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and 1991 those adjustments should be reduced by $30,733, $5,114,
$25,230, and $24,000, respectively. Thus, for 1988 and 1989,
$27,000 and $31,017, respectively, of the adjustments for
"Purchases Expense" remain in issue.
Payments to June and Junichi
Petitioners contend that for 1988 and 1989 Toraya is
entitled to deduct $27,000 and $11,100, respectively, as
"Purchases Expense" for payments made to Joan and Junichi.
Petitioners claim that Nakamura wrote checks from Toraya's
checking account payable to Joan and, after Joan left, payable to
cash in order for Junichi to purchase food for the Berkeley
restaurant. Petitioners assert that, even if Joan and Junichi
had misused the money Toraya gave them to purchase food for the
Berkeley restaurant, Toraya is entitled to the deduction. They
contend that the payments to Joan and Junichi were not gifts or
constructive dividends.
Respondent contends that the record does not establish that
the payments to Joan and Junichi served a business purpose.
Respondent asserts that petitioners did not prove that Joan
performed any services relating to the Berkeley restaurant or
that Junichi made any food purchases for the restaurant.
Junichi is the son and Joan is the daughter-in-law of the
Takaos, Toraya's sole shareholders. Therefore, transactions
between Junichi and Joan and Toraya should be closely scrutinized
to ascertain whether payments to them by Toraya constitute bona
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