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Accordingly, as reflected on the couple's 1990 tax return, a
difference of $101,325.47 exists between the amount of gross
income and total withholdings and expenditures.
None of the funds that Mr. Peterson misappropriated in 1990
was reported on the couple's joint return for that year, and,
because their beef farm operation generated large business losses
that offset the couple's reported income, the couple reported no
Federal income tax liability for taxable year 1990. Prior to
signing the couple's 1990 joint return, petitioner examined its
content and expressed concern with a farm loss but nonetheless
signed the return.
In February 1992, Mr. Peterson's daughter, Lucy, an
attorney practicing in Mr. Peterson's firm, informed petitioner
that Mr. Peterson had embezzled an undetermined sum from the
estate. Prior to this time, petitioner had no actual knowledge
of the embezzlements. When petitioner was examining the couple's
joint return for 1991, she asked Mr. Peterson whether the
embezzled funds were being reported on the return. Mr. Peterson
replied in the affirmative and informed petitioner that $45,000
was being reported on a Schedule C attached to the return in
order to account for the funds that he embezzled during 1991.
Having limited this amount to $45,000, $141,000 of the amount Mr.
Peterson misappropriated in 1991 was not reported on the couple's
1991 joint return.
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