51 T.C.M. (CCH) 603
LEO W. SCOTT and MAXINE B. SCOTT, Petitioners
COMMISSIONER OF INTERNAL REVENUE, Respondent
United States Tax Court
March 17, 1986
Held, Ps' failure to report gross receipts from their sole proprietorship over a 4-year period was due to fraud within the meaning of sec. 6653(b), I.R.C. 1954.
Harrison T. Slaughter, Jr., for the petitioners.
Francis C. Mucciolo, for the respondent.
MEMORANDUM OF FINDINGS OF FACT AND OPINION
The Commissioner and the petitioners agreed on the amount of the deficiency in income tax for each of the years 1974 through 1977, prior to the issuance of the notice of deficiency in this case. In addition, the Commissioner determined the following additions to the petitioners' Federal income taxes:
The only issue for decision is whether the petitioners' failure to report gross receipts from their trucking business in the taxable years 1974 through 1977 was due to fraud within the meaning of section 6653(b). FINDINGS OF FACT Some of the facts have been stipulated, and those facts are so found. 
The petitioners, Leo W. and Maxine B. Scott, husband and wife, maintained their legal residence in Ozona, Florida, when they filed their petition in this case. They filed joint Federal income tax returns for 1974 through 1977 with the Internal Revenue Service Center, Atlanta, Georgia. During the years at issue, the petitioners owned and operated a sole proprietorship known as Barlow and Scott Trucking, or Scott Trucking. Prior to 1968, the petitioners owned and operated the business with Mrs. Scott's father. The main activities of the business included hauling landfill materials and renting earth moving equipment. In January 1974, Mrs. Scott, a high school graduate, retired from her job as a bank teller after 27 years at the Sun First National Bank of Dunedin. At the bank, she was responsible for cashing checks, taking deposits, balancing her daily cash, preparing State sales tax reports, and handling similar matters. During the years in issue, Mrs. Scott performed various office tasks at Scott Trucking, including: answering the phone, running errands, writing checks, typing most of the billing invoices, and occasionally depositing money in the Scott Trucking checking account. Mrs. Scott also prepared the State sales tax reports using information provided by her husband. At a minimum, she prepared invoices in the amounts of: $66,797.87 in 1974, $78,928.49 in 1975, $131,891.34 in 1976, and $213,787.24 in 1977. Mr. Scott, a high school graduate and former insurance agent, was responsible for the operation of Scott Trucking. Among other responsibilities, he kept track of overdue customer accounts by writing the information on a loose piece of paper. He sometimes cashed checks received as payment and used the cash to pay business expenses. The receipts from these cash transactions were used, along with check stubs, to document Scott Trucking expenses. Other checks were deposited by either of the petitioners. Checks arising from transactions subject to the State sales tax were deposited in the Scott Trucking checking account; others were deposited in the petitioners' personal checking account. Both accounts were at Sun First National Bank of Dunedin. The petitioners employed the same tax return preparer (tax preparer) during all the years at issue. On a quarterly basis, Mr. Scott provided him with the records from which he prepared the petitioners' income tax returns. Expense information consisted of cancelled checks, receipts for cash expenditures, and similar documentation contained in a box. The revenue information provided by Mr. Scott consisted of quarterly totals from the monthly State sales tax reports. The reported revenue included only receipts from materials sold, not receipts from services provided. As a consequence, in 1974, the petitioners reported receipts of $7,329.50 for Scott Trucking, when the proper figure was $96,838.05; and in 1975, he reported receipts were $5,044.50, while the actual figure was $80,636.65. In 1976, the expense information provided to the tax preparer by Mr. Scott exceeded the $7,306.50 in receipts reported on the State sales tax reports. When the tax preparer pointed out to Mr. Scott that the expenses exceeded the receipts, Mr. Scott produced a Form 1099 from Scarborough Construction Company (Scarborough),...