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Respondent issued a notice of deficiency (notice) to pe-
titioners with respect to their taxable years 1992, 1993, and
1994. In the notice, respondent determined, inter alia, that
petitioners had unreported income for 1992, 1993, and 1994 in the
amounts of $60,034, $53,094, and $57,891, respectively, the
likely source of which was Paul & Joe, Inc. In making those
determinations, respondent relied on an analysis under the bank
deposits method of petitioners' bank deposits during the years at
issue, which showed that petitioners had unexplained bank de-
posits during those years. Respondent further determined in the
notice that the cost of goods sold reported by Paul & Joe, Inc.,
for 1993 and 1994 was understated in the amounts of $16,515 and
$19,637, respectively, because Mr. Mifsud made purchases for Paul
& Joe, Inc., during those years, which were not reimbursed by
that company.3 In the notice, respondent determined that pe-
titioners had deficiencies in tax (and underpayments) for 1992,
1993, and 1994 in the amounts of $18,087, $15,653, and $17,073,
respectively. Respondent further determined in the notice that
petitioners are liable for each of the years at issue for the
fraud penalty under section 6663 on the entire amount of each
such underpayment.
3 The notice indicates that no adjustment was made to cost
of goods sold for 1992 because no information was available for
that year.
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