It appears as though a couple of your clients have encountered an unfortunate development in their financial situation. Cindy and Ralph Edmonds own...

It appears as though a couple of your clients have encountered an unfortunate development in their financial situation. Cindy and Ralph Edmonds own TidyCo., Inc. TidyCo, in turn, owns and operates several coin Laundromats in and around Dubuque, Iowa. Over the last two years, the Edmonds made weekly deposits of the Laundromat receipts to corporate and personal bank accounts. However, it now also appears (unknown to you!) That they also siphoned off a portion of the weekly collections and took them home rather than depositing them. These amounts, which appear to total about $200,000 were hidden in shoe boxes around the house and (surprise!) were not reported as income. The IRS found out about these amounts and has notified them that it intends to bring criminal tax evasion charges against them under Section 7201 of the Code. The IRS has made quite clearthat it believes that the Edmonds’ actions constitute prima facie evidence that they intended to defraud the government and should therefore be liable under the statute.As their accountant, you know that TidyCo has a deficit in both its accumulated and current E&P accounts and that this deficit has existed over the entire period that the IRS contends the Edmonds illegally invaded income taxation. It also appears as though the Edmonds’ basis in their TidyCo stock is $300,000 (before the stashed-away money at their home is considered).Do these facts have any bearing on the evasion charges the IRS seeks to bring against them?