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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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