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return lists 21 items of adjustment, many of them due to lack of
substantiation. Many of the adjustments determined in the
notices of deficiency have been resolved by the parties through
numerous stipulations of settled issues.
The following determinations made by respondent in the
notices of deficiency remain in dispute. First, respondent
determined that the accounting method used by EIC and the Wangs
in the returns as originally filed was improper. Respondent
further determined that they should report income using the
accrual method, which is the method used for their financial
books and records. Second, respondent determined that the
$901,428 in commissions for 1989, and the $500,000 bonus paid to
petitioner in 1990, represented unreasonable compensation and
therefore were not deductible by EIC. Third, respondent
determined that, for 1990, expenditures made by EIC on behalf of
the Wangs, reported as loans, were in reality disguised dividends
and, accordingly, were includable in petitioner's income.
Finally, respondent determined that petitioners are liable for
the accuracy-related penalties under section 6662(a).
OPINION
Issue 1. Method of Accounting
The first issue for decision requires us to decide the
proper method of accounting for calculating gain on the sales of
real property. EIC and the Wangs originally selected the
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