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in December 1987 at their residence. She began the audit by
examining petitioners' bank deposits in order to identify possible
unreported income. Ms. Bellamy examined deposit slips,
petitioner's business records, and the records of some of the
vendors with whom petitioner dealt. Ms. Bellamy discovered that
substantial amounts of income were omitted from, and deductions
were improperly claimed on, petitioners' 1984, 1985, and 1986
income tax returns.
Petitioner's Brown Books
During their first meeting, Ms. Bellamy questioned petitioner
about his business books and records; he told her that there were
no books to examine. Subsequently, petitioner provided her with
bank statements, canceled checks, a bag of invoices, and sheets of
notebook paper containing unexplained figures.
In point of fact, petitioner used "brown books" to record
income and profit, and to compile summary sheets of his Field
Masonry business activities. The brown books were also used to
calculate the amount of petitioners' annual charitable
contributions.
One of respondent's special agents accompanied Ms. Bellamy to
petitioners' home for a second meeting regarding possible criminal
violations. At that time, petitioner provided the agents with one
of his brown books from a year prior to the years under
consideration and showed them how he computed his income.
Petitioner told them that the brown books and summary sheets for
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