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dues and publications expense. Additionally, Reader's Digest
billed Mr. Christal for Condensed Books at his home address.
United Sovereigns paid the outstanding bill and claimed the
expense as a dues and publications expense.
Mr. Christal submitted receipts from restaurants or grocery
stores for food purchases as substantiation for United
Sovereigns' office supplies and "promo" expenses. Additionally,
Mr. Christal submitted receipts, which referenced Mrs. Christal,
from Matol Botanical International for the purchase of five
bottles worth $35 each as substantiation of United Sovereigns'
office expenses.
Throughout 1992, $6,900 was withdrawn as petty cash from
United Sovereigns' checking account. Petitioners maintained no
record of how that cash was spent.
OPINION
Petitioners contend that United Sovereigns is a valid
entity, legally independent and separate from Mr. Christal as an
individual, and that United Sovereigns and the transactions in
which it took part should be respected for Federal tax purposes.
Respondent contends that United Sovereigns is a sham, it has no
economic substance, and United Sovereigns existed for no purpose
aside from being used to obtain tax benefits for petitioners;
thus, the income of United Sovereigns is taxable wholly to
petitioners. We agree with respondent.
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