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Petitioner has been the sole shareholder of the company
since 1991, and president and treasurer since approximately 1988.
Petitioner had significant pass-through income from the company
and received distributions from the company for all taxable years
in issue in the instant case.
Petitioner’s certified public accountant, Jon Mazer (Mr.
Mazer), has prepared all the corporate income tax returns for the
company, including those for 1999 through 2002. Prior to 1999,
Mr. Mazer also prepared individual income tax returns for
petitioner. Petitioner reviewed, signed, and filed all the Forms
1120S, U.S. Income Tax Return for a Subchapter S Corporation, for
the company for all taxable years in issue.
When petitioner filed the Forms 1120S for the company for
taxable years 1999 through 2002 he was aware of the net income
reported on those returns. Petitioner understood the tax effects
of having an S corporation and specifically was aware during the
taxable years in issue that the net profits from an S corporation
are passed through and taxable to its shareholders. Prior to the
1999 taxable year, petitioner reported the net income of the
company on his individual income tax returns.
Petitioner told Mr. Mazer not to prepare petitioner’s
individual income tax returns starting with the 1999 taxable
year. Petitioner, however, still had Mr. Mazer prepare the Forms
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