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Issue 6. Additions to Tax for Fraud
Background
As discussed supra, on their tax returns as originally filed
for each year in issue, petitioners omitted from gross income the
West Florida Gas rebate checks that had been issued in the
individual names of either Briggs or Mr. Morris. Briggs and Mr.
Morris were each convicted by the U.S. District Court for the
Northern District of Florida, pursuant to section 7207, for
willfully filing false Federal income tax returns for taxable
years 1986, 1987, and 1988.
In 1985, Briggs, Mr. Morris, Daniell, and Michael Gay
incorporated Association Cable TV, Inc. (ACT), to provide cable
television services to a beach resort. The four were equal
shareholders. In 1988, they sold ACT’s assets to Jones
Spacelink, Ltd. In connection with the sale, each of the four
shareholders received $199,490 in gross proceeds. Of this
amount, $82,600 represented proceeds from the sale of a covenant
not to compete. Petitioners’ 1988 Federal income tax returns
each omitted $40,200 of this $82,600 amount from gross income and
also omitted $36,000 of other sale proceeds, erroneously
characterizing them as “loan repayments”. On brief, petitioners
agree to respondent’s adjustments increasing each of their
taxable year 1988 gross incomes by these amounts, conceding that
their return positions were “unexplained and * * * erroneous”.
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