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Petitioner entered into a promotional contract with R.J.
Reynolds Tobacco Co. (R.J. Reynolds) having an effective date of
January 1, 1996, and no specific term or ending date. Pursuant
to the contract, petitioner was to receive quarterly promotional
payments of $13,164 upon meeting certain sales volume
requirements set by R.J. Reynolds. During 1997, petitioner
negotiated a $13,164 check issued by R.J. Reynolds to purchase a
cashier’s check. The check was dated October 27, 1997, and was
for the same amount as called for in the promotional contract.
Based on petitioner’s records, respondent determined that
petitioner’s rack and promotional income totaled $69,915 ($63,940
+ $5,452 + $523). Respondent also determined that petitioner
underreported rack and promotional income by $53,179 ($69,915
less $16,736 reported).
During the examination, Mercantile National Bank
(Mercantile), informed respondent that during 1997, petitioner
acquired 31 cashier’s checks totaling $809,734. Petitioner
exchanged cash and negotiated third party checks he received from
business-related and personal sources for the cashier’s checks.
Petitioner, by using third party checks and cash less than
$10,000 in amount to purchase the cashier’s checks, tried to
avoid the reporting of cash transactions exceeding $10,000 to the
Internal Revenue Service. Petitioner did not inform his
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