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Goodies, which sold a wide variety of hunting and fishing goods,
while Mr. Smith managed National Distributors, which sold
ammunition at gun shows. Petitioners also owned three
residential rental properties. Petitioners did not maintain any
personal bank accounts but did maintain two business accounts: a
general checking account into which they deposited business and
rental receipts and a payroll checking account.
During each year in issue, Guns & Goodies and National
Distributors had total gross receipts of approximately $1
million, 60 percent to 70 percent of which were in cash.
Petitioners regularly deposited most of their business receipts
into their general checking account. Some of petitioners'
business receipts, however, were never deposited and were used to
pay petitioners' personal living expenses. Petitioners did not
maintain records of the cash that they received but did not
deposit, and they regularly disposed of cash register tapes and
deposit slips. They did not maintain inventory records, except
for 1993 ending inventory, or sales receipts. Petitioners
retained monthly bank statements and maintained a firearms log
which recorded the identity of the purchaser and serial number of
every gun purchased.
Petitioners failed to pay taxes relating to their employees
and, as a result, on December 23, 1993, the Internal Revenue
Service (IRS) seized Guns & Goodies. The IRS informed
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