Michael L. and Susan Barnard - Page 26




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          received from their rental properties.  Moreover, as to Nanny’s’            
          1988 taxable year, respondent determined that Nanny’s accurately            
          reported all of its income for that year.  Such a determination             
          obviously undercuts respondent’s position in this case that                 
          petitioners:  (1) Skimmed $40,670 of Nanny’s 1988 receipts for              
          their personal use without reporting those receipts for Federal             
          income tax purposes and (2) tried to conceal Nanny’s earning of             
          those receipts by dealing in cash and destroying the cash                   
          register tapes.  Respondent tries to downplay the fact that the             
          audit of Nanny’s 1988 taxable year concluded that Nanny’s income            
          was reported correctly on its Federal income tax return.  As we             
          understand respondent’s position as to this fact, Revenue Agent             
          Smith reached this conclusion only because Nanny’s did not supply           
          him with any document that would disprove the reported amount.              
          We are unpersuaded that this is so.  In addition to the fact that           
          Revenue Agent Smith testified to the contrary, we find it                   
          unlikely given the facts herein that respondent would have                  
          conceded that Nanny’s income was reported correctly simply                  
          because Nanny’s kept in its records no documentation that showed            
          otherwise.                                                                  
               Nor do we reach a finding of fraud on the basis of our                 
          review of the remaining badges of fraud.  Petitioners did not               
          attempt to conceal any assets.  They did not engage in an illegal           
          activity.  They did not attempt to conceal an illegal activity.             






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