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During the years in issue, all of the deposits to the
general operating account were reported as income of the law firm
on the Schedules C of petitioner’s returns. Any income deposited
into petitioner’s Merrill Lynch account was not reported on her
returns.
Criminal Referral and Prosecution
In mid to late 1993, Mr. Rangel referred petitioner’s case
for criminal investigation. Special Agent Leonard Ramos was
assigned to petitioner’s case.
On July 7, 1994, Mr. Ramos served a third-party record
keeper summons on Mr. Reiter seeking financial books and records
of the law firm. Pursuant to the summons, Mr. Ramos received
several boxes of records belonging to the law firm. These
records included disbursement journals, income statements, a
ledger sheet for the general operating account, and five monthly
envelopes containing check stubs and bank statements from the
general operating account. Mr. Ramos did not find any Merrill
Lynch statements or memoranda regarding Merrill Lynch in these
boxes.
During the criminal examination, neither petitioner nor her
representatives provided Mr. Ramos with any memoranda from
petitioner to Mr. Reiter about petitioner’s Merrill Lynch
account. Again, neither petitioner nor her representatives
mentioned the existence of such memoranda to Mr. Ramos. Mr.
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