Elizabeth Lai - Page 6

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          Preparation of Petitioner’s Income Tax Returns                              
               Petitioner engaged Thanh Nguyen (Mr. Nguyen), an enrolled              
          agent, to prepare her 1999, 2000, and 2001 Federal income tax               
          returns.  Petitioner filed Forms 1040, U.S. Individual Income Tax           
          Return, for 1999, 2000, and 2001.  Petitioner attached to each of           
          those returns Schedules C, Profit or Loss From Business,                    
          reporting the following gross receipts, cost of goods sold, and             
          expenditures for La Belle Vie:                                              
                    Gross       Cost of      Business                                 
          Year    Receipts    Goods Sold   Deductions Net Profit                      
               1999    $428,595     $63,845      $331,957  $31,933                    
               2000     412,763      85,618       272,495     54,650                  
               2001     466,770      38,897       338,417     88,760                  
               Petitioner’s business records consisted of her bank                    
          statements and canceled checks, and the parties agree that Mr.              
          Nguyen prepared the returns based solely on canceled checks and             
          statements from petitioner’s U.S. Bank accounts.  Petitioner did            
          not inform Mr. Nguyen of her tip income at the time.                        
               Petitioner did not report any of her tip income on her                 
          Federal income tax returns for the years at issue.  Petitioner              
          did not mention the tip income to Mr. Nguyen because she did not            
          believe that tips were taxable.  Indeed, petitioner became aware            
          that tip income was taxable only when she was informed as such by           
          her attorney during preparation for the trial of this case.                 

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