Robert L. and Brenda J. Tarter - Page 6

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              Shortly after the new payroll system began, petitioners’                
         return preparer, Shannon Perez (Perez), assumed bookkeeping for              
         the concrete business.  Perez also prepared petitioners’ 2001                
         Form 1040.  That Form 1040 was prepared in haste in order for                
         petitioners to satisfy a requirement to close on a new home.                 
         Neither petitioners nor Perez thought the 2001 return was                    
         accurate when prepared and filed, and they anticipated its                   
         amendment.  On the Form 1040, petitioners reported approximately             
         $15 million in receipts and slightly more in expenses, resulting             
         in a net Schedule C loss of approximately $157,000.                          
              Perez kept track of the expenses of the concrete business by            
         categorizing and entering those expenses into a computer                     
         Quickbooks data file using bank statements, check stubs, and                 
         canceled checks that petitioner provided.  To prepare                        
         petitioners’ return, Perez ran reports from the Quickbooks                   
         D.   Disallowed Deductions                                                   
              Petitioners’ 2001 Form 1040 was selected for audit, and                 
         respondent, in the notice of deficiency mailed to petitioners on             
         August 29, 2005, determined that petitioner failed to                        
         substantiate five categories of expenses on Schedule C:                      

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