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First, the witnesses failed to provide a reasonably complete
and coherent explanation of the purpose that the Note was
designed to serve. Mr. Petar, the person who by all accounts was
in the best position to explain, recalled only after prompting
from his accountant that the Note was prepared because “we needed
some performance bonds”. He made no attempt to clarify the
connection between the Note and the bonds or who it was that
needed them. Nor was Mr. Cunniff able to shed much additional
light on these matters. After explaining that Mr. Petar needed a
promissory note to substantiate a personal financial statement
and that a financial statement was needed to secure performance
bonds, he proved utterly confused as to the reasons why Mr. Petar
needed performance bonds.
Second, petitioner’s failure to offer in evidence any
documentation corroborating the witnesses’ explanation of the
Note raises doubts about its authenticity. Mr. Cunniff’s
testimony that the Note was the only extant document relating to
the bonding transaction of which he was aware is implausible.
Assuming that the Note was in fact prepared during FYE 5/31/90,
it would not have been retained after 1990 as evidence of
petitioner’s indebtedness, because the debt was paid on
August 14, 1990. Nor would it have been retained for tax
purposes, if credit is given to the testimony that neither
Mr. Petar nor Mr. Cunniff realized the Note’s significance for
tax purposes until some time during or after the audit, years
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