Total tax liability was more than $91,000 in 2004 based on Jones's calculations. This would have changed had there been additional income she knew of- it would have increased.
Jones says she reviewed it with Bernard and he never made any changes and authorized it as was.
9:50AM 2005 tax return for Bernard Kilpatrick. Net income from Maestro was more than $220,000. Jones determined this amount from bank statements. Total income line was based on computer calculations received for 2005- $220, 259. Jones says she was not aware of a disbursement to Bernard from an employee profit sharing plan to Bernard. This would have been taxable.
Jones says she did not review the 2005 return with Bernard. It was filed electronically.
Tax liability was $52,808 for 2005. That would have increased had she known about additional income.
Looking at 2007 tax return for Bernard. Total income for the year was based on 2006 numbers. Says they did that because they did not have 2007 information before the IRS deadline. Had already filed 2 extensions on Bernard's behalf. Bernard did not provide them with information. Jones told him she was using 2006 numbers.
Witness says she can't remember Bernard's response to using 2006 numbers.
The income filed for 2007 was $70,259. Tax liability was $10,825. This tax return was never amended and was filed to the IRS electronically.
Jones says it is common practice to review returns with clients before submitting them to the IRS.
10:00AM Shea cross-examines. Says he has a cold like everyone else.
Shea says that now Jones is an independent contractor to the CPA firm. Has been that way for 4 years now.
Shea says that firm prepares lots of tax returns. Witness concurs though auditing is primary source of business.
Witness says Bernard did not fill out firm questionnaires. This meant that Jones had to call and follow up with him to get his documentation.
Shea says so Bernard was not exactly engaged in the process. Jones agrees.
"At some point, Mr. Kilpatrick would enter with a shoebox filled or whatever of documents you needed," asks Shea. Correct says witness.
Form 1120s was prepared by Jones for Bernard for his business attributes. Witness says she asked for Maestro's bank statements for January through December and all the check stubs.
So essentially his business check book says Shea. Correct says Jones.
You didn't ask him for personal accounts asks Shea. Correct says Jones.
Jones agrees that it wouldn't be standard practice for her firm to ask for that.
Judge says it may be useful if witness explains subchapter S corporation to the jury. Sounds enthralling.
Jones says then she prepares the 1040, the personal tax return. Witness says sometimes under S corporation, profits can be included in the personal returns.
Jury seems to be lost in all of this so we are going through it again. Uggh.
Witness says the benefits of S corporation is that you only get taxed once. So business won't get taxed if it goes into personal return.
Shea consults with Thomas.
Shea says so the S corporation process allows corporate taxes to be taxed only once at the individual level and it's a benefit to small businesses.