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transactions at issue. "On questions concerning the taxability
of income, we are to be guided by facts and not by bookkeeping
entries." Commissioner v. North Jersey Title Ins. Co., 79 F.2d
492, 493 (3d Cir. 1935). We therefore disregard journal entries
that are inconsistent with economic reality. Nissho Iwai Am.
Corp. v. Commissioner, T.C. Memo. 1985-578, affd. without
published opinion 812 F.2d 712 (2d Cir. 1987). Here, in many
instances, there was no documentation to substantiate the
bookkeeping entries, and no one seemed to care.
For example, bookkeeping entries indicate that MIT 80
advanced 100 percent of its $2.4 million capital by endorsing
checks to Intercoastal in that amount on July 29, 1980. MIT 80
did not in fact endorse any such checks to Intercoastal.
Similarly, as of December 31, 1982, the books of MIT 82
showed that it had advanced $3,075,000 to Machise. Other than
journal entries, however, there are no documents showing that
this amount was ever paid.
BBPA was supposed to advance the partners' cash investment
to MIT 86. BBPA issued neither cash, nor a check, nor notes to
accomplish this advance. Such an advance was, however, recorded
by a journal entry.
The entire financial existence of W & A was a matter of book
entries. Specifically, its transactions purportedly shifting $4
million (recorded by mistake as $3 million) between BBPA, the
investors in W & A, and W & A itself were all recorded by journal
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