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did not think it necessary for petitioner to keep these records
because respondent had already audited petitioner’s gross
receipts for 1992 through 1995 and those years had been settled.
Federal and State regulations required petitioner to keep
books and records for his business recording each gallon of the
approximately 40 million gallons that Egan Oil sold each year.
Petitioner had a system to track sales on a 3-day and a monthly
basis. Several different taxing authorities examined
petitioner’s records, including respondent as well as State sales
tax and excise tax authorities.
Petitioner’s accountant, Mr. Rabinowitz, was convicted in
1994 of conspiracy to defraud and impede the Internal Revenue
Service (IRS) and of filing a false income tax return. Mr.
Rabinowitz was imprisoned for approximately 3 years for these
crimes. Petitioner was aware of the trial, conviction, and
imprisonment of Mr. Rabinowitz, but he was not involved in the
crime or the criminal proceedings against Mr. Rabinowitz.
Respondent examined petitioner’s return for 1998 and issued
petitioner a Notice of Deficiency dated December 16, 2003
(deficiency notice), disallowing petitioner’s business bad debt
deduction attributable to Brooks Foods and determining that the
accuracy-related penalty should be imposed.3 Petitioner timely
filed a petition for review with this Court.
3In the deficiency notice, respondent also disallowed
petitioner’s net farm loss and reduced petitioner’s home mortgage
interest deduction. Petitioner has conceded these adjustments.
Therefore, the only issues before us are the business bad debt
deduction and the accuracy-related penalty.
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