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petitioners had as much as $650,000 cash on hand at the beginning
of 1988. Mr. Bacon’s statement about cash on hand was false.
Petitioners stipulated that at the beginning of 1988, they had
approximately $35,000 cash on hand. Had Mr. Bacon’s statements
about cash on hand at the beginning of 1988 been true,
petitioners would have had a nontaxable source from which to make
deposits during the years in issue. We can conceive of no reason
for such a false statement other than to mislead the agents.
We find that Mr. Bacon’s statements about cash on hand
during this interview were intended to mislead the agents.
3. Extensive Dealings in Cash
Dealing in cash to avoid scrutiny of one’s finances is a
badge of fraud. See Bradford v. Commissioner, 796 F.2d 303, 307-
308 (9th Cir. 1986), affg. T.C. Memo. 1984-601. Petitioners made
numerous and substantial cash transactions during the 4 years in
issue. During this period, $590,689 in cash was deposited into
petitioners’ personal bank accounts and $113,571 in cash was used
in the purchase of real estate.23 All real estate purchases were
in Mrs. Bacon’s name, and she attended some, if not most, of the
property settlements. A boat and a personal van were also
purchased for $22,350 in cash.
Petitioners’ extensive use of cash supports a reasonable
inference that petitioners were knowingly and willfully
attempting to understate their taxable income.
23See appendix C.
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