Bacon v. Commissioner

¶1MEMORANDUM FINDINGS OF FACT AND OPINION

¶2RUWE, JUDGE: Respondent determined deficiencies in petitioners' Federal income taxes, an addition to tax, and penalties as follows:

¶3               Addition to Tax     Penalties

¶4               _______________     ____________

¶5   Year    Deficiency    Sec. 6653(b)(1)  ¹   Sec. 6663(a)

¶6   ____    __________    _______________     ____________

¶7   1988    $ 107,589      $ 83,609        ---

¶8   1989      70,297        ---        $ 52,723

¶9   1990     147,326        ---        110,495

¶10   1991      77,606        ---         58,205

¶11   1992      13,927        ---         10,445

¶12After concessions, ¹ the issues for decision are: (1) Whether petitioners underreported their income for each *303year in issue; (2) whether any part of an underpayment for each year in issue is due to fraud; and (3) whether assessment of the alleged deficiencies is barred by the statute of limitations.

¶13Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. Throughout this opinion, all amounts have been rounded to the nearest dollar.

¶14FINDINGS OF FACT

¶15Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. The petitioners, Robert G. Bacon (Mr. Bacon), and Barbara Bacon (Mrs. Bacon), are husband and wife. At the time they filed their petition in this case, they resided in Cinnaminson, New Jersey.

¶16Mr. Bacon is a high school graduate. He briefly attended college as a part-time student where he completed courses in Accounting I and II. Mrs. Bacon is a college graduate.

¶17In 1980, Mr. Bacon purchased a bar/restaurant called the Jug Handle Inn under the name of Radtam, Inc., a corporation (Radtam). Mr. Bacon was the sole *304shareholder of Radtam during the years in issue. The primary source of income for the Jug Handle Inn during this time period was from the sale of food, beer, and liquor. The Jug Handle Inn also derived revenue from lottery sales.

¶18Petitioners timely filed joint Federal income tax returns for each of the years in issue. Petitioners reported adjusted gross income on their Federal income tax returns for the years in issue as follows: ²

¶19               Adjusted

¶20        Year      Gross Income

¶21        ____      ____________

¶22        1988      $ 44,221

¶23        1989       90,840

¶24        1990       97,478

¶25        1991        99,117

¶26               _______

¶27         Total     331,656

¶28During the years in issue, petitioner made deposits into their personal bank accounts in the following amounts: ³

¶29                Gross

¶30        Year      Deposits

¶31        ____      __________

¶32        1988      $ 843,032

¶33        1989       530,188

¶34        1990      1,285,386

¶35        1991      1,149,802

¶36              _________

¶37        Total     3,808,408

¶38Some of these deposits were made in the form of cash. Some of these deposits came *305from two of Radtam's bank accounts. ⁴ Cash deposits and deposits from the Radtam accounts that were made into petitioners' personal bank accounts for the years in issue were as follows:

¶39           Cash       Deposits from

¶40          Deposits     Radtam Accounts

¶41          ________     _______________

¶42   1988      $ 64,372       $ 503,855

¶43   1989       41,202        293,313

¶44   1990       90,804        453,688

¶45   1991       394,311        227,543

¶46          ________       _________

¶47    Total     590,689       1,478,399

¶48During the years in issue, petitioners purchased seven parcels of real property in Mrs. Bacon's name as follows: ⁵

¶49

¶50On or about October 19, 1989, petitioners paid Collective Federal Savings Bank $ 10,657 to modify the terms of their loan agreement on property located at 218 E. 18th Street, North Beach Haven, New Jersey. Petitioners paid with a cashier's check, which was paid for with a check drawn on the Radtam lottery account at Security Savings & Loan. ⁶

¶51During the taxable years in issue, petitioners made the following expenditures:

¶52     Year      Item       Purchase Price

¶53     ____      ____       ______________

¶54     1990    Boston Whaler      ^1*308 $ 15,850

¶55     1990    Chrysler Voyager     2   6,500

¶56     1991    U.S. Savings Bonds    3  15,000

¶57                       ________

¶58      Total               (37,350)

¶59On June 15, 1989, Mr. Bacon's cousin, Tadeusz Ras, purchased a residence. Of the total purchase price, $ 50,220 was paid in cash. A check in the amount of $ 16,600 was also part of the purchase money used to acquire the property. On June 15, 1989, $ 16,600 was withdrawn from Radtam's savings account at Chemical Bank. ⁷ On June 27, 1989, Tadeusz Ras executed a mortgage on his residence in favor of Mrs. Bacon for $ 64,000.

¶60Beginning on or before July 1989, petitioners prepared monthly summary sheets on behalf of Radtam, which purportedly listed total deposits into its bank accounts for the month, breaking down the total by category such as food, sales tax, beer, liquor, etc. These monthly summary sheets were furnished to petitioners' accountant who prepared Radtam's corporate tax returns. ⁸

¶61In addition to the monthly summary sheets, each month petitioners provided their accountant *309with corporate bank statements and a schedule of corporate disbursements. The bank statements furnished to the accountant reflected two of Radtam's accounts at Security Savings & Loan. However, Radtam also maintained a savings account at Chemical Bank ⁹ from July 1, 1988, through June 30, 1992. Before 1991, petitioners' accountant was not made aware that Radtam had a bank account with Chemical Bank. Sometime after 1991, and after the Internal Revenue Service (IRS) began its investigation, petitioners started providing their accountant with monthly summary sheets listing deposits into the Chemical Bank account.

¶62Radtam reported gross receipts and taxable income on its corporate income tax returns as follows:

¶63           FYE     FYE     FYE     FYE     FYE

¶64          6/30/88   6/30/89   6/30/90   6/30/91   6/30/92

¶65          _______   _______   _______   _______   _______

¶66Gross Receipts   $ 453,734 $ 684,395  $ 868,601 $ 901,615  $ 803,517

¶67Taxable Income   ¹ 18,657    (616)   12,308    (242)    7,331

¶68For purposes of preparing petitioners' Federal income tax returns, Mrs. Bacon prepared annual *310summaries of personal income sources and expenses relating to petitioners' real properties, which she gave to their accountant. Mrs. Bacon also provided the accountant with Forms 1099 and settlement sheets from each real estate purchase.

¶69In 1991, Mr. Bacon purchased a bar/restaurant called the Whistler's Inn under the name Bradam, Inc. (Bradam). Mr. Bacon was the sole shareholder of Bradam in 1991. The primary source of income for Whistler's Inn was from the sale of food, beer, and liquor.

¶70On or about April 17, 1991, Bradam entered into an agreement to purchase a liquor license, restrictive covenant, and equipment relating to the Whistler's Inn. At settlement, Bradam applied a $ 50,000 cashier's check toward the purchase. The cashier's check was purchased with amounts withdrawn from Radtam's savings account. ¹⁰

¶71On or about January 6, 1992, Mr. Bacon filed an application for a VISA card listing his occupation as tavern owner of Radtam Inc. t/a Jug Handle Inn and stating that his annual salary was $ 299,000. Mr. Bacon reported no salary, wages, or dividends from Radtam on his income tax returns for the years in issue.

¶72On July 14, 1992, both petitioners met with and *311were interviewed by two special agents from the IRS. During this interview, Mr. Bacon told the agents that petitioners and their children had received extensive cash gifts from Mr. Bacon's grandfather in $ 10,000 cash increments. According to Mr. Bacon, he received a $ 10,000 cash gift each year since his 18th birthday, his wife received an annual $ 10,000 cash gift since they have been married, and their children each received an annual $ 10,000 cash gift since their birth. Mr. Bacon told respondent's agents that the gifts were from his grandfather and were received through a brother-in-law and that neither petitioners nor their children had ever met their grandfather. Mr. Bacon told the agents that he was told never to tell anyone about the gifts and never to put the money in a bank. Mr. Bacon told the special agents that he may have had as much as $ 650,000 cash on hand at the beginning of 1988. At trial, petitioners stipulated that at the beginning of 1988, they had approximately $ 35,000 cash on hand. During the years in issue, petitioners did not receive any gifts, inheritances, legacies, or devises.

¶73OPINION

¶74Respondent determined deficiencies for the years *312in issue by using the bank deposit method. Bank deposits are prima facie evidence of income. See DiLeo v. Commissioner, 96 T.C. 858, 869 (1991), affd. 959 F.2d 16 (2d Cir. 1992). Of course, when utilizing this method, all nontaxable sources of deposits must be taken into account. See id. Under the bank deposits method: (1) Bank deposits are totaled; (2) nonincome deposits, redeposits, or transfers are eliminated; (3) an excess of deposits, as adjusted, over reported income is considered to be unreported income; (4) cash expenditures that did not come from deposited funds or nontaxable sources are added to the amount of underreported income; and (5) deductible expenses not accounted for in the taxpayer's return are allowed. ¹¹

¶75Using the bank deposit method, respondent determined in the notice of deficiency that petitioners understated their income for the years 1988 through 1991 in the following amounts:

¶76^1*313 1988     2 1989     3 1990     4 1991

¶77     ____       ____       ____       ____

¶78   $ 362,461    $ 226,693    $ 500,851    $ 236,417

¶79The parties have stipulated that if a bank deposit analysis is to be used, then the following adjustments must be made to respondent's bank deposit analysis in the notice of deficiency: ¹²

¶80              1988      1989      1990     1991

¶81             ____      ____      ____     ____

¶82Mathematical errors:    ---     $ 71,907   $ 78,361   $ 368,032

¶83Less reductions for

¶84 nontaxable items &

¶85 credits:  ¹      (284,603)   (150,922)   (268,424)   (434,422)

¶86Plus cash expendi-

¶87 tures  2 and

¶88 debits:  3       32,467    173,989     49,962     75,387

¶89            _________   _______    _________    ________

¶90Net adjustments to

¶91 statutory notice:   (252,136)    94,974    (140,101)     8,997

¶92 Respondent has submitted *314schedules with his brief that show petitioners' unreported income for the years in issue is as follows:

¶93With the *316exceptions noted below (see infra notes 13, 14, and 15), respondent's final bank deposits analysis, as adjusted pursuant to the parties' stipulations, is supported by the facts. On the basis of stipulated facts and evidence admitted at trial, we find that petitioners had unreported income of $ 102,748 ^13*317 in 1988, $ 320,661 14 in 1989, $ 358,215 15 in 1990, and $ 245,328 in 1991.

¶94Petitioners argue that respondent's bank deposit method is fundamentally flawed. Admittedly, there have been a significant number of adjustments to respondent's bank deposit analysis, and the computations involve considerable detail. Nevertheless, the facts in the record, most of which were stipulated, support respondent's final computations as adjusted. Indeed, on brief, petitioners focus their factual dispute on only four specific matters in the bank deposit analysis. We address each of the specific factual matters that petitioners dispute.

¶95Petitioners assert that respondent should reduce their 1988 unreported taxable income under the bank deposit analysis by $ 35,000. According to petitioners, the adjustment is necessary because they had $ 35,000 cash on hand at the beginning of the year.

¶96An adjustment to respondent's bank deposit analysis would be appropriate if petitioners had less than $ 35,000 at the end of *318the year. If petitioners started with $ 35,000 cash at the beginning of the year but had less than $ 35,000 at the end of the year, then the difference could have been nontaxable source of deposits to petitioners' bank accounts or a nontaxable source of cash expenditures by petitioners. However, Mr. Bacon testified that he kept substantial amounts of cash on hand at all times during the years in issue. Indeed, petitioners prepared a loan application dated March 8, 1990, which reflected $ 35,000 cash on hand. There is no credible evidence that petitioners' cash on hand was less than $ 35,000 at the end of any of the years in issue. On the basis of the record, we cannot conclude that an adjustment to respondent's bank deposit analysis is justified for cash on hand.

¶97Respondent increased petitioners' 1989 unreported income under the bank deposit analysis by $ 64,000 due to an alleged transfer from Mrs. Bacon to Tadeusz Ras (Mr. Ras). Petitioners argue that the alleged transfer should be eliminated from the bank deposit analysis, since no transfer ever took place.

¶98Mr. Ras is Mr. Bacon's cousin and has been continuously employed by Radtam since 1991. When Mr. Ras started *319working for Mr. Bacon in 1991, he was paid approximately $ 5 to $ 6 per hour. Mr. Ras cared for Mr. Bacon's grandmother before he was employed by Radtam.

¶99On June 15, 1989, Mr. Ras purchased a house. According to the settlement statement, Mr. Ras owed the seller $ 108,213 and satisfied this obligation with $ 50,220 in cash and paid the remainder with a number of checks. One of the checks used to purchase the house was in the amount of $ 16,600. On the day of Mr. Ras' purchase, the sum of $ 16,600 was withdrawn from Radtam's savings account at Chemical Bank. ¹⁶ On June 27, 1989, Mr. Ras executed a mortgage on his residence in favor of Mrs. Bacon in the amount of $ 64,000.

¶100Mr. Ras testified that his grandmother, not Mrs. Bacon, provided him with the money to purchase the house. When he was asked how his grandmother managed to accumulate $ 50,220 in cash, Mr. Ras was unable to provide an answer. When he was asked who issued the checks for the remainder of the purchase price, Mr. Ras could not provide a definite answer, nor could he deny that Mr. Bacon provided him with some of the checks. When he was asked why he signed a $ 64,000 mortgage in favor of Mrs. Bacon *320if she had not lent him the money, Mr. Ras said that Mr. Bacon told him to sign and that he would sign anything that Mr. Bacon gave him.

¶101We do not find Mr. Ras' explanation to be credible. On the basis of the facts, we find that petitioners provided Mr. Ras with $ 64,000 and that he in turn executed a mortgage on the house in the amount of $ 64,000.

¶102Petitioners argue that respondent should reduce their unreported taxable income under the bank deposit analysis by $ 9,000 for 1988 and $ 4,000 for 1990. According to petitioners, they issued checks totaling $ 13,000 to make deposits on unconsummated real estate transactions. This resulted, according to petitioners, in the return of $ 13,000 of nontaxable funds that were either redeposited or cashed.

¶103Petitioners have not established that these transactions ever took place or that the amounts in question were returned to them. No adjustment to respondent's bank deposit analysis is necessary for this item.

¶104Petitioners argue that respondent should reduce their unreported taxable income under the bank deposit analysis by $ 319,109. Petitioners allege that such an adjustment is necessary because *321in 1989 Radtam owed Mrs. Bacon $ 319,109. Petitioners argue that, to the extent that the bank deposit analysis indicates the underreporting of income from Radtam, petitioners should be given credit for $ 319,109 as being for the repayment of previous loans from Mrs. Bacon. Respondent argues that petitioners have not substantiated that Radtam owed Mrs. Bacon $ 319,109 in 1989.

¶105To support petitioners' contention, petitioners rely on Radtam's Federal income tax return for the fiscal year ended June 30, 1989. Page four of the income tax return included a balance sheet which listed "Mortgages, notes, bonds payable in less than 1 year" (notes payable) of $ 319,109. The income tax return does not identify the persons or entities to whom Radtam owed $ 319,109. Petitioners' C.P.A., Jerome Collins, prepared the June 30, 1989, Federal income tax return. ¹⁷ The income tax return was filed in March of 1991.

¶106Mr. Collins testified that he did not ask either Mr. Bacon or Mrs. Bacon whether the $ 319,109 entry on the June 30, 1989, balance sheet was a loan payable to Mrs. Bacon. Furthermore, *322Mr. Collins testified that he did not see any documents that would indicate that the corporation owed Mrs. Bacon $ 319,109. ¹⁸ Petitioners did not provide corporate minutes, loan documents, promissory notes, mortgage documents, or other documents that would substantiate their assertion.

¶107Mr. O'Malley, petitioners' new C.P.A., testified that he does not know how Mr. Collins arrived at the loan payable figures that appeared on Radtam's Federal income tax return for the fiscal year ending June 30, 1989. Mr. O'Malley also testified that he could not obtain any information about the loans payable account.

¶108Radtam's Federal income tax returns for the fiscal years ending 1990, 1991, and 1992, were all filed in June of 1996. ^19*324 None of those income tax returns contained any balance sheet information. 20 The lack of balance sheet information on subsequent Radtam Federal income tax returns suggests that Mr. Collins did not have sufficient *323detail to prepare the balance sheets and that a note payable to Mrs. Bacon never existed.

¶109 The evidence does not support petitioners' assertion that Radtam owed Mrs. Bacon $ 319,109 in 1989, and we do not believe petitioners' assertion in this regard. Thus, we find that the bank deposit analysis does not have to be adjusted for this item.

¶110The next issue is whether any part of the underpayment of income tax for each year in issue is due to fraud. Respondent's notice of deficiency determined that petitioners *325are liable for the addition to tax for fraud imposed under section 6653(b)(1) ^21*326 for the taxable year 1988 and penalties under section 6663(a) 22 for the taxable years 1989, 1990, and 1991. Each section imposes an addition to tax or penalty equal to 75 percent of the portion of an underpayment that is attributable to fraud. Additionally, each section provides that if any portion of an underpayment is attributable to fraud, the entire underpayment is treated as attributable to fraud, unless the taxpayer proves that some portion of the underpayment is not due to fraud. Finally, in the case of a joint return, the fraud penalty does not apply with respect to a spouse unless some part of the underpayment is due to fraud of such spouse. See secs. 6653(b)(3) for 1988 and 6663(c) for the years 1989, 1990, and 1991.

¶111Respondent has the burden of proving by clear and convincing evidence that an underpayment exists for the years in issue and that some portion of the underpayment is due to fraud. See sec. 7454(a); Rule 142(b); Niedringhaus v. Commissioner, 99 T.C. 202, 210 (1992). Consequently, respondent must establish: (1) Petitioners have underpaid their taxes for each year, and (2) some part of the underpayment is due to fraud. See DiLeo v. Commissioner, 96 T.C. 858, 873 (1991), affd. 959 F.2d 16 (2d Cir. 1992).

¶112Respondent need not prove the precise amount of the underpayment resulting from fraud but only that some portion of the underpayment of tax for each year is due to fraud. See Niedringhaus v. Commissioner, supra at 210.

¶113Where allegations of fraud are intertwined with unreported and indirectly reconstructed income, respondent is required to establish a likely taxable source for alleged unreported income or to disprove nontaxable sources alleged *327by the taxpayer. See DiLeo v. Commissioner, supra 96 T.C. at 873.

¶114The evidence clearly establishes that the Jug Handle Inn was a likely source of unreported income. The evidence also establishes that petitioners had no nontaxable sources that could account for the unreported income. Mr. Bacon originally claimed to have had $ 650,000 in nontaxable cash gifts on hand at the beginning of 1988, which would have been a potential nontaxable source. However, at trial petitioners stipulated that they only had $ 35,000 cash on hand at the beginning of 1988. Petitioners stipulated that they did not receive any gifts, inheritances, legacies, or devises.

¶115Respondent's final bank deposit analysis is based primarily on stipulated facts. The record contains clear and convincing affirmative evidence that petitioners underpaid their 1988, 1989, 1990, and 1991 Federal income taxes.

¶116Respondent must prove that a portion of the underpayment is attributable to the fraudulent intent of petitioners. Fraud is the intentional wrongdoing motivated by a specific purpose to evade a tax known or believed to be owing. See Stoltzfus v. United States, 398 F.2d 1002, 1004 (3d Cir. 1968). The existence *328of fraud is a question of fact to be resolved upon consideration of the entire record. See Gajewski v. Commissioner, 67 T.C. 181, 199 (1976), affd. without published opinion 578 F.2d 1383 (8th Cir. 1978).

¶117Fraudulent intent can seldom be established by a single act or by direct proof of the taxpayer's intention. It is usually found by surveying the taxpayer's whole course of conduct and is to be proven as any other fact from all the evidence of record and reasonable inferences properly to be drawn therefrom. See Otsuki v. Commissioner, 53 T.C. 96, 106 (1969). Any conduct, the likely effect of which would be to mislead or to conceal may establish an affirmative act of evasion. See Spies v. United States, 317 U.S. 492, 499, 87 L. Ed. 418, 63 S. Ct. 364 (1943).

¶118The courts have relied upon a number of indicia of fraud in deciding whether an underpayment of tax is due to fraud. While no single factor is necessarily sufficient to establish fraud, the existence of several indicia is persuasive circumstantial evidence of fraud. See Petzoldt v. Commissioner, 92 T.C. 661, 700 (1989).

¶119Respondent argues that the following factors or "badges" of fraud are present in this case: (1) A substantial and *329consistent understatement of income; (2) false statements made by petitioners during their interview with respondent's agents; (3) extensive dealings in cash; (4) failure to maintain adequate records; and (5) failure to furnish their return preparer with accurate information.

¶1201. SUBSTANTIAL AND CONSISTENT UNDERSTATEMENT OF INCOME

¶121The consistent failure to report substantial amounts of income over a number of years, standing alone, is effective evidence of fraudulent intent. See Schwarzkopf v. Commissioner, 246 F.2d 731, 734 (3d Cir. 1957), affg. and remanding on another issue T.C. Memo 1956-155. In this case, there is a substantial underpayment of tax for each of the years in issue. Over the 4-year period in issue, petitioners failed to report approximately $ 1 million dollars of income.

¶1222. FALSE STATEMENTS

¶123Respondent argues that false statements made at the time petitioners were interviewed by respondent's agents are evidence of fraudulent intent. The Supreme Court has stated that an "affirmative willful attempt may be inferred from … any conduct, the likely effect of which would be to mislead or to conceal." Spies v. United States, supra at 499. Making false statements to a revenue *330agent is evidence of fraud. See United States v. Beacon Brass Co., 344 U.S. 43, 45, 97 L. Ed. 61, 73 S. Ct. 77 (1952).

¶124When petitioners first met with respondent's special agents regarding the years in question, Mr. Bacon told them that petitioners and their children had received extensive cash gifts from Mr. Bacon's grandfather in $ 10,000 cash increments. According to Mr. Bacon, he received a $ 10,000 cash gift each year since his 18th birthday, his wife received an annual $ 10,000 cash gift since they have been married, and their children each received an annual $ 10,000 cash gift since their birth. Mr. Bacon told respondent's agents that he received the cash gifts through a brother-in-law, that neither petitioners nor their children had ever met their grandfather, that they were told never to tell anyone about the gifts, and that they were never to put the money in the bank. Mr. Bacon told the agents that petitioners had as much as $ 650,000 cash on hand at the beginning of 1988. Mr. Bacon's statement about cash on hand was false. Petitioners stipulated that at the beginning of 1988, they had approximately $ 35,000 cash on hand. Had Mr. Bacon's statements about cash on hand at the *331beginning of 1988 been true, petitioners would have had a nontaxable source from which to make deposits during the years in issue. We can conceive of no reason for such a false statement other than to mislead the agents.

¶125We find that Mr. Bacon's statements about cash on hand during this interview were intended to mislead the agents.

¶1263. EXTENSIVE DEALINGS IN CASH

¶127Dealing in cash to avoid scrutiny of one's finances is a badge of fraud. See Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th Cir. 1986), affg. T.C. Memo 1984-601. Petitioners made numerous and substantial cash transactions during the 4 years in issue. During this period, $ 590,689 in cash was deposited into petitioners' personal bank accounts and $ 113,571 in cash was used in the purchase of real estate. ²³ All real estate purchases were in Mrs. Bacon's name, and she attended some, if not most, of the property settlements. A boat and a personal van were also purchased for $ 22,350 in cash.

¶128Petitioners' extensive use of cash supports a reasonable inference that petitioners were knowingly and willfully attempting to understate their taxable income.

¶1294. FAILURE TO MAINTAIN ADEQUATE RECORDS

¶130Taxpayers are required *332to keep such records as are necessary for the determination of tax. See sec. 6001. The failure to keep adequate records is a badge of fraud. See Bradford v. Commissioner, supra at 307.

¶131During the years in issue, petitioners transferred $ 1,478,399 from two Radtam accounts into their personal bank accounts. Despite the significant transfers between Radtam's accounts and personal accounts, petitioners appear to have maintained no records of these transactions. Rather, they argue that they were unaware of the accounting problems being created and that they lacked the technical ability to keep corporate books or prepare tax returns.

¶132Petitioners also deposited $ 590,689 in cash into their personal bank accounts. At trial, Mr. Bacon testified he did not know the source of these significant cash deposits.

¶133While Mr. Bacon testified that he was unaware of the problems created by commingling funds, his testimony is self-serving, and we do not find him to be credible. Mr. Bacon appears to us to be an astute businessman and investor. It would have required relatively little, if any, technical ability to maintain, or hire a bookkeeper to maintain, a record of transfers between corporate and individual *333accounts or records of the source of petitioners' substantial cash deposits to their personal accounts.

¶134Mrs. Bacon also had a working knowledge of Radtam's books and records. Mrs. Bacon testified about the "settling" of daily cash register receipts and the recording of Radtam's income during the years in issue. Mrs. Bacon prepared disbursement summaries from Radtam's account at Security Savings & Loan, which were furnished to petitioners' accountant. While Mr. Bacon handled most of the deposits, Mrs. Bacon handled some deposits and testified that she may have handled some large cash deposits.

¶135     5. FAILURE TO FURNISH THEIR TAX RETURN PREPARER WITH

¶136       ACCURATE INFORMATION

¶137The duty of filing accurate returns cannot be avoided by placing responsibility upon an agent. See American Properties, Inc. v. Commissioner, 28 T.C. 1100, 1116 (1957), affd. 262 F.2d 150 (9th Cir. 1958).

¶138Beginning on or before July 1989, petitioners prepared a monthly summary sheet on behalf of Radtam, which purportedly listed total deposits into its bank accounts for that month. These monthly summary sheets were furnished to petitioners' accountant who prepared Radtam's corporate tax returns. ²⁴ In addition to *334the monthly summary sheets, each month petitioners provided their accountant with corporate bank statements and a schedule of corporate disbursements.

¶139The bank statements provided to petitioners' accountant were primarily for two accounts at Security Savings & Loan. Yet Radtam maintained a savings account at Chemical Bank ²⁵ from July 1, 1988, through June 30, 1992. It was not until after the commencement of the examination by respondent that petitioners' accountant learned that Radtam had a savings account with Chemical Bank.

¶140Mrs. Bacon prepared annual summaries of personal income sources and expenses relating to petitioners' real estate, which she gave to their accountant. Mrs. Bacon also provided the accountant with Forms 1099 and settlement sheets from each real estate purchase.

¶141During the years in issue, petitioners transferred $ 1,478,399 from two Radtam accounts and deposited $ 590,689 in cash into their personal accounts. Despite the significant deposits into petitioners' personal accounts, Mrs. Bacon did not disclose these *335deposits or provide personal bank statements to their accountant.

¶142On or about January 6, 1992, Mr. Bacon filed an application for a VISA card listing his occupation as tavern owner of Radtam Inc. t/a Jug Handle Inn and listed his annual salary as $ 299,000. However, Mr. Bacon never reported receiving any salary or dividends from Radtam on his individual Federal income tax returns. ²⁶

¶143After considering the entire record, we hold that respondent has met his burden of proving that some portion of petitioners' underpayment for each year in issue is attributable to *336fraud on the part of both Mr. and Mrs. Bacon. III. Statute of Limitations

¶144Section 6501(a) provides, generally, for a 3-year period of limitations. However, in the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time. See sec. 6501(c)(1). Where a joint Federal income tax return was filed, a finding that fraud was committed by either spouse keeps the period of limitations on assessment open with respect to both spouses. See Vannaman v. Commissioner, 54 T.C. 1011, 1018 (1970).

¶145Since we have already found that the returns for the years in issue were fraudulent, it follows that the exception found in section 6501(c)(1) applies, and the assessment of taxes for the years in issue is not barred.

¶146After concessions by respondent,

¶147Decision will be entered under Rule 155.

¶148               APPENDIX A

¶149        INCOME REPORTED ON TAX RETURNS BY YEAR

¶150             1988     1989     1990      1991

¶151             ______    ______    ______     ______

¶152Wage/salary  ^1*338      $ 3,196    $ 3,008    $ 2,840    $ 3,003

¶153Interest income       3,286     4,631     9,426     21,522

¶154Dividend income *337      1,357     1,123     1,170     1,202

¶155Sch. D income        1,088     -0-      -0-      -0-

¶156Pension/annuities      4,060     4,263     4,263     4,263

¶157Social Security       5,094     4,710     5,544     5,850

¶158Rents          2 28,140   3 75,105   4 76,485   5 65,277

¶159IRA deduction       (2,000)    (2,000)    (2,250)    (2,000)

¶160Adjusted gross income   44,221    90,840    97,478     99,117

¶161                APPENDIX B

¶162        DEPOSITS MADE TO PERSONAL BANK ACCOUNTS

¶163   Bank Account            1988   1989   1990   1991

¶164   ____________            ____   ____   ____   ____

¶165Energy People Federal Credit

¶166 Union               ¹ $ 5,000   ---    ---     ---

¶167Savings account No. XXXX5-004

¶168Barnett Bank

¶169Checking account No. XXXXXX4397    16,316 $ 27,523 $ 125,640  $ 59,702

¶170Horizon Bank  n

¶171Security Savings & Loan

¶172Checking account No. XX-XXXX019-1   182,947 142,400  219,001   343,915

¶173Security Savings & Loan

¶174Passbook account No. XX-XXX6720    89,748   ---    15,575    6,400

¶175First Fidelity Bank

¶176Money Market account No.

¶177 XXXXXX6161             278,347  32,867  176,807   63,395

¶178Chemical Bank

¶179Savings account No. XXX-XX3-349     ---   76,051   57,137   13,802

¶180Collective Federal Bank

¶181Savings account No. XX-X-XX0909     ---     512   18,922    7,119

¶182Barnett Bank

¶183Money Market account No. XXXXXX7650   ---     ---   277,265   24,719

¶184Barnett Bank

¶185Certificates of Deposit

¶186account No. XXXXXX6406        ---    ---    ---    97,000

¶187Barnett Bank

¶188Certificates *339of Deposit

¶189account No. XXXXXX0714         ---    ---    ---    96,000

¶190Barnett Bank

¶191Certificates of Deposit

¶192account No.XXXXXX0659         ---    ---    ---    97,000

¶193                 ________  _______ _________ _________

¶194Total Gross Deposits:        843,032  530,188 1,285,386 1,149,802

¶195               APPENDIX C

¶196Property          Payments Terms and Payments Made

¶197________          ________________________________

¶1981. 211 E. 17th Street,   The contract sales price was $ 412,000

¶199Long Beach Township,    and the gross amount due from Mrs.

¶200New Jersey --       Bacon was $ 415,167. To finance the

¶201Purchased 2/23/88     purchase, Mrs. Bacon paid $ 3,167 in

¶202             cash, assumed a $ 287,069  ¹ first mortgage

¶203             on the property, and secured a $ 124,931

¶204             second mortgage on the property. During

¶205             1988, petitioners paid down the $ 287,070

¶206             first mortgage by $ 283,310. The

¶207             payments *340were made over an 8-month

¶208             period of time, consisted of five

¶209             payments,  2 all drawn on petitioners'

¶210             personal bank accounts. The $ 124,931

¶211             second mortgage required a single

¶212             payment of $ 124,931 in 1 year.  n

¶2132. Lots 7, 8, 13, and   Mrs. Bacon put down 10 percent or

¶21414, Block 304, Marco   $ 58,500 as a deposit, executed a

¶215Beach Unit 9 located   $ 300,000 promissory note secured by a

¶216in Collier County,     mortgage on the property, and paid the

¶217Florida. --        balance on or before the closing.  n

¶2183. 212 West Broad St.,   The contract sale price was $ 195,000.

¶219and Palmyra, New Jersey, At closing, $ 197,017, consisting of

¶220Purchased 3/31/89     $ 74,285 in cash and three checks

¶221             totaling $ 122,732, was deposited with

¶222             the settlement agent. The individual

¶223             check amounts are: $ 82,000, $ 21,000,

¶224             and $ 19,732.

¶225             The source of funds, in part, for the

¶226            $ 82,000 check was obtained in the form

¶227             of cash withdrawals from Radtam's

¶228             general and lottery accounts at the

¶229             Security Savings & Loan. Additionally,

¶230            $ 21,000 was withdrawn from Radtam's

¶231*341savings account at Chemical Bank  5 and

¶232             used to purchase a cashier's check,

¶233             which was used to pay a portion of the

¶234             purchase price.

¶2354. Lot 26, Block 388,   The property was purchased with $ 25,000

¶236Unit 12, located in    in personal funds and a $ 400,000

¶237Collier County,      purchase money mortgage was incurred.

¶238Florida --

¶239Purchased 6/18/90

¶2405. Lot 4, Block 304,    The purchase price was $ 530,000 and the

¶241Unit 9, located in     total amount due from buyer was

¶242Collier County,      $ 533,896. At closing, Mrs. Bacon

¶243Florida --         provided $ 152,285, and the principal

¶244Purchased 6/29/90     amount of the new loan was $ 380,000.

¶2456. 610 South Reed St.,   The property was paid for with $ 10,000

¶246Cinnaminson, New Jersey, in cash, $ 1,592 in coin, and five

¶247Purchased 7/2/90      checks totaling $ 120,000. Mr. Bacon, as

¶248             president of Radtam, Inc., was the

¶249             source of the $ 11,592 in cash and coin.

¶250             The source of the five checks are as

¶251             follows: First, a check for $ 55,000 was

¶252             purchased with $ 17,000 in funds

¶253             withdrawn from the Radtam 600 account,

¶254            $ 28,000 in funds withdrawn from

¶255             petitioners' *342personal savings account

¶256             maintained at the same institution,  ⁶ and

¶257             a $ 10,000 check drawn on petitioners'

¶258             personal checking account at the same

¶259             institution. Second, $ 35,000 of the

¶260             purchase price was paid by check drawn

¶261             on petitioners' personal checking

¶262             account at Barnett Bank. Third, $ 5,000

¶263             of the purchase price was paid by check

¶264             drawn on petitioners' personal checking

¶265              account at First Fidelity Bank. Fourth,

¶266             a $ 20,000 check purchased from Security

¶267             Savings & Loan, in part with $ 19,000 in

¶268             cash tendered to the bank by petitioners

¶269             on July 2, 1990, and a $ 5,000 check,

¶270             drawn on the account of Thomas Begley,

¶271             Jr., Esq., from funds deposited in the

¶272             same account earlier in the year.

¶2737. 407 North Canal St.,  Mrs. Bacon deposited $ 35,528 at

¶274Cinnaminson, New Jersey, closing for the property. The deposit

¶275Purchased 10/18/90     consisted of $ 5,528 in cash and a check

¶276             for $ 30,000. The $ 30,000  ^7*344 cashier's

¶277             check was purchased with a check drawn

¶278             on petitioners' *343Chemical Bank account. ⁸

¶279                APPENDIX D

¶280                1988

¶281Bank deposits to personal accounts:

¶282   Bank           Account Number          Deposit

¶283   ____           ______________          _______

¶284Energy People

¶285 Federal Credit Union       XXXX5-004           $ 5,000

¶286Barnett Bank           XXXXXX4397           16,316

¶287Chemical Bank           XXXXX140-3           239,218

¶288Security Savings

¶289 & Loan            XX-XXXX019-1           182,947

¶290Security Savings

¶291 & Loan             XX-XXX6720           89,748

¶292First Fidelity          XXXXXX6161           278,347

¶293                              _________

¶294 Total gross deposits                     811,576

¶295Less:

¶296 a. Redeposited items, transfers, checks

¶297   to cash                          (221,947)

¶298 b. Nontaxable items                      (5,094)

¶299 c. Repayment to corporation                 (73,000)

¶300                              _________

¶301Equals: Net deposits                      511,535

¶302Less:

¶303 a. Wages/salary per return                  (3,196)

¶304 b. Interest income per return                 (3,286)

¶305 c. Dividend income per return                 (1,357)

¶306 d. Schedule D per *345return                   (1,088)

¶307 e. Pension/annuities                     (4,060)

¶308 f. Social Security (tax)                   (5,094)

¶309 g. Rents (gross)                      (136,000)

¶310                              _________

¶311Equals: Total deposits in excess of reported          357,454

¶312    income

¶313Plus:

¶314 a. Corporate checks written for personal

¶315   benefit of taxpayers                    5,007

¶316                              _________

¶317Equals: Unreported income for 1988               362,461

¶318               APPENDIX E

¶319                1989

¶320Bank deposits to personal accounts:

¶321   Bank            Account Number         Deposit

¶322   ____            ______________         _______

¶323Energy People

¶324 Federal Credit Union       XXXX5-004            ---

¶325Barnett Bank           XXXXXX4397          $ 27,523

¶326Chemical Bank           XXXXX140-3           250,835

¶327Security Savings

¶328 & Loan            XX-XXXX019-1           142,400

¶329Security Savings

¶330 & Loan             XX-XXX6720            72,000

¶331First Fidelity          XXXXXX6161           27,867

¶332Chemical Bank          XXX-XX3-349           76,051

¶333Collective Federal        XX-X-XX0909             512

¶334                              ________

¶335 Total bank deposits - 1989                  597,188

¶336Cash *346expenditures:

¶337 a. Note receivable (Ras)                   64,000

¶338 b. Purchase 212 W. Broad Street (3/31/89)           74,285

¶339Rental income checks paid by Radtam, Inc. to

¶340taxpayer and not deposited into taxpayer's

¶341bank accounts used in above analysis.              41,000

¶342Rental income checks paid to taxpayer by

¶343managing agent(s) of taxpayer's Marco Island,

¶344FL rental properties and not deposited into

¶345taxpayers' bank accounts used in above analysis.

¶346Agent:  Horizon by Sea                      3,250

¶347                               ________

¶348 Total gross income - 1989                  779,723

¶349Less nontaxable deposits/items:

¶350 a. Paybacks to corp. from personal account          (55,925)

¶351 b. Social Security benefits (nontaxable)           (4,710)

¶352 c. Transfer between accounts                (173,000)

¶353Receipts per return:

¶354 a. Wages/salary per return                  (4,631)

¶355 b. Interest income per return                 (3,008)

¶356 c. Dividend income per return                 (1,123)

¶357 d. Pension/annuities                     (4,263)

¶358 e. Social Security (tax)                   (4,710)

¶359 f. Rents (gross)                      (232,000)

¶360                              _________

¶361Equals: Total nontaxable deposits/items            *347(483,370)

¶362Total gross income unreported                  296,353

¶363Taxable income per return                   (71,907)

¶364Total income unreported                    224,446

¶365Personal items paid by corporation                2,247

¶366Total unreported income - 1989                 226,693

¶367               APPENDIX F

¶368                1990

¶369Bank deposits to personal accounts:

¶370    Bank          Account Number         Deposit

¶371    ____          ______________         _______

¶372Energy People

¶373 Federal Credit Union      XXXX5-004            ---

¶374Barnett Bank           XXXXXX4397          $ 125,640

¶375Chemical Bank           XXXXX140-3           395,039

¶376Security Savings

¶377 & Loan            XX-XXXX019-1           219,001

¶378Security Savings

¶379 & Loan             XX-XXX6720            15,575

¶380First Fidelity          XXXXXX6161           176,807

¶381Chemical Bank          XXX-XX3-349           57,137

¶382Collective Federal       XX-X-XX0909           18,922

¶383Barnett Bank           XXXXXX7650           277,265

¶384                              _________

¶385 Total bank deposits - 1990                 1,285,386

¶386Cash expenditures:

¶387 a. Purchase 10/18/90 - 407 Canal Street            5,258

¶388 b. Purchase 7/2/90 - 610 Reed Street             11,592

¶389 c. Purchase 6/18/90 *348- Lot 26 B 388 Unit 12          25,000

¶390 d. 1990 Plymouth Voyager 1

¶391Rental income checks paid by Radtam, Inc., to

¶392taxpayer and not deposited into taxpayer's bank

¶393accounts used in above analysis.                44,000

¶394Rental income checks paid to taxpayer by managing

¶395agent of taxpayer's Marco Island, FL rental

¶396properties and not deposited into taxpayer's bank

¶397accounts used in above analysi.

¶398 Agents:  Harborview Realty, Inc.                1,000

¶399      Horizon by Sea Realty                 8,809

¶400Rental income checks paid to taxpayer by managing

¶401agent of taxpayer's New Jersey rental properties

¶402and not deposited into taxpayer's bank accounts

¶403used in analysis.

¶404 Agents:  Van Dyk Group, Inc.                  3,080

¶405      Newbern Realty                    9,774

¶406Rental income checks paid to taxpayer directly

¶407by tenants for rental of Marco Island or New

¶408Jersey properties and not deposited into

¶409taxpayer's bank accounts used in above analysis.        16,761

¶410                              _________

¶411 Total gross income 1990                  1,433,010

¶412Less nontaxable deposits/items:

¶413 a. Transfer between accounts                (487,811)

¶414 b. Social Security benefits (nontaxable)           (5,544)

¶415 c. Check to cash 611 account *34900506140            (30,000)

¶416Receipts Per Return:

¶417 a. Wages/salary per return                  (2,840)

¶418 b. Interest income per return                 (9,426)

¶419 c. Dividend income per return                 (1,170)

¶420 d. Social Security (tax)                   (5,544)

¶421 e. Rents (Gross)                      (311,700)

¶422 f. Pension/annuities                     (4,263)

¶423                              _________

¶424Equals: Total nontaxable deposit/items            (858,298)

¶425Total gross income unreported                 574,712

¶426Taxable income per return                   (73,861)

¶427Total income unreported - 1990                 500,851

¶428               APPENDIX G

¶429                1991

¶430Bank deposits to personal accounts:

¶431    Bank          Account Number         Deposit

¶432    ____          ______________         _______

¶433Energy People

¶434 Federal Credit Union      XXXX5-004

¶435Barnett Bank           XXXXXX4397          $ 59,702

¶436Chemical Bank           XXXXX140-3           340,750

¶437Security Savings

¶438 & Loan            XX-XXXX019-1           343,915

¶439Security Savings

¶440 & Loan             XX-XXX6720            6,400

¶441First Fidelity          XXXXXX6161           63,395

¶442Chemical Bank          XXX-XX3-349           13,802

¶443Collective Federal        XX-X-XX0909*350           7,119

¶444Barnett Bank           XXXXXX7650           24,719

¶445Barnett Bank C.D.         0031756406           97,000

¶446Barnett Bank C.D.         0031760714           96,000

¶447Barnett Bank C.D.          XXXXXX0659           97,000

¶448                              _________

¶449 Total bank deposit - 1991                 1,149,802

¶450Cash expenditures:

¶451 a. Purchase 3 Savings Bonds at face

¶452   value of $ 10,000                      15,000

¶453Rental income checks paid by Radtam, Inc., to

¶454taxpayer and not deposited into taxpayer's bank

¶455accounts used in above analysis.                56,000

¶456Rental income checks paid to taxpayer by managing

¶457agent(s) of taxpayer's Marco Island, FL rental

¶458properties and not deposited into taxpayer's bank

¶459accounts used in above analysis.

¶460Agent(s):  Horizon By Sea Inc.                  9,951

¶461Rental income checks paid to taxpayer by managing

¶462agent of taxpayer's New Jersey rental properties

¶463and not deposited into taxpayer's bank accounts

¶464used in above analysis.

¶465Agent(s):  Bayshore Realty                    3,816

¶466      Newbern Realty                     13,710

¶467Rental income checks paid to taxpayer directly

¶468by tenants for rental of Marco Island or New

¶469Jersey properties and not deposited into

¶470taxpayer's *351bank accounts used in above analysis.        31,790

¶471                              _________

¶472 Total gross income                     1,280,069

¶473Less nontaxable deposits/items:

¶474 a. Paybacks to corp. from personal account         (87,500)

¶475 b. Social Security benefits (nontaxable)           (5,850)

¶476 c. Transfer between accounts                (177,500)

¶477Receipts per return:

¶478 a. Wages/salary per return                  (3,003)

¶479 b. Interest income per return                21,522)

¶480 c. Dividend income per return                (1,202)

¶481 d. Pension/annuities                     (4,263)

¶482 e. Social Security (tax)                   (5,850)

¶483 f. Rents (gross)                       (368,930)

¶484 g. Barnett CD (3)                     (290,000)

¶485                              _________

¶486Equals: Total nontaxable deposit/items            (965,620)

¶487Total gross income unreported                 314,449

¶488Taxable income per return                   (78,032)

¶489Total income unreported - 1991                236,417

¶490               APPENDIX H

¶491                 1988    1989    1990    1991

¶492                 ____    ____    ____    ____

¶493Mathematical errors:

¶494 Reported taxable income

¶495  allowed twice          ---   71,907   73,861   78,032

¶496 CD purchases *352deducted as

¶497  reported receipts        ---     ---     ---   290,000

¶498 Transfer  ^1*355 included as

¶499  $ 5,000.10. Should be

¶500  $ 500.10             ---     ---    4,500     ---

¶501Distributive share Radtam "S"

¶502 Corp. income reported and

¶503 included in deposits from

¶504 corp.             (38,341)    ---     ---     ---

¶505Salary withholding - gross

¶506 is taxable but only

¶507 net was deposited         440     326     292     301

¶508Transfers used to purchase

¶509 CD's not in statutory

¶510 notice              ---     ---     ---  (214,500)

¶511Transfers between accounts -

¶512 not in statutory

¶513 notice of deficiency:

¶514  To First Fidelity  ² Bank   ---     ---   (25,000)    ---

¶515  To Barnett  ³ Bank       ---     ---   (85,000)    ---

¶516  To Barnett  ⁴ Bank       ---     ---   (50,000)    ---

¶517  To Chemical  ⁵ Bank      ---     ---     ---   (22,000)

¶518  To Chemical  ⁶ Bank from

¶519   Commerce Bank         ---     ---     ---   (17,000)

¶520  To Chemical  ⁷ Bank      ---     ---     ---   (26,000)

¶521  To Chemical  ⁸ Bank      ---     ---     ---   (8,255)

¶522Refund of advance to Radtam     ---    (5,425)    ---     ---

¶523Corp. funds used to purchase

¶524 610 S. Reed            ---     ---   17,000     ---

¶525Radtam funds  ⁹ used to

¶526 pay King Mortgage on

¶527 personal real estate       --- *353   64,000    ---     ---

¶528Cash expenditure/Lot 26 B 388

¶529 Unit 12              ---     ---  (25,000)    ---

¶530Specific rental income checks

¶531 deposited to corporate bank

¶532 accounts - added separately

¶533 in statutory notice of

¶534 deficiency            ---   (44,250) (83,424) (115,267)

¶535Additional identified paybacks

¶536 to corporations:

¶537 Chemical  ¹⁰ Bank      (10,000)     ---    ---     ---

¶538 Chemical  ¹¹ Bank      (10,000)     ---    ---     ---

¶539 Barnett  ¹² Bank        (100)     ---    ---     ---

¶540 Barnett  ¹³ Bank        (100)     ---    ---     ---

¶541 Barnett  14 Bank         ---   (11,000)    ---     ---

¶542 Chemical  15 Bank        ---   (16,000)    ---     ---

¶543 Barnett  ¹⁶ Bank         ---     ---    ---   (2,400)

¶544Deposits from bank

¶545statements originally

¶546missing:

¶547 Chemical¹⁷

¶5482/17/88 deposit 20,000 --- --- ---

¶5492/22/88 deposit 339 --- --- ---

¶550Radtam withdrawals 11,118 --- --- ---

¶551First Fidelity¹⁸ Bank --- 5,000 --- ---

¶552Insurance claim - nondeposit refund - 4/29/92 property settlement refund 9/30/91 Cinnaminson Sewer Authority --- --- --- (14,000)

¶553Corporate withdrawal 2/1/91 used to purchase $68,000 cashier’s check.¹⁹ (Cashier’s check from personal account included as transfer in statutory notice) --- --- --- 25,000

¶554Corporate *354funds - purchase for Bradtam --- --- --- 50,000

¶555Check No. 611 to cash - to Boatworks for purchase 407 Canal Street given as cash withdrawal in statutory notice. --- --- 30,000 ---

¶556Savings bond purchases not with cash. --- --- --- (15,000)

¶557Radtam check - points to refinance personal mortgage. --- 10,657 --- ---

¶558Interest income Commerce Bank - not in deposits --- --- 135 86

¶559 Interest income, Security Savings & Loan20 not included in deposits 435 146 --- ---

¶560Interest income, Energy People Federal Credit Union 135 --- --- ---

¶561Deposits to Security Savings & Loan --- (72,000) --- ---

¶562Corporate checks used to purchase cashier’s check at Security Savings & Loan^21*356 for purchase of 212 W. Broad Street Property --- 72,000 --- ---

¶563Proceeds mortgage refinance - deposit to Radtam savings account (2/29/88) (179,722) --- --- ---

¶564Personal funds deposited to corporate bank account on 2/1/88 (46,340) --- --- ---

¶565Corporate funds used to purchase 212 W. Broad (3/31/89) --- 21,000 --- ---

¶566Personal items paid by corporation: Per statutory notice --- (2,247) --- ---

¶567Corrections to statutory notice --- 86022 2,535²³ ---

¶568Net adjustments to statutory notice (252,136) 94,974 (140,101) 8,997

¶569               APPENDIX I

¶570                1988

¶571Bank deposits to personal accounts:

¶572   Bank           Account Number          Deposit

¶573   ____           _____________          _______

¶574Energy People Federal

¶575 Credit Union          XXXX5-004           $ 5,000

¶576Barnett Bank           XXXXXX4397           16,316

¶577Chemical Bank           XXXXX140-3           270,674

¶578Security Savings

¶579 & Loan            XX-XXXX019-1           182,947

¶580Security Savings

¶581 & Loan             XX-XXX6720           89,748

¶582First Fidelity           XXXXXX6161           278,347

¶583                              _________

¶584 Total gross deposits                     843,032

¶585Less:

¶586Per statutory notice

¶587 a. Redeposited items, transfers, checks

¶588   to cash                         (221,947)

¶589 b. Nontaxable items                      (5,094)

¶590 c. Repayment to corporation                 (73,000)

¶591Additional repayments to corporation              (22,200)

¶592Proceeds of personal mortgage deposited in

¶593 corporate account                      (179,722)

¶594Repayment of loan to petitioners deposited

¶595 in corporate account                     *357(46,339)

¶596Reduction to income - Subchapter S income           (38,341)

¶597Equals: Net deposits                      256,389

¶598Less:

¶599 a. Wages/salary per return                   (3,196)

¶600 b. Interest income per return                 (3,286)

¶601 c. Dividend income per return                 (1,357)

¶602 d. Schedule D per return                   (1,088)

¶603 e. Pension/annuities                     (4,060)

¶604 f. Social Security (tax)                   (5,094)

¶605 g. Rents (gross)                      (136,000)

¶606                              __________

¶607Equals: Gross income per tax return              (154,081)

¶608Difference between gross salary and

¶609 actual salary deposited                     440

¶610Plus corporate expenditures on petitioners'

¶611 behalf                             5,007

¶612 Total unreported income from bank deposits          107,755

¶613               APPENDIX J

¶614                 1989

¶615Bank deposits to personal accounts:

¶616    Bank           Account Number          Deposit

¶617    ____           ______________          _______

¶618Energy People Federal

¶619 Credit Union           XXXX5-004

¶620Barnett Bank           XXXXXX4397         $ 27,523

¶621Chemical Bank           XXXXX140-3          250,835

¶622Security Savings

¶623 & *358Loan            23-8351019-1         ¹ 142,400

¶624Security Savings

¶625 & Loan             XX-XXX6720

¶626First Fidelity          XXXXXX6161           32,867

¶627Chemical Bank          XXX-XX3-349           76,051

¶628Collective Federal       XX-X-XX0909             512

¶629                              ________

¶630 Total bank deposits                     530,188

¶631Cash expenditures:

¶632 a. Notes receivable (Ras)                    64,000

¶633 b. Purchase 212 W. Broad Street (3/31/89)           74,285

¶634 c. Radtam check - Points paid to refinance

¶635    personal mortgage                    10,657

¶636 d. Corporate funds  ² used to purchase 212

¶637    West Broad Street                    93,000

¶638 e. Corporate funds used to pay mortgage on

¶639    211 East 17th                      64,000

¶640                              ________

¶641³ 305,942

¶642Rental income checks paid by Radtam, Inc., to

¶643 taxpayer and not deposited into taxpayer's

¶644 bank accounts used in above analysis.             41,000

¶645Rental income checks paid to taxpayer by

¶646 managing agent(s) of taxpayer's Marco Island,

¶647 Fl., rental properties and not deposited into

¶648 taxpayers' bank accounts used in above analysis.

¶649  Agent: Horizon by Sea                     3,250

¶650*359_______

¶651 Total gross income                      880,380

¶652Less nontaxable deposits/items per statutory notice:

¶653 a. Paybacks to corp. from personal account         (55,925)

¶654 b. Social Security benefits (nontaxable)           (4,710)

¶655 c. Transfer between accounts                (173,000)

¶656Additional repayments and transfers:

¶657 a. Refund of advance to Radtam                (5,425)

¶658 b. Personal rental income deposited to

¶659    corporate accounts                   (44,250)

¶660 c. Additional paybacks to corporation            (27,000)

¶661                             ___________

¶662 Total reductions to bank deposits             (310,310)

¶663Receipts per return:

¶664 a. Wages/salary per return                  (4,631)

¶665 b. Interest income per return                 (3,008)

¶666 c. Dividend income per return                (1,123)

¶667 d. Pension/annuities                     (4,263)

¶668 e. Social Security (tax)                   (4,710)

¶669 f. Rents (gross)                      (232,000)

¶670                             _________

¶671 Equals: Gross receipts per return             (249,735)

¶672Difference between gross salary and

¶673 actual salary deposited                     326

¶674Plus personal items paid by corporation              860

¶675 Total unreported income from *360bank deposits:       ⁴ 321,521

¶676                APPENDIX K

¶677                1990

¶678Bank deposits to personal accounts:

¶679    Bank           Account Number          Deposit

¶680    ____           ______________          _______

¶681Energy People

¶682 Federal Credit Union       XXXX5-004           ---

¶683Barnett Bank           XXXXXX4397          $ 125,640

¶684Chemical Bank           XXXXX140-3           395,039

¶685Security Savings

¶686 & Loan            XX-XXXX019-1           219,001

¶687Security Savings

¶688 & Loan             XX-XXX6720           15,575

¶689First Fidelity          XXXXXX6161           176,807

¶690Chemical Bank          XXX-XX3-349           57,137

¶691Collective Federal        *361XX-X-XX0909           18,922

¶692Barnett Bank           1679177650           277,265

¶693                               _________

¶694Total bank deposits - 1990                  1,285,386

¶695Cash expenditures:

¶696 a. Purchase 10/18/90 407 Canal Street             5,258

¶697 b. Purchase 7/2/90 610 Reed Street              47,592

¶698 c. 1990 Plymouth Voyager 10/9 6,500

¶699d. Boston Whaler boat 7/26 15,850¹

¶700Gross income deposited to corporate account:

¶701Personal rental income treated as income in Statutory

¶702 Notice of Deficiency                     83,424

¶703Difference between gross salary and actual salary

¶704 deposited                            292

¶705Personal items paid by corporation                2,535

¶706                              _________

¶707 Total increase in bank deposits:               161,451

¶708Less nontaxable deposits/items:

¶709 a. Transfer between accounts                (487,811)

¶710 b. Social Security benefits (nontaxable)            (5,544)

¶711 c. Check to cash 611 account XXXX6140            (30,000)

¶712Additional repayments and transfers:

¶713 a. Corrections to statutory notice of deficiency

¶714   for check to cash                     30,000

¶715 b. Correction of transfer listed in statutory notice of

¶716   deficiency                         4,500

¶717 c. Personal *362rental income deposited to corporate accounts  (83,424)

¶718 d. Additional transfers not listed in statutory notice of

¶719   deficiency                        (160,000)

¶720Receipts Per Return:

¶721 a. Wages/salary per return                  (2,840)

¶722 b. Interest income per return                 (9,426)

¶723 c. Dividend income per return                 (1,170)

¶724 d. Social Security (tax)                   (5,544)

¶725 e. Rents (gross)                      (311,700)

¶726 f. Pension/annuities                      (4,263)

¶727                             ____________

¶728 Total reductions:                     (1,067,222)

¶729 Total gross income unreported:                379,615

¶730               APPENDIX L

¶731                1991

¶732Bank deposits to personal accounts:

¶733    Bank           Account Number          Deposit

¶734    ____           ______________          _______

¶735Energy People

¶736 Federal Credit Union       XXXX5-004

¶737Barnett Bank           XXXXXX4397          $ 59,702

¶738Chemical Bank            XXXXX140-3           340,750

¶739Security Savings

¶740 & Loan            XX-XXXX019-1           *363343,915

¶741Security Savings

¶742 & Loan             XX-XXX6720            6,400

¶743First Fidelity          XXXXXX6161           63,395

¶744Chemical Bank          XXX-XX3-349           13,802

¶745Collective Federal       XX-X-XX0909            7,119

¶746Barnett Bank           XXXXXX7650           24,719

¶747Barnett Bank C.D.         0031756406           97,000

¶748Barnett Bank C.D.         0031760714           96,000

¶749Barnett Bank C.D.         0031760659           97,000

¶750                              _________

¶751 Total bank deposit - 1991                 1,149,802

¶752Cash expenditures:

¶753 a. Purchase 3 savings bonds at face

¶754   value of $ 10,000                       15,000

¶755 b. Less: Correction - $ 15,000 paid by check         (15,000)

¶756 c. Use of Radtam funds to purchase assets for Bratam     50,000

¶757Gross income deposited to corporate account:

¶758Personal rental income treated as income in statutory

¶759 notice of deficiency                   ^1*365 115,267

¶760Difference between gross salary and actual salary

¶761 deposited                            301

¶762                             __________

¶763 Total increase in bank deposits:               165,568

¶764Less nontaxable deposits/items:

¶765 a. Paybacks to corp. from personal account          (87,500)

¶766 b. Social Security benefits *364(nontaxable)           (5,850)

¶767 c. Transfer between accounts                (177,500)

¶768Additional repayments, transfers and nontaxable items:

¶769 a. Transfers from personal accounts used to purchase

¶770   Barnett

¶771   Bank certificates of deposit               (214,500)

¶772 b. Personal rental income deposited to corporate

¶773   accounts                        (115,267)

¶774 c. Additional transfers not listed in statutory notice of

¶775   deficiency                       (73,255)

¶776 d. Additional payback to corporation            (2,400)

¶777 e. Nontaxable refund from sewer authority         (14,000)

¶778 f. Withdrawal from corporate account treated as a

¶779   transfer in statutory notice of deficiency        25,000

¶780Receipts per return:

¶781 a. Wages/salary per return                 (3,003)

¶782 b. Interest income per return               (21,522)

¶783 c. Dividend income per return               (1,202)

¶784 d. Pension/annuities                    (4,263)

¶785 e. Social Security (tax)                  (5,850)

¶786 f. Rents (gross)                     (368,930)

¶787                            ____________

¶788  Total reductions:                  (1,070,042)

¶789  Total gross income unreported:             245,328