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II. Understatement of Income
A. Gross Receipts Unreported by Sam Kong Fashions
Respondent argues that the checks and the parties’
stipulations of fact establish that Sam Kong Fashions
underreported its gross receipts by $391,885.75 in 1994 and
$303,918.64 in 1995. Petitioners argue that Sam Kong Fashions
does not have additional unreported gross receipts because
respondent failed to prove that the checks payable to Mr. Kong
were issued for services performed by the corporation.
Petitioners further argue that the checks issued by Style Setter
were payments for the hangers and bags that Mr. Kong provided as
an accommodation, not for the sewing services provided by Sam
Kong Fashions.
Based on the evidence presented, we find that respondent has
established that Sam Kong Fashions received unreported gross
receipts in 1994 and 1995 and performed sewing services for Style
Setters and Half Moon Bay. To establish unreported income,
respondent has introduced checks issued by Style Setters and Half
Moon Bay that were payable to “Sam Kong”, “Sam Kong Inc.”, or
“Sam Kong Fashions, Inc.” Representatives of both companies
testified that the contractors issued these checks as
compensation for sewing services performed by Sam Kong Fashions.
While Sam Kong Fashions reported some of these checks as gross
receipts on its 1994 and 1995 corporate income tax returns, the
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