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detailed and monthly updated computer records of the aging of the
unrelated entities' accounts receivable. Mr. Dunn, petitioner's
office manager, ultimately recommended to petitioner's accountant
the accounts to be written off. In contrast, petitioner kept no
records for the aging of accounts receivable of its related
entities and had no comparable procedure with respect to these
debts. Petitioner did not consider the aging of its related
entities' receivables to be a "problem".
Next, the evidence of petitioner's sales to the related
entities in the years following the rebates at issue belies
petitioner's claims that the receivables were uncollectible.
Petitioner admitted that if it wrote off an account of an unrelated
party, it would not continue to sell to that party in the next
year. But this has not been the case with petitioner's related
entities. Petitioner continued selling to the related entities,
and in some instances, it actually increased its sales to the
related entities following the year of the rebate. Accordingly, it
would not appear that petitioner took seriously the uncollectible
accounts from its related entities.
Finally, through the testimony of its accountant, Mr.
Lamprecht, petitioner stated its belief that its income was too
high during both years at issue. Petitioner therefore attempted to
reduce its taxable income by extending the rebates.
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