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machine tape--the amount Michael purportedly reported on the
Schedule C for that year--was $5,781 more than the amount
actually reported on the Schedule C. Respondent also points to
the fact that Sandra omitted from four of the invoices $8,683
when she was calculating the monthly totals. For 1994,
respondent points to the fact that seven of the Forms 1099 issued
to the plumbing business exceeded by $7,941 the amounts listed on
their corresponding invoices. Thus, respondent concludes:
“Petitioners obviously were not concerned with having an
accurate record of the income from the plumbing business. Their
method of record keeping, or lack thereof, is another badge of
fraud for 1994 and 1995.
Petitioners reply, on answering brief, as follows:
The volume of records, checks, invoices, bank statement
[sic], bank deposit slips, the purchase agreements, the sale
agreements, the mortgages, the amortization schedule, the
social security statement, the marriage agreement, etc. are
a silent testimony as to the efforts that Petitioners have
made to accurately determine and substantiate the tax return
that was filed.
Petitioners concede that Michael understated gross receipts for
the plumbing business by $5,781 in 1995; they attribute this
understatement to a computational error that occurred when Sandra
added together the invoices. Petitioners argue, however, that
because Michael was a cash basis taxpayer, and because they did
not receive in 1995 the $8,683 that was listed on the invoices
but not included on the adding machine tape, they did not have to
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