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Tax Memorandum Case Study

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Tax Memorandum Case Study
June 13, 2011
TAX FILE MEMORANDUM
FROM Lance Vogt
SUBJECT Cindy and Ralph Edmonds
FACTS Cindy and Ralph Edmonds own TidyCo. Inc. They have a negative accumulated and current E&P and a basis in the stock of $300,000. They have been found to have $200,000 unreported income from the Laundromat they own in cash in their home. The IRS is planning on taking them to criminal court to charge them with evasion.
ISSUE Does any of the information or facts effect on the evasion charges.
CONCLUSION This issue is on the fence. In two separate similar cases, two different conclusions were found.
ANALYSIS On one hand, the IRS has not yet proven that TidyCo., Inc.’s diversion is unlawful or tax deficient required by Code Sec. 7201. Since
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