- 15 - 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-Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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