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2. Consistent and Substantial Understatements of
Income
On the Forms 1040X, petitioners reported increased net
profit from Monterey of $80,214 and $54,778 for 1987 and 1988,
respectively. The amended Schedules C show that, originally,
petitioners underreported Monterey’s gross sales by $540,266 and
$393,980 for 1987 and 1988, respectively. Those are large
amounts compared to the amounts originally reported. A
consistent pattern of underreporting large amounts of income is
evidence of fraud. See Holland v. United States, 348 U.S. 121,
137 (1954). Two years of substantial understatement may support
a finding of fraud. See Kelley v. Commissioner, T.C. Memo. 1991-
324 (1991), affd. 988 F.2d 1218 (11th Cir. 1993).
3. Control of Books and Records
Joseph prepared the Schedules C, on which Monterey’s income
was understated. Monterey’s system of bookkeeping centered
around the peg board, in which was recorded all checks written
with respect to Monterey’s business and all deposits of moneys
received with respect to that business. Together with the vendor
ledger cards, sales invoices, and bank statements, the peg board
provided sufficient information to prepare accurately the
Schedules C. Entries on adding machine tapes used by Joseph to
prepare the Schedule C for 1988 convince us that Joseph did use
the peg board to prepare the Schedule C for 1988. Also, Joseph
testified that he looked at statements for Monterey’s bank
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