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Chloe and her customers solely in cash, but there were no large
cash withdrawals from her bank account, and the only deposits
came from Mr. Rhodes’s paycheck. She gave one explanation of her
buying relationship with Chloe to the examiner but a completely
different account at trial. The evidence satisfies the Court
that there was no individual by the name of Chloe, and no other
individual sold Ms. Rhodes supplies for Keepsake. In addition,
Ms. Rhodes’s documentation supporting her expense deductions was
fabricated solely to increase her Schedule C deductions and
create net operating losses for both Keepsake and Amway.
Respondent determined that Ms. Rhodes’s actions constituted
fraud, and the Court sustains that determination. Therefore, Ms.
Rhodes is liable for the section 6663(a) penalties for tax years
1994 and 1995.8
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent, except as to the
section 6663(a) penalty against
petitioner Michael Rhodes.
8Ms. Rhodes presented evidence that the criminal division of
the IRS investigated her and declined to prosecute for criminal
fraud. This fact, while considered, is not dispositive as the
Court considered the entire record and Ms. Rhodes’s entire course
of conduct in its determination. Petzoldt v. Commissioner, 92
T.C. 661, 699 (1989); Recklitis v. Commissioner, 91 T.C. 874, 910
(1988); Rowlee v. Commissioner, 80 T.C. 1111, 1123 (1983).
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