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$101,029 for 1989. This underreporting resulted from Messrs.
Vazzana and Valenza cashing a substantial number of V&V customer
checks, rather than depositing them into V&V's account. Messrs.
Vazzana and Valenza knew that their accountants calculated V&V's
gross receipts by adding the deposits in V&V's account and that
the cashed checks would not be reported on V&V's income tax
returns.
Messrs. Vazzana and Valenza contend that they used the cash
proceeds to pay for unreported V&V expenses and that the
unreported receipts and expenses netted out. Respondent,
however, has established that, with the exception of the cash
payments to Mr. Schmitt (i.e., $7,850 in 1988 and $10,381 in
1989), Messrs. Vazzana and Valenza did not substantiate any
unreported cash expenditures. Therefore, we reject their
contention. Messrs. Vazzana and Valenza concede that they each
failed to report gross receipts from their rental property of
$32,162 for 1988 and $8,730 for 1989. They have offered no
explanation for their failure to report this income.
Accordingly, we hold that the portions of the deficiencies
relating to V&V's gross receipts and the rental property were due
to fraud and that Messrs. Vazzana and Valenza are liable for the
additions to tax for fraud relating to such portions.
Respondent, however, has not established that Mrs. Vazzana and
Mrs. Valenza acted with fraudulent intent. As a result, Mrs.
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