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1986 the county paid Mr. Maloney $927,922.65. On their 1986
return, petitioners reported Schedule C gross receipts of
$844,498, claimed an overpayment of $15,299, and did not identify
their method of accounting.
On June 27, 1987, petitioners filed an amended 1986 return,
which Mr. Butler had prepared. On the amended return,
petitioners elected the accrual method of accounting, increased
their taxable income from the original return by $11,538.45, and
stated that they owed $5,769. The following chart is contained
in the explanation portion of the amended return:
1099s Schedule C Difference
1985 $298,788.16 $370,744.49 $71,956.33
1986 +927,992.65 +844,497.87 -83,494.78
Total 1,226,780.81 1,215,242.36 (11,538.45)
In essence, petitioners calculated their unreported income by
subtracting the amount Mr. Maloney believed they overreported on
their 1985 return (i.e., $71,596.33) from the amount that they
underreported on their 1986 return (i.e., $83,494.78).
In April of 1991, a Federal grand jury indicted Mr. Maloney
and Mr. Butler on numerous counts. In pertinent part, the
indictment states:
Count 2: THE GRAND JURY FURTHER CHARGES THAT: On or
about April 8, 1987 * * * John J. Maloney * * * did
willfully make and subscribe a federal income tax
return for the year 1986, * * * which tax return he did
not believe to be true and correct as to every material
matter in that the return stated that his taxable
income for this year was $155,923, when in fact and as
he then well knew, his taxable income was $239,418.
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