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business (including the payment of vendors) and either deposited
the remaining cash into Nanny’s checking account (business
account) or secured it for safekeeping at the restaurant or at
their home. Petitioners deposited into the business account only
the portion of Nanny’s gross receipts necessary to cover its
anticipated expenses which would be paid by check. When Nanny’s
did not have enough funds in the business account to pay business
expenses, petitioners usually paid the expenses directly with the
secured cash or transferred the cash to the business account and
paid the expenses by check. On many occasions, petitioners used
their own funds to pay Nanny’s business expenses and used Nanny’s
funds to pay their personal expenses. Petitioners generally
operated Nanny’s business in the same manner after its
incorporation as they did before its incorporation; i.e., as an
alter ego of themselves.
Following Ms. Barnard’s reconciliation of the cash in the
register to the cash register tapes, petitioners recorded the
gross receipts onto daily sheets and discarded the cash register
tapes. They also discarded the daily sheets after Mr. Barnard
used them to prepare monthly summaries of Nanny’s income and
expenses which he gave to his longtime accountant, Hugh Mason
(Mr. Mason), to prepare the required tax returns (e.g., sales
tax, income tax) and financial statements. Petitioners kept no
written record of the amount of Nanny’s gross receipts that was
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Last modified: May 25, 2011