Oakcross Vineyards, LTD., Dennis D. Groth, Tax Matters Partner - Page 25

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          (1988); Harwood v. Commissioner, 82 T.C. 239, 258 (1984), affd.             
          without published opinion 786 F.2d 1174 (9th Cir. 1986); Velvet             
          Horn, Inc. v. Commissioner, T.C. Memo. 1981-227.                            
               We accordingly shall consider whether use of the cash method           
          of accounting to report Vineyards' income from the sales of                 
          grapes and other property materially distorted its income.  We              
          note at the outset that the Groths were the general partners of             
          Vineyards and held an 85-percent interest in the partnership,               
          with trusts for the benefit of each of their children holding the           
          remaining 15-percent interest.  At relevant times, the Groths               
          also owned at least 90 percent of the stock of Winery, with Mr.             
          Venge holding at most 10 percent.5  As stated above, the fact               
          that the Groths controlled both Vineyards and Winery requires               
          that we carefully scrutinize the transactions between them.                 
               We note at the outset that Vineyards and Winery did not deal           
          with one another on the same terms as they dealt with unrelated             
          parties.  Although Vineyards sold grapes to unrelated parties and           
          to Winery at market value, unrelated parties generally paid                 
          Vineyards for grapes within 6 months of harvest.  The written               
          sales agreements pursuant to which Vineyards sold grapes to                 
          unrelated parties that were written on Winery's letterhead                  
          generally provided that the buyer would pay 50 percent of the               

          5    Pursuant to the employment contract between the Groths and             
          Mr. Venge, Mr. Venge acquired 10 percent of the stock of Winery             
          between 1985 and 1989.                                                      

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