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Also in 1986, it was decided that a bank account should be
opened in the name of Shin to receive payments from Eastimpex at
Coast Savings and Loan in San Francisco (Coast). In 1987, the
account was moved to First Pacific Bank in Hong Kong (First
Pacific). In the business relationship between Eastimpex and
Shin, Shin provided a price list for goods. The price list
generally contained two handwritten prices under columns headed
"EP" and "NP", with the "EP" price being slightly lower than the
"NP" price. The amount of the difference between the two list
prices varied with each good, and the Shin price list reflected
two prices only for goods that Shin manufactured. Shin sold
goods to Eastimpex at the lower "EP" price (the invoice price).
Eastimpex paid the invoice price to Shin through a letter of
credit or wire transfer. A few months later, Eastimpex deposited
the difference between the invoice price and the higher "NP"
price (the full list price) into the Coast or First Pacific
accounts in Shin's name (the deposited amounts).
Eastimpex treated both the invoice price and the deposited
amounts as the cost of goods sold on its tax returns for the
years in issue and subtracted both amounts from gross receipts to
determine gross income. Eastimpex does not have invoices for the
deposited amounts. However, Eastimpex's records show the check
numbers of the checks used to make the deposits, references to
the original invoice, and the date and amount of each deposit.
Although Eastimpex purchased goods from other Taiwanese
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Last modified: May 25, 2011