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Markovski’s testimony, while respondent relies substantially on
circumstantial evidence that respondent claims negates much, if
not all, of Markovski’s testimony. We do not agree completely
with either party. We also decide a deduction issue with respect
to American Valmar and the various additions to tax and
penalties. Petitioners bear the burden of proof. See Rule
142(a).
II. Wire Transfers to American Valmar
During each of its taxable years in issue, American Valmar
received substantial deposits into its bank accounts by wire
transfers from abroad (the American Valmar deposits). The
American Valmar deposits were received principally from countries
in the former Soviet bloc. American Valmar argues that it was a
commission broker and the American Valmar deposits did not
constitute gross income because of its obligation to disburse
those deposits as directed by its clients. Respondent agrees
both that American Valmar was a commission broker and that
refundable deposits do not constitute items of gross income.
Respondent is unpersuaded, however, that American Valmar had any
bona fide obligation to its clients. Respondent argues that
American Valmar’s books and records did not adequately establish
its liabilities to individual clients, and American Valmar
treated some of the funds it received as if they were its own.
Respondent adjusted American Valmar’s income by treating the
American Valmar deposits as gross receipts from sales.
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