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records to Reed, petitioners succeeded in understating their
income in each of the years in issue.
Petitioners have made various implausible and false
statements. Mr. Roose falsely stated to a revenue agent in the
course of the IRS examination that he wrote checks from the Bank
One account to the Middlefield account to place the credit card
sales receipts back into the business account. Mr. Roose also
stated during the IRS examination that it was an industry
practice not to report coupon redemption income and, in an
attempt to explain his failure to report, that he was using these
funds to build a retirement account. Both of these arguments are
without merit and, moreover, indicate a fraudulent intent.
Petitioners' special manual system for depositing payments on
accounts received by mail has not been reasonably explained.
Mr. Roose's explanation that he used the manual system because it
"saved time" is implausible in light of his admission that he
used cash registers in the store because they produced accurate
records. Furthermore, Mrs. Roose stated that she used only the
Daily Cash Reports to complete the Drug Topics book but could not
offer an explanation as to how certain deposits not appearing on
the Daily Cash Report appeared in the Drug Topics book.
Petitioners state that their reliance on Reed to prepare
their tax returns shows a lack of fraudulent intent. For
petitioners to prevail on their reliance argument, however, they
must have provided the accountant with full and correct
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Last modified: May 25, 2011