Donald R. Cooley and Cathy A. Cooley - Page 21

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         percent,5 155 percent, 131 percent, 161 percent, and 88 percent,             
         respectively.6  We conclude from the foregoing understatements of            
         income that petitioner engaged in a pattern of consistently                  
         understating his gross receipts and overstating his business                 
         expenses for the years in issue and that petitioner’s consistent             
         pattern of substantially understating income is a strong                     
         indicator of fraud.                                                          
               Petitioner failed to maintain adequate records, although he            
         indicated that he maintained his own records for both his                    
         business and personal accounts.  In their amended Federal income             
         tax returns, petitioners admitted that petitioner kept inadequate            
         records which resulted in understatements of income.7  Cf.                   
         Badarraco v. Commissioner, 464 U.S. 386 (1984).  Petitioner                  
         claimed that the understatements during the years in issue were              
         due to:  Inaccurate calculations of income, some of which were               
         from a trust account, double counting and miscalculating                     
         deductions, and failure to properly account for certain stock                
         transfers.  We conclude that the admissions on petitioners’                  

               5Rounding to the nearest percentage point.                             
               6These percentages are calculated by taking the excess of              
         the income reported on the final amended return over the income              
         reported on the original return, and dividing that amount by the             
         amount reported on the original return.  See, e.g., Williams v.              
         Commissioner, T.C. Memo. 1992-153, affd. 999 F.2d 760 (4th Cir.              
         1993).                                                                       
               7The admissions were reported on petitioner’s amended                  
         Federal income tax returns (Form 1040X) in the section entitled              
         “Part II Explanation of Changes to Income, Deductions, and                   
         Credits”.                                                                    




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