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was liable for section 6663 fraud penalties of $4,909.50 for
1993, $8,682.75 for 1994, and $13,669.50 for 1995. (In the
alternative to the fraud penalties, respondent asserted accuracy-
related penalties under section 6662.) Unless otherwise
indicated, all section references are to the Internal Revenue
Code in effect for the years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
Background
On January 14, 1998, respondent issued to petitioners a
statutory notice determining the above deficiencies and
penalties. The deficiencies were based on respondent’s
determination that petitioners realized unreported income from
misappropriated or embezzled funds. On April 13, 1998,
petitioners filed a petition with this Court disputing the notice
of deficiency. Petitioners at that time resided in Cranston,
Rhode Island.
Respondent then answered the petition and further set forth
specific allegations of fact in support of the fraud penalties,
as follows:
6. FURTHER ANSWERING the petition, and in support
of the respondent’s determination that, in regard to
Petitioner Meri R. Kaufman, a part of the underpayments
of tax required to be shown on petitioners’ joint
income tax returns for the taxable years 1993, 1994 and
1995 is due to fraud, the respondent alleges:
a. The Petitioner Meri R. Kaufman signed and
filed joint returns with her husband for the 1993, 1994
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