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less gross receipts than HRDC’s original return and claimed
approximately $9,000 more in taxes and licenses paid. Mr.
Campion testified that he amended the return to deal with payroll
tax issues only.
Because petitioners’ tax return preparers were provided only
bank deposit records to calculate HRDC’s income, HRDC did not
report income from the extras for each year in issue.
Petitioners reported flowthrough income derived from HRDC’s
reported income on their individual returns. For 1994,
petitioners reported rental income from HRDC of $23,241 but HRDC
did not report a corresponding expense.
In 1997, Mr. Payne met with respondent’s revenue agent in
connection with an audit of petitioners’ and HRDC’s 1993, 1994,
and 1995 returns. When asked about the money earned from extras,
Mr. Payne first told the revenue agent that 100 percent of the
payment for each extra was kept by the employee performing the
work. Mr. Payne also told the revenue agent that he did not know
that any of HRDC’s checks were cashed at the Money Exchange and
that his employees must have stolen the checks from HRDC.
In 2001, Mr. Payne pleaded guilty to filing a false tax
return under section 7206(1) for his 1994 individual Federal
income tax return. On April 17, 2003, respondent issued a notice
of deficiency to petitioners, determining deficiencies and civil
fraud penalties under section 6663 for 1993, 1994, and 1995. The
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