- 27 -
to defraud. McGee v. Commissioner, 61 T.C. 249, 260 (1973),
affd. 519 F.2d 1121 (5th Cir. 1975); Petzoldt v. Commissioner,
supra at 701-702.
We also find that most of the badges of fraud are present.10
Petitioners' income was consistently underreported, and, in toto,
Hamalee did not report more than $17 million in sales. Hamalee
kept separate tax books, and those books did not list all of
Hamalee's sales. Most of Hamalee's cash invoices were destroyed
by its bookkeeper. Petitioners' tax returns, as filed, did not
accurately report their taxable income as it was known to be.
Petitioners maintained at least 11 bank accounts. The Lees,
individually and as officers of Hamalee, admitted guilt to
evading State income tax laws. Petitioners attempted to conceal
Hamalee's unreported funds through the use of separate books.
Hamalee's business was "cash oriented".11 Although petitioners
10 Indeed, the only badge of fraud that may not be present
concerns a taxpayer's cooperation with taxing authorities. The
record shows neither that the Lees (individually, or on behalf of
Hamalee) cooperated with the taxing authorities, nor that they
failed to do so.
11 Indeed, Mrs. Lee testified that she usually kept a large
amount of money at the warehouse, and that Mr. Lee sometimes
found it necessary to carry a gun because he carried so much
cash. Ms. Chong also testified that Hamalee typically paid their
bills in cash.
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