Robert L. and Brenda J. Tarter - Page 8

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         G.   Discovery                                                               
              Before trial, on July 7, 2006, respondent served                        
         interrogatories on petitioners, asking them to list every item               
         claimed as an expense deduction on the 2001 Schedule C.  Perez               
         prepared petitioners’ responses to those interrogatories.  For               
         every item except depreciation that respondent disallowed in the             
         notice of deficiency, petitioners’ interrogatory responses                   
         reflected deduction amounts greater than the amounts reported on             
         the Schedule C.                                                              
         H.   The Seizures                                                            
              On November 30, 2005, agents of respondent’s Criminal                   
         Investigation Division (CID) executed simultaneous search                    
         warrants at petitioner’s business and at the payroll company.                
         From November 30, 2005, through the trial in this case, CID has              
         retained originals or copies of all electronic or paper records              
         seized pursuant to the search warrants.  At the time of the                  
         seizures, CID created an inventory of the seized paper documents.            
         The seized paper records consist of approximately 85 boxes of                
         materials seized from B&B Construction and 40 boxes of materials             
         seized from the payroll company.                                             
              The burden of proof is on petitioners to show that                      
         respondent’s determinations set forth in the notice of deficiency            
         are incorrect.  See Rule 142(a)(1); See Welch v. Helvering, 290              

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