- 5 -
and other residents, the overall appearance of the neighborhood
was that of a residential community.
The record does not establish how much rent petitioner
(and/or No. 2) actually paid the Berrys for leasing the
property.1
The firm of A & F Bookkeepers (A & F) prepared the corporate
tax returns of petitioner and No. 2 for the years at issue.
Petitioner provided A & F with check stubs, bank statements, and
other paperwork in order for it to perform these functions. The
owner of A & F, Bill Anderson, held himself out as a public
accountant. No representative of A & F appeared or testified at
the trial or provided any other evidence.
Petitioner filed Federal corporate income tax returns for
its taxable years ending July 31, 1989, and July 31, 1990,
reporting the following:
Item FYE 7-31-89 FYE 7-31-90
Gross Receipts $614,178 $513,413
Costs of Sales (210,441) (85,457)
Interest Income 1,335 1,750
Other Deductions (67,269) (80,552)
Rental Expense (15,600) (14,979)
Depreciation (16,851) (18,399)
1 As an attachment to respondent's trial memorandum, there
is a "Schedule of Rent Paid to Shareholder". That schedule was
never authenticated or offered into evidence and thus is not part
of the evidentiary record of this case. There is no evidence in
the record to support the ex parte statements contained in that
schedule or in respondent's post-trial brief. However, the Court
deems respondent to have conceded that petitioner and No. 2 paid
the Berrys at least the amounts of rental expense allowed by
respondent in the notice of deficiency, $8,400 and $8,979 for FYE
7-31-89 and FYE 7-31-90, respectively.
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