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the Randy Hall checks which were given to the promoters in
consideration for those invoices.6
Nor do we read the cooperation agreement or affidavits to
support a finding of fraud. Mr. Feinsmith’s affidavits, for
example, merely state that he agrees that he received income
“because of the false deductions”. The cooperation agreement
states similarly that “the false invoices * * * created the
fraudulent business deductions and the unreported income”. None
of these documents states specifically that the income is
attributable to Mr. Feinsmith’s receipt (in either his individual
capacity or on behalf of Randy Hall) of any of the proceeds of
the scheme.7 Nor does either document indicate why Mr. Feinsmith
realized that income in the first place. The mere fact that a
closely held corporation has claimed improper deductions does not
necessarily mean that its shareholders have realized income in
the amount of the deductions. A shareholder such as Mr.
Feinsmith realizes income through a constructive distribution
6 We also would have liked to have heard from Mr. Feinsmith
as to his understanding of his part in the scheme. For some
unexplained reason, however, respondent waited until almost 4
years after Mr. Feinsmith’s death to issue the notice of
deficiency to his estate. In fact, respondent did not issue the
notice of deficiency to the estate until more than 10 years after
the Court of Appeals for the Second Circuit affirmed the
promoters’ convictions.
7 We also note that the parties have stipulated that Mr.
Feinsmith’s approximately $48,000 of income is taxable to him as
“constructive dividend income * * * arising out of deductions not
allowable on the corporate tax return of Randy Hall”.
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