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proof. During 1987, petitioner was coowner of and received
income from Pieces of Eight, yet he reported that he received
only $10,000 in wage income from that business on the 1987
return, reporting none of the income and expenses attributable to
that business on the return.15 Petitioner maintained the books
and records of Pieces of Eight and was therefore aware of its
financial position. The Form W-2 filed with that return also
falsely represented that Kathleen Murphy was the owner of Pieces
of Eight. As noted above, respondent reconstructed the taxable
income of Pieces of Eight for 1987 using the bank deposit method.
Although unexplained bank deposits are not in themselves clear
and convincing evidence of fraud, York v. Commissioner, 24 T.C.
742, 743 (1955), a large unexplained discrepancy between
petitioner’s actual income and his reported income constitutes
evidence of fraud, Stone v. Commissioner, 56 T.C. 213, 224
(1971).
Furthermore, petitioner misled the accountant who prepared
the financial statements for Pieces of Eight and the 1987 income
tax return concerning its ownership. Although he and Ms. Murphy
owned Pieces of Eight during the years in issue, he informed the
accountant that Kathleen Murphy was its owner in 1987.
Petitioner continued to mislead the accountant in subsequent
years, telling the accountant that Michael Van Heemst,
15
The record does not disclose that the income of Pieces of
Eight for 1987 was reported on any return.
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