Dennis E. Runkle and Debra A. Runkle - Page 4

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               Mrs. Runkle operated the Canyon Kennel as a sole                       
          proprietorship since its inception in 1988 through at least 1995.           
          She provided dog and cat kenneling and grooming services through            
          Canyon Kennel.  She maintained a checking account and was                   
          responsible for paying the Canyon Kennel’s bills and collecting             
          its income.                                                                 
          Filing of Tax Returns & American Institute Philosophy                       
               Petitioners timely filed their Federal income tax returns              
          for all years before 1990 and paid the related taxes due.  On               
          February 25, 1991, petitioners applied for a $25,000 home equity            
          loan line of credit with Garrett State Bank to pay their taxes              
          for 1990.2  Petitioners timely filed a joint return for 1990                
          showing a tax liability of $13,467, which they paid with the loan           
          proceeds from Garrett State Bank.                                           
               In the fall of 1991, petitioners attended a seminar                    
          sponsored by the American Institute for the Republic (American              
          Institute) at which it promoted its “untaxing” program.  The                
          American Institute purported to advise petitioners how to “opt              
          out of the system of paying taxes” and provided petitioners with            
          letters to send to respondent’s Service Center and agents in                
          petitioners’ effort to “opt out” of the taxing system.                      

               2Mr. Runkle showed his monthly gross income as $6,000 in the           
          home equity loan application and showed his monthly net income as           
          $4,500.  Mrs. Runkle showed her monthly gross income as $1,731              
          and her monthly net income as $1,298.25.                                    

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