Patricia B. Paterson, et al. - Page 3




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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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