Chong-Kak and Sang-Ok Lee - Page 7

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          bank records.  The Lees and Ms. Lee were arrested, and a                    
          resulting seventy-six count grand jury indictment was filed in              
          the New York County Supreme Court against them and Hamalee with             
          respect to the period April 1, 1985 through December 31, 1989.              
          Pursuant to a Plea Agreement dated September 11, 1990, the Lees             
          and Hamalee (through its president, Mr. Lee) pleaded guilty to a            
          felony charge of evading New York City corporate tax for                    
          Hamalee's 1988 taxable year.  Mr. Lee, both individually and on             
          behalf of Hamalee, also pleaded guilty to a felony charge of                
          filing a false and fraudulent New York State franchise tax return           
          for Hamalee's 1986 taxable year.  Hamalee was ordered to pay                
          $125,000 in restitution of New York State and City taxes, Mr. Lee           
          was given a 1 year custodial sentence, and Mrs. Lee was given a             
          non-custodial sentence.                                                     
               Respondent audited petitioners for the subject years.  She             
          referred to Hamalee's actual books and determined that Hamalee              
          failed to report sales of $4,812,404, $4,623,455, $3,229,199, and           
          $4,589,694 for its 1985 through 1988 taxable years,                         
          respectively.3  She referred to industry standards and determined           

          3 Respondent also determined that Hamalee had unreported                    
          purchases in each year.  These additional purchases are not at              
          issue here.                                                                 

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