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of dividends necessary to avoid imposition of personal holding
company taxes on the Sley Corporations.
Berger was not retained to do any audit work on behalf of
the Sley Corporations. Each of Berger’s compilation financial
statements includes a compilation report that starts as follows:
A compilation is limited to presenting in the form
of financial statements information that is the
representation of management. We have not audited or
reviewed the accompanying [December 31, 1980, 1981,
etc.] financial statements and[,] accordingly, do not
express an opinion or any other form of assurance on
them.
Because petitioner knew that Berger did not audit the Sley
Corporations books--and was reminded of this in each year’s
compilation financial statements--petitioner knew that Berger
would not discover that Markette paid petitioner’s and Betsy’s
personal expenses. As a result, no one in the system would be
likely to realize that Betsy had constructive dividends that were
not reported on petitioner’s and Betsy’s joint tax returns.
(4) Petitioner’s Knowledge of the Tax Laws
In analyzing whether some part of the underpayments of the
tax was due to petitioner’s fraud, we consider petitioner’s
background and knowledge of tax law. Scallen v. Commissioner,
877 F.2d 1364, 1370-1371 (8th Cir. 1989), affg. T.C. Memo. 1987-
412; Solomon v. Commissioner, 732 F.2d 1459, 1461-1462 (6th Cir.
1984), affg. T.C. Memo. 1982-603; Beaver v. Commissioner, 55 T.C.
85, 93-94 (1970). As we have said, “In determining the presence
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