Michael and Penny Rhodes - Page 21

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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               
                                             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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