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iii. Culpable Spouse’s Evasiveness and Deceit
Mr. McClelland testified that he was responsible for the
improper interest paid deduction, which ultimately led to the
deficiency in petitioner’s 1997 tax liability. Even though Mr.
McClelland knew the claimed interest payment was never going to
be made, he entered it into Red Wing’s check registry since Mr.
Kramer used that information to complete Red Wing’s Federal
income tax return. This is how the incorrect interest payment in
Red Wing’s check registry was reported on Red Wing’s tax return
for its fiscal tax year ended October 31, 1997. These
circumstances support a conclusion that Mr. McClelland was the
evasive and deceptive taxpayer in this case.
This conclusion is further bolstered by Ms. McClelland’s
credible testimony that Mr. McClelland did not want her to have
access to financial information. Mr. McClelland’s control over
Red Wing’s and petitioners’ financial affairs allowed Red Wing,
through Mr. McClelland’s actions, to report the improper interest
paid deduction on its tax return.
Mr. McClelland argues that, as Red Wing’s secretary, Ms.
McClelland could be expected to be familiar with the various
corporate resolutions and documents submitted into evidence at
trial. However, Ms. McClelland’s credible testimony that Mr.
McClelland never explained to her the numerous documents he
requested her to sign, nor provided her the opportunity to review
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