Peter S. Pau and Susanna H. Pau - Page 8

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          petitioner listed expenses in categories such as travel,                    
          telephone, and office rent.  For income, he listed three sources:           
          Commissions earned by Susanna, management income he earned, and             
          miscellaneous income.  In 1990, Susanna earned commissions from             
          four transactions, and petitioners reported the income on their             
          Schedules C.  Sand Hill received these commission checks                    
          generally through escrow accounts, and petitioners deposited the            
          checks into various bank accounts, including the Bank of America            
               Petitioner did not include Susanna's consultation fee as               
          income on the one-page summary of Sand Hill's income and expenses           
          prepared for the Paus' accountant, even though he knew that she             
          had received $150,000 as a consultation fee from Meiyan.                    
          Moreover, the same day Susanna deposited the check for $150,000             
          into the Bank of America account, petitioner wrote a check on               
          that account payable to Susanna for the same amount, which she              
          deposited into the BNP account.  Another check for $50,000 was              
          also debited on March 20, 1990.  Prior to the deposit of the                
          $150,000, the account contained a balance of $155,874.47.  In               
          completing Sand Hill's 1990 income and expense summary for                  
          petitioners' accountant, petitioner was aware of but                        
          intentionally failed to include the $840,000 from Sanrio.                   
               Petitioners did not tell their accountant of either omission           
          from their summary.  Neither the $150,000 fee nor the $840,000              

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