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underlined entry. The invoices that corresponded to the invoice
numbers were "Bates-stamped" and stored in sequential order. The
invoices for the cash sales that were recorded in only the actual
books were not Bates-stamped. Ms. Chong destroyed most of these
invoices after she recorded them in the actual books.
On October 13, 1989, the New York City Department of Finance
(the Finance Department) began an undercover investigation of
petitioners after an informant notified them that petitioners
were evading Federal and State income taxes through the filing of
fraudulent tax returns. Shortly thereafter, during the course of
the Lees' efforts to sell Hamalee's business, Mrs. Lee and Ms.
Lee were introduced to two undercover agents from the Finance
Department posing as prospective buyers.2 Mrs. Lee showed the
agents Hamalee's actual books, and she explained to the agents
that Hamalee had a different set of books for tax purposes.
Mrs. Lee explained to the agents that the actual books included
sales that were not recorded in the tax books.
In connection with the Finance Department's undercover
operation, the authorities "raided" Hamalee on October 25, 1989,
seizing most of Hamalee's business records and the Lees' personal
2 Ms. Lee was there primarily as an interpreter.
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