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income from his 1984 return had he known of the income.10 Such
an intentional omission would have voided the cooperation
agreement and would have subjected Mr. Feinsmith to criminal
prosecution in addition to any taxes payable on the omitted
income.11
We conclude that respondent has failed to carry his burden
of proving fraud for both of the subject years. Respondent has
failed to convince us clearly that Mr. Feinsmith was liable for
fraud in either year.
Decision will be entered
under Rule 155.
10 We also disagree with respondent’s assertion that Mr.
Feinsmith’s intent to file a false return may be found in the
fact that he did not tell his accountant about his income from
the scheme. As discussed above, we are unable to find as a fact
that Mr. Feinsmith knew about the unreported income when he filed
his returns. Thus, he could not have told his accountant about
it beforehand. Nor do we believe that Mr. Feinsmith was as
“astute” as respondent claims.
11 We note in passing that the cooperation agreement
provided that Mr. Feinsmith would “file amended personal income
tax returns for the period February 1, 1980 to the present [i.e.,
Mar. 29, 1985]” in order to report his agreed-upon income
attributable to the scheme. We do not understand this provision
to mean that Mr. Feinsmith knew that he would be filing a
fraudulent return for 1984 and would later have to amend it. We
read this provision simply to require that Mr. Feinsmith report
on his personal income tax returns all of the agreed-upon income,
let it be by way of an amended return or by way of an original
return. In fact, whereas the cooperation agreement literally
requires that Mr. Feinsmith amend each of his returns from 1980
through 1985, he actually amended only his 1983 and 1984 returns.
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