Wayne Payne and Dorene J. Payne - Page 24

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          checks and mail them cash during their vacations in Florida.                
          Mrs. Payne controlled HRDC’s books, which recorded the extras               
          separate from HRDC’s regular jobs.  She attended a meeting with             
          Mr. Payne and Mr. Gunderson to discuss the preparation of                   
          petitioners’ tax returns at which Mr. Gunderson was told that all           
          of HRDC’s receipts were deposited into the bank account.  She               
          testified that she knew Mr. Gunderson had requested only bank               
          records to complete the returns, and she helped Ms. Enerson                 
          gather information to send to Mr. Gunderson.  Because we find               
          that Mrs. Payne filed the returns for 1993, 1994, and 1995                  
          fraudulently, respondent did not abuse his discretion in denying            
          Mrs. Payne innocent spouse relief under section 6015(f).                    
          VII.  Fraud Penalty Under Section 6663                                      
               If respondent shows that any portion of an underpayment is             
          due to fraud, the entire underpayment will be treated as                    
          attributable to fraud for purposes of the penalty under section             
          6663(a), except any portion of the underpayment that petitioner             
          establishes by a preponderance of the evidence is not                       
          attributable to fraud.  See sec. 6663(b); Knauss v. Commissioner,           
          T.C. Memo. 2005-6.  As stated above, respondent has shown that              
          petitioners committed fraud in filing their 1993, 1994, and 1995            
          returns.  However, petitioners have shown by a preponderance of             
          the evidence that their unreported bank deposits were not due to            
          fraud.  Our finding of fraud relies in part on petitioners’                 

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