Richard A. Cole, M.D. Inc. - Page 5

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          monthly total of business receipts.  Dr. Cole had access to the             
          day sheets and could review them at any time.                               
               Ms. Hale assembled petitioner's daily receipts and gave them           
          to Dr. Cole to deposit each day.  Dr. Cole or his wife deposited            
          the receipts.  Ms. Hale made the deposits when Dr. Cole was on              
               Petitioner's receipts for June, July, and August 1987 were             
          deposited in its accounts at Northwest Mutual Savings Bank or               
          Mellon Bank.  Petitioner's receipts from September 1987 to May              
          1989 were deposited in its account at Marine Bank.  Petitioner's            
          receipts totaled $1,240,547.69 in fiscal year 1987 and                      
          $1,400,726.22 in fiscal year 1988.                                          
               Around December 1989, Dr. Cole asked Ms. Hale for the yearly           
          total and a monthly breakdown of petitioner's gross receipts for            
          fiscal year 1988.  She told him that petitioner's gross receipts            
          for fiscal year 1988 were $1,376,401.27.                                    
          B.   Petitioner's Tax Returns                                               
               Carl Lindblad (Mr. Lindblad) prepared petitioner's tax                 
          returns since it was incorporated, including its 1987 and 1988              
          returns.  Mr. Lindblad never saw petitioner's corporate books and           
               Mr. Lindblad prepared petitioner's 1987 tax return on the              
          basis of a phone conversation with Dr. Cole and a handwritten               
          summary of petitioner's gross receipts and interest and a list of           

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