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interest of $8,327, dividends of $199, a capital loss of $1,500,
and an S corporation loss reported on Schedule E of $1,744.
In 1995, respondent instituted a criminal investigation
regarding petitioner’s tax liability for 1992. Petitioner
executed Forms 872, Consent to Extend the Time to Assess Tax,
extending the time for the assessment of taxes for 1992 until
December 31, 1999.
By letter dated April 9, 1997, petitioner’s then counsel,
Lawrence V. Carra (Mr. Carra), wrote a letter to Iris Rothman, an
attorney assigned to respondent’s Office of District Counsel in
Westbury, New York, referring to petitioner’s tax liabilities for
1992 through 1995 and informing her that petitioner “wishes to
enter into a plea agreement.”
On September 10, 1997, Special Agents Philip D. Hill and
Randall L. Sprance met with Mr. Carra and a certified public
accountant, Timothy Mulcahy (Mr. Mulcahy), with regard to
petitioner’s tax liability for 1992. During the meeting, Messrs.
Carra and Mulcahy provided the special agents with a schedule
titled “PETITO CPA STATEMENT OF INCOME AND EXPENSES” indicating
that Petito Corp. had overstated its deductible expenses for
1992. In particular, rather than incurring a net loss of $1,744,
the schedule indicated that Petito Corp. earned net income of
$44,456 during 1992. It appears that the parties believed that
such income would be included in petitioner’s gross income as a
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