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business deductions for the 1991 taxable year. Accordingly, for
1991, respondent allowed a total of $157,207 of the $254,787 in
deductions claimed by petitioner on the 1991 return.
OPINION
The issues we consider arise from circumstances surrounding
petitioner’s criminal conviction for Medicaid fraud. Prior to
his indictment, petitioner’s 1989 and 1990 Federal income tax
returns did not reflect that he was engaged in the taxi-leasing
business or that he received payments for Medicaid related
services. Petitioner’s 1991 return was due a short time after
his indictment. Following the acceptance of his plea of guilty,
petitioner, during 1994, filed amended 1989 and 1990 returns and
a delinquent 1991 return. The above events were the motivation
for respondent’s examination of petitioner’s returns, resulting
in a determination that petitioner had understated income for
1989 and 1990. Respondent also determined that a portion of
petitioner’s claimed deductions on his amended returns for 1989
and 1990 and on his 1991 return should be disallowed. The fraud
penalty was determined for all 3 years. For 1989 and 1990, the
fraud penalty was attributable to respondent’s determination that
petitioner failed to report all of his income. The determination
of the fraud penalty for 1991 was based on respondent’s
determination that petitioner intentionally overstated his
deductions.
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