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Petitioner also excluded gross receipts and interest income
for each of the years under consideration. He deliberately moved
Schedule A itemized deductions to Schedule C for increased tax
benefits. In fact, he offered Ms. Bellamy a $25,000 check, payable
to the IRS, at their first meeting because he was sure that
petitioners had understated income. Moreover, petitioners paid no
income tax in 1985 and 1986, and only paid $240 in 1984. Thus,
respondent has proven that petitioner consistently understated and
underpaid petitioners' income tax for each year.
(2) Inadequate Books and Records
Failure to maintain adequate books and records may be an
indicium of fraud. Grosshandler v. Commissioner, supra at 20.
Petitioner's brown books were inadequate. He was unable to use his
brown books or other records to substantiate any of petitioners'
expenses. At trial, he attempted to defend many of the claimed
Schedule C deductions. However, he did not keep any
contemporaneous records to substantiate the expenses. Petitioner
could not substantiate the expenses relating to the family trip to
Williamsburg, Virginia, the color television set, the family dog
expenses, the work clothes deduction, family medical bills, or the
household trash and utilities expenses. Petitioner did not
maintain adequate books and records during 1984, 1985, and 1986.
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