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services” to Georgio Armani for the purchase of clothing for Mr.
Duncan. When petitioner filed its 1990 return, petitioner
through Mr. Duncan knew that the deduction of $9,610 claimed for
“outside services” was improper. Petitioner also claimed a
deduction of $25,000 in its 1990 return for alleged contributions
to petitioner’s pension and/or profit sharing plan. However,
petitioner did not make any contributions to petitioner’s pension
and/or profit sharing plan during 1990.
On March 24, 1993, Mr. Duncan spoke with two of respondent’s
revenue agents on behalf of petitioner. During Mr. Duncan’s
conversation with those revenue agents, Mr. Duncan acknowledged
that petitioner would have to pay tax, interest, and fraud
penalties that were attributable to the adjustments made by
respondent to petitioner’s 1990 return and 1991 return. Mr.
Duncan also told respondent’s revenue agents on behalf of peti-
tioner the following with respect to petitioner’s taxable years
1990 and 1991: (1) He believed that petitioner’s books, records,
and returns were incorrect; (2) the worksheets that petitioner
presented to respondent’s examining agents to explain income were
false; (3) petitioner’s accountant prepared an altered set of
books, including journals and ledgers, to conceal the fact that
petitioner had understated its income; and (4) he and one of
petitioner’s employees had participated in the falsification of
invoices, receipts, and check register stubs during respondent’s
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