Chong-Kak and Sang-Ok Lee - Page 27

                                       - 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.                                                              

Page:  Previous  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  Next

Last modified: May 25, 2011