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excess of $800,000. Respondent asserts that Ms. Walters
nevertheless made no attempt to ascertain that the joint tax
returns were true and correct. We disagree with respondent, for
several reasons.
First, FIP's clients generally were well-educated,
successful professional business men and women who remained
clients of FIP for many years. Mr. Gherman did not keep secret
from FIP's clients the fact that he was not discharged in the
1969 bankruptcy. Nonetheless, FIP's clients relied on Mr.
Gherman's advice and trusted him to handle their financial
affairs honestly and fairly. Similarly, we are persuaded that
Mr. Gherman's failure to obtain a discharge in the 1969
bankruptcy would not cause Ms. Walters to suspect that Mr.
Gherman was embezzling money from FIP's clients.
Second, the embezzlement of millions of dollars from
accounts of FIP's clients was not related or even similar to the
activities cited by respondent. None of those prior activities,
furthermore, resulted in a criminal indictment. Moreover, the
prior audits of petitioners' tax returns did not involve the
failure to report income from an illegal activity and those
audits were settled with respondent's conceding the imposition of
additions to tax for fraud as well as a substantial portion of
the deficiencies. Ms. Walters knew that the IRS had dropped its
fraud investigation of Mr. Gherman and that the grand jury did
not bring an indictment against him. Under those circumstances,
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