C. Richard Roose, Jr. and Betty B. Roose - Page 6

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               Similar omissions occurred in 1985.  In February 1985,                 
          petitioners failed to record six special deposits; in May 1985,             
          petitioners failed to record eight special deposits.                        
               Petitioners employed Theodore W. Reed (Reed) to prepare                
          their personal income tax returns and the store's employment tax            
          returns for 1984, 1985, and 1986.  Reed was paid $300 per year              
          and was not expected to audit petitioners' books and records.               
          Reed was provided only the Drug Topics book to use in preparing             
          the returns.  Reed did not receive the check stubs, Daily Cash              
          Reports, cash register tapes, or bank statements.  Although                 
          petitioners knew that income omitted from the Drug Topics book              
          would not be reported on their tax return, petitioners did not              
          inform Reed that all coupon redemption receipts and all credit              
          card sales receipts were not reflected in the Drug Topics book.             
          Reed was not aware that certain special deposits were not                   
          reflected in the Drug Topics book.                                          
               The Internal Revenue Service (IRS) began an examination of             
          petitioners in May 1987.  During the course of the IRS                      
          examination, petitioners were questioned about their accounting             
          practices, including their failure to report coupon rebates as              
          income.  Mr. Roose explained to the revenue agent that it was               
          industry practice not to report coupon rebates as income and that           
          he did not report the coupon rebates because he was trying to               
          create a retirement fund.                                                   

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