- 10 -
their full extent and which bore interest at annual rates up to
22 percent.
MDR's Audit of the Yogurt Station
Debora Berg, a tax auditor for the MDR, informed Mr. McGirl
by letter in May of 1992 that she would be examining the Yogurt
Station's State tax liabilities. The letter asked Mr. McGirl to
provide Ms. Berg with the Yogurt Station's business and
accounting records. Mr. McGirl called Ms. Berg on May 20, 1992,
and told her he did not have a business checking account, all of
the store's expenses were paid in cash, and he did not keep
receipts or documents. When Mr. McGirl first met with Ms. Berg
on August 25, 1992, he brought the canceled checks and deposit
slips from the business checking account. When questioned about
his earlier statement that the Yogurt Station did not have a
checking account or records and that all expenses were paid by
cash, Mr. McGirl told Ms. Berg that he thought she would drop the
audit if he dealt solely in cash. Mr. McGirl admitted to Ms.
Berg that the numbers on the Yogurt Station's State tax returns
were just guesses. After inputting the checks and deposits onto
a computer, Ms. Berg discovered that the Yogurt Station's
deposits exceeded the amounts reported on its State tax returns.
Ms. Berg contacted Hubbard Burgess, an IRS representative, and
informed him that she believed the Yogurt Station had unreported
income.4 Seven former Yogurt Station employees provided
4 It was customary for MDR to work jointly with the IRS.
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