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the note (i.e., $89,254) to Darlene Wiltzius for $9,000 plus
$1,000 that Waldorf owed to her. Thus, Waldorf, in effect,
received $32,500 for his $170,625 interest in the note.
Waldorf sold his interest in the note because he was late in
paying some bills, he had no other source of income, and he was
in danger of having the mortgage on his house foreclosed.
Waldorf knew about the IRS investigation and believed that the
IRS was going to take all of the monthly payments that the buyer
was making on the note.
Wiltzius signed a document on February 3, 1988, for House of
Babes as secretary.
F. Petitioners' Criminal Convictions and Plea Agreements
1. Wiltzius' Conviction and Plea Agreement
On November 10, 1991, Wiltzius pled guilty to violating
section 7206(1) (filing a false return) for 1984 and 1985 because
he skimmed income from House of Babes which he did not report on
his personal income tax returns. Wiltzius' plea agreement
provided that the U.S. District Court could order him to make
restitution up to $11,329.94 to the IRS. Paragraph 1(c) of
Wiltzius' plea agreement states: "Defendant agrees to make
restitution to the Internal Revenue Service in an amount of
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