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after the audit, then, based on the governing law and the
relevant facts as Mr. Cunniff and Mr. Petar understood them after
the initial meeting with the revenue agent, they would have had
no grounds for defending petitioner’s return position in good
faith. They conceded all other proposed adjustments. No reason
appears why they contested the proposed disallowance of the bonus
deduction.
The behavior of Mr. Cunniff and Mr. Petar during the audit
would make more sense if the Note was prepared only after they
learned from the revenue agent that issuance of a promissory note
during the taxable year in issue would have legitimized the
deduction. For tactical reasons they might well have chosen not
to reveal the Note’s existence until after the audit concluded
and a notice of deficiency was issued, in order to avoid a
thorough investigation of the Note’s authenticity. In this
connection, the unexplained failure of petitioner’s
representatives to comply with Revenue Agent Mockus’ request for
petitioner’s corporate minute book is significant. Mr. Mockus
testified that, in his experience, when a corporation issues a
note to a shareholder, generally the transaction is recorded in
the corporate minute book. Absent any explanation or evidence to
the contrary, we cannot rule out the possibility that the minute
book was deliberately withheld in order to conceal the fact that
no promissory note had been issued during FYE 5/31/90.
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Last modified: May 25, 2011