- 10 -
ing, inconsistent, and implausible statements to respondent's
agents about why he failed to report certain income in his 1983
return and why he reported no income in his 1984 return. One
explanation that Mr. Drummond gave to respondent's agent for his
unreported income for the years at issue related to Harbour
Marine Services in which Mr. Drummond had invested $25,000 during
1982. Mr. Drummond told respondent's agent that Harbour Marine
Services was a sole proprietorship, which might have losses for
1983 and 1984 that would offset any income that he had for those
years. At various times, Mr. Drummond told respondent's agent
that Harbour Marine Services had losses for 1983 in the amounts
of $47,000, $70,000, and $400,000. Although Mr. Drummond in-
formed respondent's agent that Harbour Marine Services was a sole
proprietorship, he knew that it was a corporation because, inter
alia, (1) Harbour Marine Services had filed articles of incorpo-
ration with the California Secretary of State in 1982; (2) Mr.
Drummond had offered stock in Harbour Marine Services to an
individual; (3) Mr. Drummond opened a corporate bank account for
Harbour Marine Services and listed himself as its president; and
(4) Harbour Marine Services' books were maintained as a corpora-
tion. Moreover, on April 24, 1995, over two years after Mr.
Drummond was convicted under section 7206(1) of filing false
returns for 1983 and 1984, he presented respondent's agent with a
copy of Form 1120, U.S. Corporation Income Tax Return, dated
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