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In the answer, respondent averred that petitioner
fraudulently (1) understated business income on the initial 1991
return, (2) understated business income and interest income on
the initial 1992 return, and (3) overstated business expense
deductions on the amended 1991 return, the amended 1992 return,
and the 1993 return. Because each of the enumerated averments
involves different circumstances, we address respondent’s fraud
allegation with respect to each such item separately.
B. Understatement of 1991 Income
Respondent averred that petitioner fraudulently understated
business income on the initial 1991 return by $487,591. Although
the Fieldses claimed that they relied completely on Mr. Carcasi
to prepare the return properly, there are times when, in light of
all the circumstances, “[t]he gap between the income received and
that reported * * * is simply too substantial” to support a
taxpayer’s claim that he was a “mere innocent beneficiary” of a
return preparer’s misfeasance. Estate of Temple v. Commissioner,
67 T.C. 143, 163-164 (1976). In addition to the negative
inference that respondent properly could have drawn from the
existence of the large, unexplained understatement of income on
the initial 1991 return, there was some evidence indicating that
petitioner may have known that Mr. Fields’ income with respect to
BIC was understated on that return to some extent. There was
also some evidence that the Fieldses may not have supplied Mr.
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