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checking accounts, gave implausible or inconsistent explanations
of behavior, concealed their assets and their income, and had
numerous dealings in cash.
Neither the underreporting of income nor the use of cash is
disputed by petitioners. Petitioners also acknowledge that they
kept two sets of ledgers reflecting income from two groups of
customers. Many of the customers’ checks relating to sales
recorded in one group of ledgers were cashed. The preparers of
petitioners’ tax returns were not advised of the cashing of
customers’ checks and, because the tax returns were prepared
based on records of bank deposits, receipts from the cashed
checks were not reported. We are convinced that both petitioners
knew that these methods of keeping books and preparing returns
would result in underreporting of their income. As discussed
further below, we reject petitioners’ contention that the
proceeds of cashed checks, some of which were used for interest-
bearing loans to others and some for their personal living
expenses, were all spent on deductible expenditures.
We are convinced that petitioners’ use of cash was intended
to conceal their income and their assets. Our view in this
regard is based in part on testimony, corroborated by documentary
evidence, that Mrs. Gandy instructed employees to negotiate
checks or otherwise engage in cash transactions in amounts
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