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III. Is Petitioner Liable for the Fraud Penalty for 1991?
For his 1991 tax year, petitioner did not file a return
until 1994, after he had already pleaded guilty to Medicaid
fraud. Respondent, in the notice of deficiency, did not
determine that petitioner had understated gross income. On his
1991 return, petitioner reported gross income of $263,912
(including a $24,826 administrative Medicaid fee) and deductions
of $254,787, resulting in a reported net profit from his taxi
business of $9,125. Respondent, in the notice of deficiency,
allowed $112,023 of the $254,787 in claimed business deductions.
Accordingly, respondent determined that the underpayment was
attributable to the disallowed deductions and that the
underpayment was subject to the 75-percent fraud penalty of
section 6663(a).
Petitioner hired a certified public accountant to assist him
in the preparation of his 1991 return. For 1989 and 1990,
petitioner’s records were inadequate, disorganized, and may have
contained duplications and personal expenses. For 1991,
petitioner’s records had been reconstructed by his accountant
from available information. Respondent has not shown that
petitioner intentionally and knowingly overstated his deductions
for 1991. Although petitioner was unable to adequately
substantiate slightly more than 39 percent of the claimed
required to compute the underpayment under Rule 155 of the Tax
Court Rules of Practice and Procedure.
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