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Mrs. Reaves is liable for the additions to tax under section
6653(b)(1) with respect to the entire underpayment for 1984 and
1985, except for each underpayment for which she is an innocent
spouse. She is liable for additions to tax under section
6653(b)(2) for 1984 and 1985 and under sections 6653(b)(1)(A) and
(B) for 1986 and 1987 with respect to the underpayments relating
to the withdrawals from the First Citizens accounts that Mr. and
Mrs. Reaves used for personal purposes and the John Chavis
checks.
Petitioners contend that neither Mr. nor Mrs. Reaves is
liable for the additions to tax for fraud on the underpayment of
tax related to the 282 checks, the withdrawals from the First
Citizens accounts, and the John Chavis checks because the
underpayments are the fault of Wright and Lawson. We disagree.
Mr. Reaves controlled Reaves Livestock. His testimony that he
did not know about the 282 checks is not credible. Mr. and Mrs.
Reaves controlled the First Citizens accounts. Even if Wright or
Lawson invented the John Chavis check scheme, Mrs. Reaves was a
knowing participant. We conclude that Mr. and Mrs. Reaves are
liable for the underpayments due to fraud as described above.
The time to assess tax owed by Mr. and Mrs. Reaves has not
expired for 1984 because Mrs. Reaves is liable for the addition
to tax for fraud for 1984. Sec. 6501(c)(1).
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