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Commissioner, 79 T.C. 995, 1006 (1982), affd. 748 F.2d 331 (6th
Cir. 1984); Iley v. Commissioner, 19 T.C. 631, 635 (1952). We
evaluate this latter standard in relation to the
corporation’s officers.
As petitioner’s president, sole shareholder, and one of two
board directors, Atkinson’s actions provide evidence with regard
to whether petitioner committed fraud. The Atkinsons purchased
the Carnelian Bay property intending to build their home there.
Atkinson directed that corporate funds be used to pay for the
construction of the Carnelian Bay residence. He instructed
petitioner’s employees to classify the payments on petitioner’s
books as corporate expenses related to its operations. Atkinson
also instructed his employees to return all construction invoices
to him, a procedure inconsistent with petitioner’s normal record-
keeping practice.
Because petitioner maintained inadequate records, Dunkin
classified the construction expenses as cost of goods sold on
petitioner’s corporate tax returns. When Dunkin questioned the
propriety of deducting a $69,000 payment for lumber, Atkinson
quickly dismissed Dunkin’s objections. Only after Ameye
expressed concerns about the $69,000 payment during negotiations
for the sale of Atkinson’s 100-percent interest in petitioner did
Atkinson instruct Dunkin to forgo the $69,000 deduction.
Atkinson, however, continued to conceal from Dunkin and Ameye
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