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Revenue Service (Nahmias) conducted an independent investigation.
Nahmias traced the stolen cars to the third-party used car
dealers who purchased them and determined the amounts paid to
petitioner for these cars. He interviewed the dealers involved
and reviewed the canceled checks, the falsified new car invoices,
and the loan payments. Nahmias allowed petitioner deductions of
$18,324.27 and $56,036.34 for 1966 and 1967, respectively, for
the deposits, loan payments, and insurance expenses on the stolen
cars.
For the taxable year 1966, respondent determined that
petitioner had failed to report $5.73 in interest income and
$37,636.73 in net income from the sale of the stolen cars,4
resulting in a deficiency in tax of $14,374.82. Respondent also
determined an addition to tax for fraud under section 6653(b) in
the amount of $8,113.44. Respondent issued the notice of
deficiency for taxable year 1966 on February 5, 1993.
Revenue Agent Metz (Metz) prepared a corporate return for
the Stables for the taxable year 1967. Metz had none of the
Stables' business records, so he calculated income and expenses
through inquiries to third-party sources. Metz used the American
Racing Manual Statistics to determine the amounts won by the
4 The net income figure represents:
Income from car sales $42,050.00
Income from car sales 13,911.00
Total income $55,961.00
Total expenses - 18,324.27
Net income $37,636.73
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