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In 1994, Theron pleaded guilty to income tax evasion
pursuant to section 7201 for taxable year 1990 and to a 1993
offense for distribution of cocaine base. As part of the
criminal proceeding, respondent reconstructed Theron’s income for
taxable years 1989, 1990, and 1991 using a net worth analysis.
In the plea agreement, Theron admitted, consistent with
respondent’s net worth analysis, that in 1990 he had additional
unreported income of $63,610.
After Theron’s plea agreement, respondent conducted a civil
examination of Theron’s 1989 Federal income tax return and
petitioner’s and Theron’s 1990 joint Federal income tax return.
As part of this examination, respondent’s revenue agent requested
petitioner and Theron, who was then in prison, each to provide
documentation such as income records and expense records.
Neither petitioner nor Theron complied with the request.
Relying upon the income reconstructions prepared in the
criminal investigation, with certain modifications, respondent
determined a $3,424 deficiency in Theron’s 1989 Federal income
tax liability and a $24,676 deficiency in petitioner’s and
Theron’s 1990 joint Federal income tax liability. For taxable
year 1990, respondent also determined that Theron was liable for
an $18,507 addition to tax for fraud. On April 15, 1997,
respondent issued a notice of deficiency reflecting these
determinations.
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Last modified: May 25, 2011