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its income. Petitioners’ explanations of the understatements
were implausible. Their practice of cashing checks at the Money
Exchange instead of their bank concealed income from their
accountant and respondent, and enabled them to deal in cash. Mr.
Payne twice lied to respondent’s revenue agents when asked how
the income from the extras was distributed. Respondent has shown
clear and convincing evidence that petitioners filed their 1993,
1994, and 1995 returns with the intent to evade taxes.
Therefore, the 3-year period of limitations under section 6501(a)
does not apply to petitioners’ 1993, 1994, and 1995 years, and
respondent is not barred from assessing any deficiencies in
petitioners’ taxes for those years.
III. Unreported Income in 1994 From HRDC
If a taxpayer has not maintained business records or its
business records are inadequate, the Commissioner is authorized
to reconstruct the taxpayer’s income by any method that, in the
Commissioner’s opinion, clearly reflects that taxpayer’s income.
Sec. 446(b); Parks v. Commissioner, 94 T.C. at 658; A.J. Concrete
Pumping, Inc. v. Commissioner, T.C. Memo. 2001-42. The
Commissioner’s reconstruction need not be exact, but it must be
reasonable. A.J. Concrete Pumping, Inc. v. Commissioner, supra.
Respondent argues that petitioners received $222,735 in
unreported income from HRDC in 1994. Respondent’s reconstruction
of petitioners’ 1994 income is based on HRDC’s sales and extras
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