Robert L. and Brenda J. Tarter - Page 7

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              (1) Employee benefits              $97,212                              
              (2) Payroll taxes                  578,441                              
              (3) Outside services               104,592                              
              (4) Rent/lease                                                          
                   Vehicles/machinery/equipment  187,004                              
              (5) Depreciation and                                                    
                   sec. 179 expense              407,075                              
         These disallowed amounts are the amounts that petitioner claimed             
         in the referenced categories on his Schedule C.                              
         E.   Substantiation                                                          
              Perez, no later than September 11, 2006, acknowledged errors            
         in every category of expense claimed on petitioner’s Schedule C              
         with the possible exception of depreciation.  Neither Perez nor              
         petitioners kept books and records of expenses of the concrete               
         business for 2001 that reflected the deduction amounts claimed in            
         the categories listed on petitioner’s 2001 Schedule C.                       
         F.   Financial Statements                                                    
              Perez prepared financial statements that she knew were                  
         inconsistent with petitioners’ 2001 tax return, which she had                
         prepared.  The financial statements made petitioner’s business               
         look more profitable than it appeared on his Schedule C.  The                
         2001 profit and loss statement purporting to show petitioners’               
         2001 net income from the concrete business was intended to be                
         used to obtain a license in Nevada and showed $999,648 more in               
         net income than the net income reflected on petitioner’s                     
         Schedule C.                                                                  

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Last modified: November 10, 2007