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remodeled commercial and residential property. It maintained a
bank account at Lakeside Bank. Messrs. Vazzana and Valenza did
not deposit all of V&V's gross receipts into V&V's bank account.
Instead, they cashed a substantial number of customer checks at
other neighborhood banks.
On its 1988 and 1989 Forms 1065 (U.S. Partnership Return of
Income), V&V reported gross receipts of $373,483, and $548,863,
respectively. The returns were prepared by V&V's accountants,
Barbara Charal and Michael J. Baumhart. Messrs. Vazzana and
Valenza knew that their accountants calculated V&V's gross
receipts by totaling the deposits in V&V's account and that the
cashed checks would not be reported on V&V's income tax returns.
In early 1991, respondent audited V&V's returns and Revenue
Agent John Lee was assigned to the case. Mr. Lee asked Messrs.
Vazzana and Valenza to provide records of V&V's income and
customer accounts. They failed to cooperate with Mr. Lee, so he
summoned V&V's bank records and obtained information directly
from V&V's customers. Based on these documents, Mr. Lee
determined that V&V underreported its gross receipts by $132,046
for 1988 and $111,734 for 1989.
Messrs. Vazzana and Valenza each owned a one-half interest
in rental property valued at $200,000. The building was
previously owned by Shield Development Corp. (SDC), a company in
which Messrs. Vazzana and Valenza were stockholders. In 1987,
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