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No. 2 filed corporate tax returns for its taxable years ending
April 30, 1990, and April 30, 1991, reporting the following:
Item FYE 4-30-90 FYE 4-30-91
Gross Receipts $248,662 -0-
Costs of Sales (47,754) -0-
Interest Income 3,861 -0-
Other Deductions (94,105) ($29,303)
Rental Expense (11,690) -0-
Depreciation -0- -0-
Berry gave petitioner's returns and No. 2's returns only a
cursory review prior to signing and filing them.
On audit, respondent determined that petitioner and No. 2
were one business and combined their gross receipts, costs of
sales, income, and expense items. It is not clear from the
notice of deficiency, the record in this case, or the parties'
arguments as to exactly how or on what basis (accrual, actual
receipt, and/or overlapping of fiscal years) the gross receipts,
costs of sales, income, and expense items were combined.2
Petitioner has agreed that petitioner and No. 2 are one
corporation and has conceded most of the adjustments in the
deficiency notice.
2 We note that the first 3 months of No. 2's FYE 4-30-90
overlapped the last 3 months of petitioner's FYE
7-31-89, and the last 9 months of No. 2's FYE 4-30-90 overlapped
the first 9 months of petitioner's FYE 7-31-90. However, No. 2's
gross receipts, costs of sales, income, and deduction items
apparently were not allocated one-fourth to petitioner's FYE
7-31-89 and three-fourths to petitioner's FYE 7-31-90. The
method of allocation used by respondent and accepted by
petitioner is not disclosed by the record. No. 2 filed only two
tax returns during its brief "existence".
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