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account receivable." Also in that brief, they propose an
"ultimate" finding of fact: "Petitioners should have recognized
gain in the year of exchange. Evidence concludes the exchange
was definite by 1989."
We need not resolve the confusion in petitioners’ briefs
because, whenever it is that petitioners allege Larry Monico
received a note (or notes), they have failed to prove that Larry
Monico received any note, and we so find. Petitioners produced
no note, and Alan Knoll, the chief financial officer of Offut Co.
and an employee of Offut Co. since 1974, could recall no note.
Petitioners failed to produce Ronald Offut, who would have
knowledge of any note, and we infer from that unexplained failure
that his testimony would have been adverse to petitioners. McKay
v. Commissioner, 886 F.2d 1237, 1238 (9th Cir. 1989), affg. 89
T.C. 1063 (1987); Wichita Terminal Elevator Co. v. Commissioner,
6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947).
B. Cash Method of Accounting
Despite petitioners' failure to prove that Larry Monico
received any note, we must still address petitioners' argument
based on the cash equivalence doctrine. See Cowden v.
Commissioner, 289 F.2d 20, 24 (5th Cir. 1961) ("negotiability is
not the test of taxability in an equivalent of cash case"), revg.
and remanding 32 T.C. 853 (1959). Section 1.446-1(a)(3), Income
Tax Regs., makes clear: “Items of gross income * * * which are
elements in the computation of taxable income need not be in the
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