Leslie R. Barth - Page 7

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            Bergman & Barth.  Petitioner's returns for 1978, 1979, and 1980                             
            reported adjusted gross income of $69,434, $21,773, and $126,685,                           
            respectively.  Attached to each return, on the advice of Timbie,                            
            was a statement that the income reported on the return did not                              
            include amounts "withdrawn by the taxpayer from this law firm and                           
            other related entities.  Those withdrawals were contemporaneously                           
            recorded as loans and were repaid by the taxpayer in the taxable                            
            year or in subsequent years."  The amounts thus excluded from                               
            taxable income reported on the returns were $174,300 for 1978,                              
            $282,900 for 1979, and $83,600 for 1980.                                                    
                  No loan documents were ever prepared or executed by                                   
            petitioner.  The amounts claimed to be loans were reconstructed                             
            from notes on check stubs, and no records showing actual                                    
            repayments were maintained.  On the financial statements that he                            
            submitted during the years in issue, as set forth above,                                    
            petitioner did not disclose any loans due to the law firm or his                            
            other entities.                                                                             
                  After examination of the returns belatedly filed by                                   
            petitioner, respondent determined that petitioner had additional                            
            compensation, interest, and other income for the years in issue.                            
            For 1976, respondent determined that no election was filed to                               
            qualify the law firm as an S corporation and that it had not been                           
            established that any deductible loss was sustained.  The net                                
            adjustments determined by respondent increased petitioner's                                 
            income by $306,673 for 1976, $226,905 for 1978, $396,008 for                                

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