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the years under consideration had been destroyed because he had
given them to his children to color on. He also expressed his
belief that records more than 3 years old should be destroyed.
Because of the possible criminal violations, petitioners
retained a lawyer. Their lawyer had possession of the brown books
for the years under consideration. The brown books were ultimately
turned over to respondent's special agent who provided them to Ms.
Bellamy.
Tax Return Preparation
Petitioner prepared petitioners' tax returns for the years
under consideration. Mrs. Jenkins did not participate in the
completion of the returns. Petitioners paid no income tax for
1982, 1983, 1985, and 1986; they paid $240 in income tax for 1984.
Ms. Bellamy primarily used the bank deposit analysis (and then
made modifications as additional information was provided) to
identify petitioners' unreported Schedule C income for 1984, 1985,
and 1986. Petitioner did not report all of his gross receipts from
his Field Masonry business.
When the audit began, petitioner wrote a $25,000 personal
check, payable to the Internal Revenue Service, and gave it to Ms.
Bellamy because he was certain that petitioners had underreported
their income and owed at least that amount.
a. 1984 Joint Federal Income Tax Return
Petitioners claimed, among others, the following expenses as
Schedule C deductions on their 1984 return:
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