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Commissioner, T.C. Memo. 1992-277. As a related point,
petitioners’ use of the trust arrangement to claim business
deductions for personal expenses, especially items related to
their personal residence, likewise bolsters the impression of a
concerted effort to avoid taxation.
Failure to cooperate with tax authorities is another
particularly noteworthy badge on these facts. Petitioners not
only declined to cooperate in the examination of their returns
but also sought actively to impede the audit. Petitioners did
not provide any substantive information in response to
Mr. Morgason’s requests. They then went so far as to prevent
respondent from obtaining data from third parties by, for
instance, discouraging compliance with summonses and even filing
a petition to quash.
The badge pertaining to illegal activities is germane here
as well. Mr. Richardson was in the business of promoting and
selling abusive trust arrangements, which created revenue issues
for respondent and for countless purchasers. Moreover, as
pointed out by the District Court in the section 6700 proceeding
against Mr. Richardson and Mr. Graham, “whether before or after
Muhich I or its affirmance by the Seventh Circuit, the trust
scheme in which they engaged was, and ought to have been known to
be, illegal.” United States v. Graham, No. 1:03cv96 (S.D. Ohio
June 23, 2005). The very business income concealed in
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