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taxable income of $54,073; tax of $7,889; and Federal income tax
withheld of $582,148. They claimed on that return that they were
entitled to a refund of overpaid Federal income tax in the amount
of $574,259 ($582,148 - $7,889).
Attached to the return was a Form 4852, Substitute for Form
W-2, Wage and Tax Statement, or Form 1099-R, Distributions From
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, Etc., on which petitioners reported that CTI
had paid petitioner $29,102.05 in wages or compensation. Also
attached to petitioners’ 2002 return were a “Form 4852
Calculation” prepared by The Issacson Law Firm and a “(Form 8275
Disclosure Statement) Memorandum of Law” prepared by petitioners’
tax return preparer and counsel herein Brian Isaacson (Isaacson).
The “Form 4852 Calculation” reported that petitioners had made a
$2,127,334.31 negative adjustment to petitioner’s wages as
reported on the 2002 Form W-2 to calculate petitioner’s wages as
$29,102.05 ($2,156,436.35 - $2,127,334.31 = $29,102.04). The
memorandum of law (memorandum of law) stated as facts that
petitioner “was granted stock options as part of taxpayer’s
employment contract”, that “taxpayer exercised employee stock
options using margin debt secured by the stock exercised”, and
that “taxpayer has not risked taxpayer’s own capital in the
transaction”. The memorandum of law concluded that “Under the
facts and circumstances test in Section 1.83(a)(2) [sic], it
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