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Implementation of the bankruptcy scheme caused an immediate
and dramatic drop in petitioner’s reported wage income from the
dermatology practice. In 1991, petitioner reported wage income
of $720,000 from the dermatology practice. In 1992, her reported
wage income was $500,000. In 1993, after implementation of the
bankruptcy scheme, her reported wage income for 1993, 1994, and
1995 dropped to $84,000, $98,000, and $85,000, respectively.
Before implementing the bankruptcy scheme, petitioner had
received virtually all of the dermatology practice’s net income
as wages and/or distributions from Letantia Bussell M.D., Inc.
After implementing the bankruptcy scheme, petitioner reported
only the income that she received as an “employee” of LBB.
Despite knowing that it was a crime to do so, petitioner omitted
from the 1996 return the $1,149,048 that she caused in that year
to be transferred from BBL’s Sanwa account to the personal Swiss
bank account.3 BBL had sufficient earnings and profits to
characterize the $1,149,048 transfer as a dividend to petitioner.
VII. Petitioner’s Bankruptcy and Ensuing Events
On March 7, 1995, petitioner filed a petition for chapter 7
bankruptcy, seeking (with Bussell) to discharge tax and nontax
liabilities totaling approximately $4.7 million. Of this amount,
3 Although BBL was replaced by Beverly Hills Management in
August 1995 as the operator of the dermatology practice, BBL
remained the named owner of the Sanwa account until January 1996.
As of the later time, BBL was also the named owner of the Paine
Webber account.
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