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Because petitioner's 1991 return was under audit, the
accountant advised petitioner not to file his 1992 return until
the last possible date. Petitioner filed an application for an
automatic extension and filed his 1992 return in August 1993. In
preparing petitioner's 1992 return, the accountant used Forms
1099 and handwritten notes from petitioner to compute
petitioner's income; the accountant did not look at petitioner's
bank statements and canceled checks. On the Schedule C attached
to petitioner's 1992 return, petitioner reported $15,835 of gross
receipts, no refunds, $7,030 total expenses, and net profit of
$8,805. Petitioner did not deduct any amount on the 1992 return
for fees paid to the billing services.
In June 1994, the IRS agent referred petitioner's case to
the criminal investigation division (CID). In December 1995, the
CID withdrew from the case, because petitioner's accountant
accepted responsibility for the omissions and errors in
petitioner's returns.
Respondent reconstructed petitioner's income for the taxable
years 1990, 1991, and 1992 using the bank deposits method. The
reconstruction report shows deposits of income into four of
petitioner's bank accounts (the main account, the refund account,
the First Interstate Bank Roseburg account (FIB Roseburg
account), and the South Umpqua Bank account (SUB account)),
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