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incorporated by this reference. Petitioners resided in Eden
Prairie, Minnesota, at the time they filed the petitions.
Petitioners are married and were married during the years at
issue. Petitioners filed the tax returns for the years at issue
as married filing separately.
Mr. Paterson’s Bookmaking Activities
Mr. Paterson stipulated that he has been a professional
bookmaker for about 20 years including the years at issue. Mr.
Paterson has a criminal history. He was convicted of tax evasion
in 1979. He also recently pleaded guilty to another criminal
fraud charge relating to Form 730, Tax on Wagering, that he filed
for years other than the years at issue. Mr. Paterson expected
at the time of trial that he might have to serve time for these
criminal offenses.
Mr. Paterson conducted his illegal activities with two sons
from a previous marriage. The three of them took bets at one
son’s apartment in Eden Prairie, Minnesota. The primary assets
of the bookmaking enterprise were three cellular phones. Mr.
Paterson had no credit history because he dealt solely in cash
and had no credit card, so Mrs. Paterson obtained them in her
name. Mr. Paterson’s customers called these phones to place
bets.
Mr. Paterson had between 50 and 75 regular customers who bet
with him. These customers bet on college and professional
football and usually called Mr. Paterson to bet on Saturdays and
Sundays, the highest volume days. Mr. Paterson charged his
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