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trust holdings and the sales proceeds in Mr. Miles’s law firm
trust account indicates that petitioner’s use of nominees was for
a purpose other than tax-free exchanges.
Most importantly, petitioner’s testimony and contentions
regarding his failure to report income deposited in Mr. Miles’s
law firm’s trust account are contradicted by other evidence of
record. Petitioner’s purported understanding was that he was not
required to report income from his sales of real estate so long
as the sale proceeds remained in the trust account and were not
disbursed for personal expenses. Petitioner claims that he
reported consistently with that understanding. Nevertheless,
there were considerable amounts that were disbursed from Mr.
Miles’s law firm’s trust account for personal expenses during the
years in issue that were not reported as income. Petitioner does
not explain this failure to report. We cannot accept that
petitioner had a bona fide misunderstanding of tax free exchanges
and that this purported misunderstanding explains his failure to
report the substantial amounts of income from real estate
transactions.
Petitioner argues that fraud penalties should not apply to
the amounts which he reported as income on his returns for 1986
through 1988.95 Petitioner suggests that to the extent those
95The addition to tax for fraud under sec. 6653(b)(1)
applies to the entire underpayment for 1985, regardless of
whether petitioner establishes that some portion of that
(continued...)
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