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for 1996, 1997, or 1998. Petitioner did not file any Forms 941,
Employer’s Quarterly Federal Tax Return, for any periods in 1996,
1997, or 1998 with the IRS with respect to these workers, nor did
petitioner file any Forms 940, Employer’s Annual Federal
Unemployment Tax Return, for 1996, 1997, or 1998. Finally,
petitioner did not file any Forms 1041, U.S. Income Tax Return
for Estates and Trusts, for 1996, 1997, or 1998.
Respondent’s examination of petitioner was itself a product
of the income tax examinations of petitioner’s managers, Carmel
and Damigos, when they both failed to file income tax returns for
the 1996 and 1997 tax years. As part of the examination of
Carmel and Damigos, respondent requested that petitioner make its
books and records available for inspection. When petitioner
failed to provide respondent with any documents, respondent
summoned the records from the banks of both Carmel and
petitioner. Petitioner filed a motion to quash the summons.
This motion was later dismissed, and the bank records were
produced to respondent.
After respondent received petitioner’s records from the
banks, petitioner was referred within the IRS for an employment
tax examination. A notice of examination was sent to petitioner
on November 26, 2001, informing it of the examination and
requesting that petitioner make certain documents related to
petitioner’s business and workers available for inspection. This
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