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and advertising expenses of less than $2,0002) for a net profit
of $1,447.
In July 1990, the Federal Bureau of Investigation (FBI)
conducted a raid on a company petitioner operated at that time
and seized all the company's business records. Sometime after
the seizure, petitioner commenced operation of the real estate
loan business that generated the gross receipts petitioners
reported for 1992 and 1993. The FBI's investigation of
petitioner continued until October 24, 1994, when petitioner pled
guilty to one count of tax evasion under section 7201 with
respect to his 1988 taxable year and one count of mail fraud. On
January 17, 1995, petitioner was sentenced to 24 months of
incarceration with supervised release for 3 years thereafter.
Sometime later in 1995, while petitioner was incarcerated, the
FBI returned petitioner's seized records to Mrs. Braun.
Petitioners' 1992 and 1993 Federal income tax returns were
dated and signed April 12, 2001, and were filed with respondent
on April 20, 2001. Respondent disallowed all of petitioners'
claimed Schedule C expenses for 1992 and 1993 and issued
petitioners a notice of deficiency on April 5, 2004. Petitioners
2 Because of the poor quality of the copy of petitioners'
1993 Schedule C in the record, we are unable to determine the
exact amount of advertising expenses petitioners claimed, but
note that it appears to be approximately $1,800.
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