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each had properly reported the various items separately. Shortly
before trial petitioner conceded that the two were really a
single corporation and stipulated to (or never challenged) the
adjustments in the notice of deficiency for gross receipts, costs
of sales, interest income, and other deductions.
Thus, the experiment with No. 2 was brief, and the Court
cannot conclude that it was originally unreasonable or done in
bad faith. That petitioner's legal position has now been
abandoned and that petitioner has now conceded it and No. 2 were
essentially a single corporation do not automatically mean that
petitioner was negligent or that there was not a reasonable cause
for, and that petitioner did not act in good faith in taking, its
original position.11
Accordingly, to the extent that any underpayment properly
defined for the taxable year ended July 31, 1990, is attributable
to combining the gross receipts, costs of sales, interest income,
and other deductions of petitioner and No. 2, the Court does not
sustain respondent's determination of a negligence penalty.
11 See, however, supra note 8. If petitioner were
contending that some part of the reported gross receipts for the
taxable year ended July 31, 1990, should be reduced by No. 2's
August 1989 bank deposits allegedly representing payment for work
performed during FYE 7-31-88, the Court would conclude otherwise
on the negligence penalty issue. No. 2 was not even organized
until March 23, 1989. The Court does not think that petitioner
could in good faith have thought that income earned by petitioner
during FYE 7-31-88 (8-01-87 to 7-31-88) could be treated as No.
2's gross receipts. However, the Court has not found that any
part of No. 2's August 1989 bank deposits represent gross
receipts to be shifted to another fiscal year, so the Court's
concern becomes moot.
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