-16-
F. Skim Formula
K.C. Urbon picked up the daily sheets and cash from the
saunas for 3 months in 1987. Pursuant to petitioner-husband's
instructions, K.C. Urbon reported 3/7 of petitioners' share of
those receipts to petitioners' bookkeeper.
G. Petitioners' Convictions for Income Tax Evasion
Both petitioners pleaded guilty to income tax evasion for
1987.
On January 18, 1990, during respondent's criminal
investigation, District Counsel Attorney Milton J. Carter
(Carter) informed petitioners and their attorney, Montie Day
(Day), that respondent believed that petitioners understated
their taxable income by a total of $336,729 for 1983, 1984, 1986,
and 1987. After a recess in which Day talked with petitioners,
Day told Carter that petitioners buried about $353,000 under a
concrete walkway behind their home in 1979, and dug up the money
in 1981. Day said that petitioners had (1) $228,000 from money
petitioner-wife had in 1963 and an inheritance of $125,000 that
petitioners were holding for Suil, and (2) about $125,000 from
Tobey Peacock.
OPINION
A. Net Worth Method
1. Background
Respondent used the net worth method to determine
petitioners' income for the years in issue. Under the net worth
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