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ERE. In addition, petitioners installed a swimming pool with a
sun room enclosure at their new home.
Petitioners’ Record Keeping
Petitioners maintained financial and accounting records as
well as operational records for ERE. Petitioners kept ERE’s bank
account and accounting records separate from their personal
financial records.10 An employee/bookkeeper of Dr. Knudsen’s
medical practice maintained ERE’s books of account using
Quickbooks accounting software11 and was responsible for paying
all of ERE’s expenses, including taxes. Petitioners maintained a
general ledger, cash receipts/disbursements journals, and
financial statements for ERE. The record does not contain any
evidence, however, that petitioners used their financial records
for making business decisions.
Petitioners hired James W. Grimes (Mr. Grimes), a certified
public accountant of Hay, Rice & Associates, to prepare ERE’s
income tax returns. Although Mr. Grimes’s accounting firm offers
business consulting to clients, petitioners did not introduce any
evidence that Mr. Grimes, or any person from his firm, advised
petitioners about business plans or ways to achieve
profitability.
10In 2000, over $300,000 of deposits into the bank account
of ERE were cash from Dr. Knudsen’s medical practice.
11The employee also kept the books for petitioners’ personal
accounts.
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Last modified: March 27, 2008