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Commissioner, T.C. Memo. 1994-454; Avery v. Commissioner, T.C.
Memo. 1993-344; Williamson v. Commissioner, T.C. Memo. 1993-246.
On the basis of the foregoing, we hold that respondent has
shown by clear and convincing evidence that the underpayments in
1987 and 1988 are due to fraud on the part of both petitioners.
Under section 6653(b)(3), the fraud of one joint-filing spouse
cannot be attributed to the other; respondent must show that each
spouse engaged in fraud. Although on the basis of petitioners’
testimony it appears that all or most of the cash diversions from
Cedar Hill may have been the result of Mr. Parsons’ taking cash
without recording it as a personal draw, Mrs. Parsons’
involvement in and awareness of the diversions is clear.
According to petitioners’ testimony, the cash withdrawals that
were not recorded on the pink sheets typically occurred when Mrs.
Parsons would call Mr. Parsons at work to request that he make a
deposit into her account to cover checks she was writing. Mrs.
Parsons’ testimony that she had “no idea” where Mr. Parsons got
the money to make these deposits is, in the circumstances, not
credible. Because she performed daily bookkeeping duties for
Cedar Hill, Mrs. Parsons had knowledge of the business’ finances
and the extent of petitioners’ use of Cedar Hill proceeds.
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