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During 1987 and 1988, petitioner failed to maintain adequate
books and records for his law firm, and adequate books and
records were not maintained for 2618 Inc. and for the Club.
On audit, respondent determined that petitioner failed to
establish and to substantiate the nature and amount of
petitioner’s income and expenses claimed on his 1987 and 1988
Federal income tax returns.
Due to the inadequacy of petitioner’s books and records,
respondent reconstructed petitioner’s taxable income for 1987 and
1988 using the specific item and the bank deposits methods of
proof. Respondent determined significant increases to
petitioner’s income over that reported on petitioner’s 1987 and
1988 Federal income tax returns, disallowed many claimed business
and itemized deductions, made other adjustments, and charged
petitioner with the fraud additions to tax for each year.
In our prior Memorandum Opinion, Payne v. Commissioner, T.C.
Memo. 1998-227, we sustained in significant part respondent’s
deficiency determinations, and we concluded that petitioner was
liable for the fraud additions to tax for 1987 and 1988.
On appeal, in Payne v. Commissioner, 224 F.3d 415 (5th Cir.
2000), the Court of Appeals for the Fifth Circuit concluded that
respondent did not satisfy his clear and convincing burden of
proof applicable to the fraud additions to tax, and (because
absent fraud the period of limitations for assessment of the tax
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