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Federal checking account. Mr. Bruno did not know petitioner was
cashing and exchanging checks until testimony was given before
the grand jury on May 25, 1990.
Throughout the course of Ms. Davis' examination, petitioner
never told Mr. Bruno that the income figures he gave to him for
1987 and 1988 were incorrect. Similarly, throughout the ensuing
criminal investigation in which Mr. Bruno assisted in the
representation of petitioner, Mr. Bruno was never told that the
income figures were incorrect.
Mr. Bruno subsequently furnished Ms. Davis with information
which attempted to establish the nontaxable nature of $100,000 of
the understatement. Since the amount of $150,000 still remained
unexplained, Ms. Davis determined that it represented unreported
income. She then explained that the Service likely would want to
begin an examination of petitioners' 1988 income tax return.
After consulting with her supervisor, Ms. Davis told Mr. Bruno
that the subsequent year examination would be commenced.
In March 1990, two attorneys, Mr. White and Mr. Gray,
representing petitioners with a valid power of attorney, went to
Ms. Davis' office and requested that they meet with her and her
manager. Mr. White thought Ms. Davis had completed the
examination for both 1987 and 1988, although she had not begun
the examination for 1988. Although the then proposed deficiency
for 1987 was approximately $50,000, Mr. White stated that
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