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construction of the Carnelian Bay residence. Atkinson alleviated
Ameye’s concerns by stating that the issue had already been
brought to his attention and that he intended to pay back the
$69,000 to petitioner. Atkinson failed to tell Ameye that
petitioner incurred and paid many other expenses related to the
construction of the Carnelian Bay residence.
A few days later, Atkinson and Dunkin again addressed the
$69,000 deduction. Atkinson instructed Dunkin not to deduct the
$69,000 payment on petitioner’s corporate tax return. With
Atkinson’s approval, Dunkin also established a $69,000 accounts
receivable from Atkinson on petitioner’s books. Atkinson was to
pay back the loan out of his next bonus. Atkinson failed to
inform Dunkin of the other expenditures incurred by petitioner in
the construction of the Carnelian Bay residence. On March 23,
1986, Atkinson paid petitioner $69,051 with regard to the loan.
On May 28, 1986, Neoax Corp. purchased Atkinson’s 100-percent
interest in petitioner for $3.5 million plus a contingent amount
based on petitioner’s earnings over the subsequent 3 years.
The Internal Revenue Service’s (IRS) Investigation of
Petitioners’ Corporate and Individual Tax Returns
On May 11, 1988, an IRS special agent and an IRS revenue
agent interviewed Atkinson regarding allegations that he had
underreported his income on his 1985 and 1986 individual tax
returns and that petitioner had improperly deducted the
construction expenses on its corporate tax returns for the
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