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As indicated, petitioner caused the partnerships to enter
into market research and warranty agreements with Newtowne
without expecting that the partnerships would receive services in
accordance with the contracts. Petitioner "paid" for these
nonexistent services with checks that were drawn on the
partnerships' accounts and bore preprinted endorsements payable
to himself. In substance, petitioner was simply draining the
partnerships of funds and using Newtowne as a conduit to carry
out this fraudulent scheme. The fact that petitioner did not
expect that the partnerships would receive services from Newtowne
indicates that the transactions were a sham. Petitioner's
failure to report the income on his returns was due to fraud.
Of the $151,014 of unreported income in 1982, $120,000
represents the amount petitioner received from the limited
partnerships in the Saltergate I project. Petitioner was in
control of the limited partnerships and caused them to enter into
financial consulting and warranty agreements. Newtowne credited
the $120,000 to petitioner's purchase of the two office
buildings. By this method, petitioner was able to
surreptitiously drain the limited partnerships of $120,000.
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