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residence. Among items seized at the residence were “accounts
receivable” records, “accounts payable” records, bank records,
and signed but unfiled tax returns for petitioner for 1981 and
1982. The accounts receivable and accounts payable records
reflected cash receipts and expenditures. On or about
February 20, 1997, petitioner and others were indicted by a Grand
Jury for the U.S. District Court for the District of Minnesota.
The indictment charged petitioner with conspiracy to obstruct and
impede the due administration of the Internal Revenue Code and
with tax evasion under section 7201 for 1990 through 1993. On
September 2, 1998, petitioner was convicted of the charges, was
sentenced to prison for a term of 41 months, and was ordered to
make restitution and pay other amounts to the United States.
Using the records seized at petitioner’s residence,
respondent calculated the sales of Allied during the years in
issue as set forth above, determined that petitioner had other
unreported income, and allowed petitioner deductions for expenses
appearing in the accounts payable records.
Discussion
For 1987, section 6653(b)(1) provides in pertinent part:
(1) In general.--If any part of any underpayment
(as defined in subsection (c)) of tax required to be
shown on a return is due to fraud, there shall be added
to the tax an amount equal to the sum of-–
(A) 75 percent of the portion of the
underpayment which is attributable to fraud, and
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