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The IRS also inquired about petitioners' failure to report
credit card sales receipts. Petitioners explained that, because
they did not consider credit card sales as cash-on-hand, they did
not enter credit card sales into the cash register or include
those amounts as part of the Daily Cash Report total. Mr. Roose
falsely represented to the revenue agent that he wrote checks
from the Bank One account to the Middlefield account to transfer
funds back to the store.
The use of the manual accounting system for certain payments
on accounts received by mail was also questioned during the
examination. Mr. Roose told the revenue agent that the manual
system saved time when numerous checks arrived in the mail. In
the same conversation, Mr. Roose stated that the use of the cash
registers allowed him to keep accurate records of how much money
came in and went out of the store.
In September 1987, the case was referred to the criminal
investigation division. Mr. Roose was indicted for attempted
income tax evasion relating to petitioners' 1984 and 1985
returns. After a trial, Mr. Roose was found not guilty.
OPINION
Section 6501(a) generally provides that income tax must be
assessed within 3 years after the filing of a return or the due
date for the return, whichever is later. Section 6501(c)(1)
provides for an exception to the general period of limitations in
the instance of a fraudulent return. Respondent's burden of
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