John B. Mathers, Sr. - Page 5

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               During the investigation, petitioner denied having income              
          from wages, dividends, sales of assets, gifts, or inheritances.             
          Petitioner represented at one point that his average cash on hand           
          was $100, but later represented that he had up to $10,000 cash in           
          a safe in his house.  Petitioner indicated to the investigating             
          agents that his source of funds was the repayment of loans he               
          made to FBI some years earlier.  Petitioner asserted to the                 
          agents that the loans were made to FBI out of proceeds he                   
          received from sales of several furniture stores during the late             
          1960's and early 1970's.  During the audit, petitioner did not              
          produce any documentary evidence, such as promissory notes or               
          repayment schedules, to verify his claim of such loans to FBI.              
               Petitioner prepared and filed Federal income tax returns for           
          FBI from 1982 to 1985.  The 1982 and 1984 returns were each filed           
          approximately 1 year late.  The corporate returns did not report            
          any compensation paid to officers or dividends paid to                      
          shareholders, although Mathers, Jr. was an officer and received a           
          salary from the corporation.                                                
               Schedule L of Form 1120, U.S. Corporation Income Tax Return,           
          on the FBI returns set forth balances in the "Loans from                    
          stockholders" entry and in the "Mortgages, notes, bonds payable             
          in 1 year or more" entry (collectively referred to as loans from            
          stockholders) between 1982 and 1985, which allegedly represented            
          the loans made to FBI by petitioner.  The balances shown                    
          decreased, however, by only $36,000 between 1982 and 1985.  This            

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