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do so, the financial policies they actually implemented in
TYE 8/31/90 and TYE 8/31/91 belied their intentions.
In TYE 8/31/90, petitioner made loans unrelated to its
business totaling $702,000, leaving it with net liquid assets
sufficient to cover only its needs for working capital and a
portion of the expected costs of remodeling (see Appendix Table
2). If all the loans had been made early in the taxable year,
one might be able to argue that petitioner’s management approved
them on the basis of an overestimate of petitioner’s earnings for
the year. In fact the loans were made throughout the year.
In TYE 8/31/91, we observe a similar pattern. Petitioner
ended the taxable year with a modest excess of net liquid assets
over its needs for working capital and remodeling (see Appendix
Table 2). But it could have accumulated an additional $650,000
toward the $1 million target if it had not made further loans
unrelated to its business totaling $306,000 and in the last month
of the taxable year transferred $340,000 in precious metal
holdings to Mohney and its shareholders. If these assets were
genuinely needed for a relocation fund, a distribution to the
shareholders could not be justified. Nor was there an obligation
to pay the consulting fees. Since TYE 8/31/85, Mohney had
permitted petitioner to defer payment of the fees so long as
financial circumstances required retention of the funds. During
TYE 8/31/90 and TYE 8/31/91, petitioner’s management looked for
replacement property, but there is no evidence that their
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