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diversions were not reported as income on petitioner’s income tax
returns. When first asked, petitioner falsely stated to
respondent’s agents that he was unaware that checks issued to the
corporation had been deposited to his and Ms. McNamara’s personal
bank account.
During the years in issue, petitioner also engaged in a
scheme whereby he caused the corporation to issue checks to cover
fictitious expenses. The amounts issued for those fictitious
expenses totaled $79,074.95 for 1988, $48,817.45 for 1989, and
$43,367.80 for 1990. See appendix B, listing the checks issued
by the corporation for fictitious expenses. The payees never
received these checks. Either petitioner or another employee of
the corporation cashed these checks and gave the proceeds to
petitioner or Ms. McNamara. Petitioner, or a family member under
his direction and control, prepared false invoices for the
fictitious expenses and altered the canceled checks to create the
appearance that the checks were issued for legitimate business
purposes. These payments were recorded as expenses on the
corporation’s books. These payments were not reported on
petitioner’s Federal income tax returns.
In addition to the construction business, petitioner and Ms.
McNamara engaged in a beauty salon business as proprietors. The
beauty salon first operated under the name Media Hair and later
under the name Gian Franco Faces. In 1988, petitioner and Ms.
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