Peter S. Pau and Susanna H. Pau - Page 26

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          Dagon v. Commissioner, supra (no fraud where the taxpayer met               
          with the Commissioner's agent several times during the course of            
          criminal investigation and gave the agent all books and records,            
          explained procedures followed in preparation of those records,              
          and provided complete access to personal banking records).  Only            
          after counsel was retained did petitioners cooperate with                   
          respondent's agent, which of course does not rectify their                  
          previous intransigence.  Cf. Badaracco v. Commissioner, 464 U.S.            
          386, 394 (1984).                                                            
               6.  Petitioners' Sophistication and Experience                         
               Petitioners seek to portray themselves as tax naifs who                
          operated a "mom-and-pop" business.  They rely on Cheek v. United            
          States, 498 U.S. 192 (1991), in arguing that a good faith                   
          misunderstanding of the tax law may negate fraud.  However,                 
          petitioners' own testimony clearly belies their assertions of               
          inexperience and good faith.  Petitioners are both well-educated,           
          adept business people who have successfully cultivated an                   
          international clientele.  Susanna has a degree in accounting.  At           
          trial, petitioner demonstrated an awareness of capital loss                 
          carryforwards; he knew that the general statute of limitations              
          for tax returns was 3 years, and that taxpayers could amend their           
          tax returns at any time to report additional income.  Moreover,             
          he knew how to structure business ventures in a tax-advantaged              
          manner.  Their experience reveals that petitioners understood the           

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