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And the last item was Mr. Garrett had bought and
sold some real estate. He was also a shrewd investor
in real estate, and I presumed that some of those
profits from real estate transactions had probably gone
into this.
So I satisfied myself that he could have put up to
that 800,000, and I was--and on that basis, I--you
know, our firm did prepare the return. [Emphasis
added.]
It is clear from his testimony that Mr. Knutzen did not have
any independent knowledge of the origin of the funds used to
acquire the muscle car collection. Rather, he relied solely on
the representations of Mr. Garrett. His presumptions regarding
the source of the funds for the muscle car collection do not rise
to the level of fact. Mr. Knutzen testified that he never
audited Mr. Garrett's corporations. He also admitted on cross-
examination that Mr. Garrett could have expended $200,000 of the
corporations' funds for personal expenses in 1987 or 1988 without
Mr. Knutzen's knowledge.
Furthermore, FGI, TTI, and BEL made substantial expenditures
for the benefit of petitioners that were claimed as deductible
business expenses by these corporations. These expenses total
$755,827 for the 3 years in issue, most of which relate to Mr.
Garrett's muscle car collection.
Based on our review of the entire record in this case,
including the lack of any documentation supporting petitioners'
expenditures for the purchase and renovation of the muscle cars,
the pattern of disallowed deductions taken during the years in
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