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the documents, and then petitioner signed them. The closing date
for petitioner’s home purchase was July 28, 1995. On that date,
petitioner signed a Universal Residential Loan Application, which
reflected that his monthly income was $4,137. Petitioner
believed this figure was derived from his income tax returns.
In the course of an examination of another taxpayer
regarding employee wage deductions, respondent began an
examination of petitioner’s returns. For taxable year 1991,
petitioner admitted to respondent’s agent that he did not report
approximately $2,000 in wages he had received for part-time
construction work.
Respondent’s examining agent referred petitioner’s tax
examination to the Criminal Investigation Division. In the
course of the investigation, respondent’s special agent
(1) interviewed contractors to determine whether K&L had reported
all of its income through a specific item analysis, (2)
interviewed Ms. Layland regarding the preparation of petitioner’s
income tax returns, and (3) sought out other potential sources of
income. In so doing, the special agent discovered: (1)
Petitioner’s mortgage applications, (2) that petitioner’s father
had sole contact with Ms. Layland, (3) that petitioner timely
filed his income tax returns, (4) that petitioner’s return for
1992 did not include income received from a contractor, (5) that
petitioner’s return did not include $11 of interest income, (6)
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