Albert M. Graham and Martha A. Graham - Page 50

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          regarding his failure to report that income on the original 1998            
          return as shown by the fact that he acted to amend his return to            
          report this amount a few weeks after he filed his original 1998             
          return.  We disagree.  Petitioner used a complex series of                  
          transactions and transfers of funds through several individuals             
          in an attempt to conceal this income both from Lewellen and the             
          IRS.  Petitioner’s explanations for these transactions are                  
          implausible.  For example, his claim that he gave O’Leary the               
          $135,422 to invest for him is belied by the fact that O’Leary               
          transferred the funds back to petitioner shortly thereafter.  We            
          conclude that petitioner fraudulently failed to include the                 
          $135,422 in income on the original 1998 return.7                            
                    d.   Personal Expenses Claimed as Business Deductions             
               Petitioners admitted that they improperly deducted personal            
          expenses of $27,636 in 1998 and $4,476 in 1999 as business                  
          expenses on their 1998 and 1999 tax returns.  However, they                 
          contend that they did not fraudulently deduct those expenses.               
          Petitioners argue that Edgar is to blame for the majority of                
          these errors in 1998, and point out that the amount of                      
          misclassified expenses dropped from $27,636 in 1998 to $4,476 in            
          1999 when Edgar was no longer responsible for petitioner’s                  

               7 See Badaracco v. Commissioner, 464 U.S. 386, 394 (1984);             
          United States v. Hanson, 2 F.3d 942, 946 n.1 (9th Cir. 1993) (a             
          taxpayer who files a fraudulent return does not purge the fraud             
          by subsequent voluntary disclosure; the fraud was committed, and            
          the offense completed, when the original return was filed).                 





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