Teresa G. Butner - Page 7

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          of North Carolina (Bankruptcy Court) entered judgments (bank-               
          ruptcy judgments) in excess of $3 million against petitioner and            
          Mr. Butner.  As of the time of the trial in this case, those                
          judgments had not been satisfied.                                           
               In December 2002, Mr. Butner was incarcerated in connection            
          with bankruptcy fraud charges, and on November 22, 2004, he was             
          released from prison.                                                       
               As described in detail below, petitioner and Mr. Butner                
          filed jointly a Federal income tax (income tax) return for each             
          of the taxable years 1994, 1995, 1998, and 1999.  In each of                
          those returns, they showed petitioner’s occupation as “home-                
               On January 20, 1998, petitioner and Mr. Butner signed Form             
          1040, U.S. Individual Income Tax Return, for the taxable year               
          1994 (1994 Form 1040).  At the time petitioner signed that form,            
          she was aware that the bankruptcy judgments had been entered                
          against Mr. Butner and herself and had not been satisfied.  On              
          January 20, 1999, petitioner and Mr. Butner filed late their 1994           
          Form 1040.  In that form, petitioner and Mr. Butner reported                
          self-employment tax owed of $10,054, income tax withheld of $92,            
          and a total amount owed of $10,474, which included an estimated             
          tax penalty owed of $512.                                                   
               On May 24, 1999, an assessment of self-employment tax of               
          $10,054 was made for the taxable year 1994, against which was               

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