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Monterey’s bank statements. At least for 1988, Joseph used an
adding machine to prepare adding machine tapes (the adding
machine tapes) totaling various periodic expenses, such as
expenses for repairs and telephone, which were deducted on the
Schedule C for 1988. Entries on the adding machine tapes
correspond to the totals of such expenditures on pages of the peg
board. For example, on the Schedule C for 1988 there is a
deduction for repairs in the amount of $3,991. There is an
adding machine tape headed “repairs”, with 17 items, totaling
$3,991.28. Column 21 on the check register pages of the peg
board is headed “utilities”. The footed amounts for column 21
match, on an item by item basis, all of the items on the adding
machine tape.
Examination and Investigation
In January 1990, respondent began an examination of the
Forms 1040. In July 1990, that examination was terminated, so
that respondent could commence a criminal investigation of Joseph
(the criminal investigation) with respect to his income tax
liability for 1987 and 1988. The criminal investigation resulted
in charges and a trial, at which, on, August 5, 1997, Joseph was
acquitted of all charges.
Administrative Summons
On January 25, 1991, in connection with the criminal
investigation, Special Agent Richard McLaughlin served an
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