Carolyn M. Lee - Page 4

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                  (i) The petitioner and her husband purchased a GMC                                  
                        Jimmy, a new travel trailer, a lot, another                                   
                        computer, a time share condominium at Atlantic                                
                        Beach, and two lawn tractors during the taxable                               
                        year 1989.  Petitioner also vacationed in                                     
                        California, built a two-story garage, and made a                              
                        deposit on a swimming pool.                                                   
                  (j) The petitioner did not report the income that she                               
                        received from the misappropriation of funds of her                            
                        employer on her 1988 and 1989 income tax returns,                             
                        in the respective amounts of $152,513 and                                     
                        $186,094, and the petitioner is liable for the                                
                        deficiencies resulting therefrom.                                             
                  (k) Petitioner fraudulently and with intent to evade                                
                        taxes filed false income tax returns for the                                  
                        taxable years 1988 and 1989 that intentionally                                
                        omitted the misappropriated income.                                           
                  (l) All of the underpayments (deficiencies) in income                               
                        tax for the taxable years 1988 and 1989 are due to                            
                        fraud with intent to evade taxes.                                             
                  7. FURTHER ANSWERING the petition with respect to                                   
                  respondent's determination that the underpayment of tax                             
                  for the 1989 taxable year is due to fraud, respondent                               
                  affirmatively relies upon the doctrine of collateral                                
                  estoppel, and alleges:                                                              
                  (a) Petitioner is the same person who was the                                       
                        defendant in a criminal case of United States v.                              
                        Carolyn M. Lee, Case No. 4:92CR00045-2, in the                                
                        United States District Court for the Eastern                                  
                        District of North Carolina.                                                   
                  (b) Respondent is a party in privity with the United                                
                        States of America, the prosecuting party in the                               
                        aforesaid criminal case in which petitioner was a                             
                        defendant.                                                                    
                  (c) On or about July 6, 1992, petitioner plead [sic]                                
                        guilty to one count of willfully making and                                   
                        subscribing a false Federal income tax return for                             
                        the 1989 taxable year in violation of the                                     
                        provisions of I.R.C. � 7206(1), which petitioner                              
                        signed under penalties of perjury knowing that the                            
                        return was not true and correct as to every                                   





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