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reconstructed the corporation's income using canceled checks,
bank statements, invoices, and cash register receipts. The agent
identified all of the accounts of Beck's Liquors and the Becks.
The agent analyzed the deposits made to the accounts and excluded
all deposits that the agent believed were nontaxable, including
transfers between accounts. The agent also obtained other
documents, such as statements from casinos and forms reporting
cash transactions. Statements from two casinos showed gambling
losses of $20,600 in 1991 and $15,700 in 1992. The agent
concluded that Beck's Liquors had income in 1991, 1992, and 1993
from Mr. Beck's use of the corporation's cash that was not
deposited into any corporate account. He also concluded that Mr.
Beck had income from the use of corporate funds to make the cash
purchases and to pay funeral and memorial expenses of Mrs. Beck
and personal living expenses of Mr. Beck and his children.
The agent referred the case to the Criminal Investigation
Division. The case was assigned to a special agent and finally
to the Department of Justice. The Department of Justice declined
to prosecute Mr. Beck. In 1997, the case was returned to the
original IRS agent for civil closing.
The agent met with Mr. Beck two or three times. The first
time Mr. Beck saw the proposed adjustments was during one of
these meetings. The agent prepared a report and the matter went
to Appeals. On April 9, 1999, respondent mailed to Beck's
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