- 27 -
According to this, petitioner's income from the sale of the
houses averaged $17,606.18.
Petitioner attempts to reduce the profit from the sale of
the 14 houses by pointing out that the following costs were not
allocated to its construction activities:11 (i) the cost of
overhead and supervision; and (ii) the interest costs associated
with the use of corporation capital to construct the homes.
Mr. Baker considered these costs in determining profit from
construction activities.
However, Mr. Baker testified that he did not know the costs
until petitioner's accountant Eadie and Payne informed him.
Further, Mr. Baker testified that he did not know how the
accountants accounted for the cost of overhead and supervision.
Petitioner did not call its accountants to clarify or explain any
of petitioner's cost and profit analysis. See Wichita Terminal
Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946) (drawing
negative inference if evidence is within possession yet it is not
introduced), affd. 162 F.2d 513 (10th Cir. 1947). Petitioner
also did not incur significant interest costs because it
generally used cash on hand, avoiding construction financing.
While petitioner criticizes Mr. Lohr for not preparing a pro
forma budget for the project, it provided no evidence to
11 Respondent suggested a profit of $17,606.18 per house,
while petitioner asks the court to accept an average net profit
of approximately $7,000 to 10,000 per home.
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