Hugh D. Summers and Teresa E. Summers - Page 2

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          liability.  Unless otherwise indicated, all section references              
          are to the Internal Revenue Code in effect for the year in issue,           
          and all Rule references are to the Tax Court Rules of Practice              
          and Procedure.                                                              
                                     Background                                       
               At the time of filing the petition, petitioners resided in             
          Paoli, Pennsylania.                                                         
               Petitioner Hugh D. Summers’s Criminal Case and Amended 1989            
          Tax Return                                                                  
               During 1992, petitioner Hugh D. Summers (Mr. Summers)                  
          pleaded guilty to conspiring to defraud the Internal Revenue                
          Service (IRS) by concealing and diverting income in violation of            
          18 U.S.C. section 371 (2000).  Mr. Summers acknowledged that he             
          received unreported taxable income of $963,000 between 1982 and             
          1990.  Mr. Summers was sentenced to 4 years’ probation and agreed           
          to file an amended tax return for 1989.  See United States v.               
          Hugh D. Summers, No. 93-CR-35 (E.D. Pa.).                                   
               Petitioners’ Previous Tax Court Case                                   
               On May 24, 1993, petitioners filed an amended tax return for           
          1989, reporting an increase in their tax liability in the amount            
          of $69,289.  On November 8, 1993, respondent assessed petitioners           
          the $69,289 shown on petitioners’ 1989 amended tax return.                  
               On June 1, 1995, respondent sent petitioners a notice of               
          deficiency regarding negligence penalties for petitioners’ 1989             
          taxable year.  Petitioners timely filed a petition with this                





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