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continuous from 1976 through 1989, the year at issue, it was
operated through several entities. Until both petitioners had
financial difficulties and went through bankruptcy, they had
operated their business as a partnership. After the financial
difficulties, petitioners interposed a corporate entity partly to
deceive creditors and others. The corporate entity allegedly
paid all expenses of petitioners’ tax accounting business, and
only a part of the income from such activity was reported by the
corporate entity. Allegedly, the corporate entity did not pay
petitioners’ salary for their return preparation activity.
Instead, petitioners allegedly received benefits such as
insurance and automobile allowances, and their business overhead
was borne by the corporation.
After the corporate formation, the partnership entity
continued to operate and report some of the business income, but
none of the expenses. The income reported on the partnership
return was distributed as guaranteed payments to partners in
unequal amounts, even though petitioners were shown in the
Schedules K-1 as 50-50 partners and no partnership agreement was
in existence. Petitioners, by commingling these entities and
their business activities, created a murky environment in which
it is difficult to discern the sources of income or the entity by
which an expense had been incurred. Petitioners’ discarding
records of income made this situation even more difficult to
unravel. Finally, petitioners did not cooperate in the
examination process, forcing respondent’s agent to seek third-
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