- 24 -
income by similarly substantial amounts in at least 1996 and
1998, the years immediately before and after the year in issue.
Petitioner kept some detailed records regarding expenses, but
regularly destroyed those that recorded his cash disbursements to
Phillips. Petitioner did not inform his accountants about the
substantial cash withdrawals and payments to Phillips, and the
records he provided to his accountants did not disclose such cash
transactions on their face. He adopted this course after being
advised by his accountants that checks to cash would not be
deducted on returns prepared by the accountants.
There are multiple inconsistencies and implausible
explanations of behavior in the testimony of both petitioners.
For instance, petitioner testified at one point that his profit
margin was from work performed by subcontractors other than
Phillips. At another time, he admitted that Phillips was his
primary contractor and represented the majority of his cost of
goods sold expenditures. When asked at his first meeting with
special agents from the IRS about why he kept hundreds of
thousands of dollars in cash on hand, petitioner claimed that he
was accumulating cash “in anticipation of the Y2K problem”, never
mentioning his cash dealings with Phillips. At his second
interview with them, when asked what happened to the additional
$1.8 million in cash petitioners had withdrawn over the preceding
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Next
Last modified: November 10, 2007