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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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