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Preparation of Mr. and Mrs. Paterson’s Tax Returns
Both petitioners retained a tax preparer, Mr. Hughes, to
prepare their returns for the years at issue. Mr. Hughes had
assisted petitioners with their returns for years and knew about
Mr. Paterson’s bookmaking activities.
Mrs. Paterson gave Mr. Hughes her Forms W-2, Wage and Tax
Statement, from NWA but did not tell him about the large deposits
into her separate bank accounts during the years at issue. Mr.
Paterson simply told Mr. Hughes how much income he had because
Mr. Paterson kept no records. Mr. Hughes prepared returns for
Mr. Paterson using the amounts Mr. Paterson gave him even though
Mr. Hughes knew Mr. Paterson was a bookmaker and dealt in cash.
Petitioners each filed tax returns for the years at issue as
married filing separately.5 Mr. Paterson reported total income
of $46,018 in 1997 and $48,481 in 1998. Mrs. Paterson reported
total income of $5,947 in 1997 and $1,511 in 1998.
Respondent’s Examination
Respondent examined the married filing separate returns of
both petitioners. Neither petitioner cooperated with respondent
during the audit, and respondent issued summonses to each of
them. Both petitioners asserted their Fifth Amendment rights in
response to the summonses and refused to answer any questions or
produce any records to respondent.
5The record does not reflect the dates petitioners filed the
tax returns. We note that respondent did not determine that
either petitioner was liable for the addition to tax under sec.
6651(a)(1) for failure to file timely returns for the years at
issue.
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