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records by using the bank statements and the little information
available on petitioners’ records. After allowing $114,657 in
previously unclaimed expenses in connection with Auto Sales,
respondent determined that Auto Sales had generated a profit for
its taxable year 1993.
Following the discovery of Auto Sales and its corresponding
bank account, respondent independently discovered a second
undisclosed bank account. Altogether, respondent’s
reconstruction of petitioners’ income resulted in taxable
deposits of $737,949 for 1993. This net taxable amount is
$543,372 greater than the amount of income reported by
petitioners.
In a statutory notice of deficiency, respondent determined a
$103,559 income tax deficiency and a $77,668.50 fraud penalty
under section 6663. After the filing of a timely petition,
respondent filed an answer and an amendment to the answer.
Respondent, by amendment to answer, sought an increased income
tax deficiency of $165,211 and an increased fraud penalty of
$123,907.50. After petitioners failed to communicate with him or
reply to the amendment, respondent filed a motion for entry of
order that undenied allegations be deemed admitted for both the
answer and the amendment to the answer. These motions were
granted.
After making a small concession and decreasing petitioners’
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Last modified: May 25, 2011