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respondent discovered petitioners’ bank loan application and a
version of petitioners’ 1993 Federal income tax return which had
not been filed with respondent. On this return, as opposed to
the one filed with respondent, petitioners reflected $247,000 in
Schedule C gross receipts. In related financial information,
petitioners reflected business income from Card Connection and
Seed & Feed. In an attempt to explain the inconsistent returns,
petitioners told respondent the return given to the Bank of
America in connection with the loan application was a “phony”.
Despite petitioners’ effort to conceal their other
activities, respondent discovered Auto Sales through petitioners’
sales tax returns for the 1993 taxable year. Petitioners had not
only failed to report their Auto Sales activity to respondent but
also concealed its existence from their representative. From
discovering Auto Sales, respondent also discovered a previously
undisclosed bank account. It was only after these discoveries
that petitioners admitted to Auto Sales’s existence. In so
doing, however, petitioners claimed that they did not report Auto
Sales’s gross receipts because it sustained a loss.
Moreover, despite respondent’s requests, petitioners failed
to produce statements or records for Auto Sales. Respondent
ultimately obtained both by means of a summons. However,
because petitioners’ records were incomplete and poorly
maintained, respondent had to reconstruct Auto Sales’s financial
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Last modified: May 25, 2011