K & M La Botica Pharmacy, Incorporated, et al. - Page 37

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          to be treated as attributable to fraud, except with respect to              
          any portion of the underpayment which the taxpayer establishes by           
          a preponderance of the evidence is not attributable to fraud.               
          Sec. 6663(b).                                                               
               Ahmed, individually and as president of K & M for the years            
          in issue, grossly understated his and K & M’s taxable income, and           
          he significantly underpaid the Federal income tax due, measured             
          both in dollars and in percentages.                                         
               For the years in issue, Ahmed underreported his and K & M’s            
          taxable income by a cumulative total of $1,903,314, and he                  
          underpaid his and K & M’s Federal income tax by an estimated                
          cumulative total of $812,903, representing understatements of               
          taxable income and underpayments of Federal income tax for each             
          year of 55 percent to 96 percent.                                           
               Ahmed’s underreporting over a period of at least 4 years of            
          his and of K & M’s taxable income and the related underpayment of           
          Federal income taxes are persuasive evidence of Ahmed’s                     
          fraudulent intent, particularly combined with the unreported cash           
          proceeds and the claimed business deductions relating to personal           
          expenses.                                                                   
               Further, Ahmed did not maintain adequate financial records             
          relating to his business activities, demonstrated by the failure            
          to properly account for certain intercompany transactions, to               
          record certain cash transactions, and to properly report personal           
          expenses paid out of corporate funds.                                       




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