Peter S. Pau and Susanna H. Pau - Page 23

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               Moreover, even if the payment from Sanrio could have been              
          characterized as a capital gain rather than ordinary income,                
          section 441 requires a taxpayer to report taxable income on the             
          basis of a taxable year.  Petitioners had an obligation to report           
          the $840,000 on their 1990 return, not in the future when they              
          might possibly realize a capital loss.  Petitioners surely                  
          recognized that duty in light of their relative sophistication in           
          tax matters; they were aware that their capital losses could be             
          carried forward and that they could have received a refund.                 
          Furthermore, Susanna held a bachelor's degree in accounting.  Cf.           
          Laurins v. Commissioner, 889 F.2d at 913 (the fact that a                   
          taxpayer is sophisticated in tax matters may permit an inference            
          of intent to defraud when he willfully underpays his taxes).                
          Finally, there is no evidence in the record before us that                  
          petitioners realized their losses in Regent at any time from 1990           
          until the date of trial.  Petitioner himself stated that he did             
          not know when, if ever, the losses from Regent would be realized.           
          This indicates to us that, had petitioners not been audited, the            
          $840,000 income would never have been disclosed.                            
               Petitioner's claim that the omission of Susanna's $150,000             
          consultation fee was inadvertent also rings false.  Susanna had             
          engaged in only a handful of transactions that year, and she                
          testified that petitioner was aware of her transactions and of              
          the consultation fee.  Moreover, petitioner wrote a check to                
          Susanna drawn on the Bank of America account for that exact                 
          amount on the same day the consultation fee was deposited in that           

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