Joan Walters, f.k.a. Joan Gherman, and Henry Gherman - Page 55

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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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