence that Dr. Merendino told petitioner that he had an               
          overpayment to pay the tax, but there is no evidence of when he             
          told her or whether petitioner had reason to believe those funds            
          would be available at the time the return was filed showing the             
          balance due.  The source of the overpayment was from overpaid               
          Federal employment taxes of a business which was sold 2 years               
          earlier.  Further, Dr. Merendino never received a refund from the           
          alleged overpayment.  We believe that a prudent person would                
          inquire about the details of the overpayment and when it would be           
          paid before relying on the existence of an overpayment to pay a             
          tax liability that was more than $400,000.  In addition, the                
          Merendinos’ attorney’s own statements near the time the joint               
          return was filed, indicating that the Merendinos wished to                  
          negotiate a joint offer-in-compromise, diminish the plausibility            
          of petitioner’s vague testimony regarding the expectation of                
          receiving the refund from the overpayment.  Given petitioner’s              
          other misstatements, we do not find the expectation of funds from           

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