Patricia G. McCulley - Page 6

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          paid the full restitution amount and served all of the community            
          hours required of her.  Petitioner's probation was terminated               
          early, because she completed the terms of her probation in an               
          exceptional manner.                                                         
               Respondent, pursuant to section 6653(b), determined that               
          petitioner is liable for additions to tax for fraud and interest            
          thereon for failing to report embezzled income on her 1984 and              
          1985 tax returns.  Petitioner admits that she embezzled money               
          from her former employer and that she did not report the income.            
          She asserts, however, that she did not intend to evade taxes.               
          Rather, petitioner claims that she did not know that embezzlement           
          income is taxable.  If petitioner prevails, respondent is barred            
          by the section 6501(a) limitations period from assessing and                
          collecting any tax and additions thereto from her for the years             
          in issue.                                                                   
               Respondent argues that petitioner's failure to report the              
          embezzlement income in 1984 and 1985, her guilty plea under                 
          section 7206(1), combined with withholding bank records from tax            
          preparers and respondent, and refusing to sign an amended return            
          reporting the embezzled funds, establishes petitioner's requisite           
          intent to commit fraud.  For the reasons discussed below, we                
          agree with petitioner.                                                      

          possible.  We therefore disregard the stipulation as clearly                

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