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income. Charlene had no idea what these figures comprised or
whether the reported gross receipts, expenses, and cost of goods
sold were accurate. Most of the $68,358 claimed on CCA’s return
was listed as cost of goods sold, and a large portion of the cost
of goods sold figure represented personal living expenses of
petitioner and Charlene.5
Coastal’s Return—Petitioner prepared and filed Coastal’s
returns for fiscal years ended June 30, 1994 and 1995, reporting
as gross receipts $23,056 and $94,952, respectively. In both
years, the reported expenses exceeded the reported gross
receipts, and Coastal reported no taxable income and paid no tax.
Craig signed the returns but had no idea where the reported
income came from or whether it was accurate. The reported gross
receipts comprised primarily checks and transfers from JJH’s
account to Coastal.
The Audit
Revenue Agent Ruby Townsend (Townsend) conducted the audits
of petitioner’s and JJH’s returns at issue. Petitioner was
uncooperative with Townsend. Townsend repeatedly requested to
meet with petitioner and requested that petitioner provide
documents to substantiate the items on his return and JJH’s
5Charlene admitted that she used the funds in the CCA
account for personal purposes, and there is insufficient evidence
in this record to determine what items, if any, were business
related.
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