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On petitioners' Form 1040 for the taxable year 1984,
petitioners reported other income of $124,000. Nyden wrote
"COMMISSIONS" next to the entry of $124,000. On petitioners'
Form 1040 for the taxable year 1985, petitioners reported other
income of $50,000. Nyden wrote "COMMISSIONS" next to the entry
of $50,000.
Petitioners filed their 1984, 1985, and 1986 Federal income
tax returns on October 15, 1985, October 16, 1986, and September
10, 1987, respectively. Respondent issued a statutory notice of
deficiency dated October 16, 1992, for petitioners' taxable years
1984, 1985, and 1986.
Nyden also prepared the Forms 1120 for Arturo's during the
years in issue. Nyden would go to Arturo's or to petitioners'
home and pick up bank statements, canceled checks, check stubs,
and the day sheets for Arturo's. Nyden used this information to
complete the Forms 1120.
Respondent's Investigation
Respondent began a criminal investigation of petitioner
sometime prior to 1991. Special Agent Edward J. Burke (Agent
Burke) with the IRS criminal investigation division investigated
petitioner for the taxable years 1984, 1985, and 1986.
Agent Burke interviewed petitioner, and Kearns represented
petitioner during the interview. During that interview,
petitioner, on the advice of counsel, invoked his rights under
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