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is no basis to assess tax on the unreported income against
petitioners as partners of Beaufort Leaf. In support of
this argument, petitioners assert that the unreported
income was derived from "illegal sales of nonexistent or
over-quota tobacco * * * contrary to Federal law" and were
made by Mr. Roberts without the knowledge, consent, or
ratification of petitioners.
According to petitioners, under North Carolina
partnership law, activities are outside the scope of the
partnership unless expressly authorized by the partnership
agreement or the other partners. See, e.g., Shelton v.
Fairley, 356 S.E.2d 917 (N.C. Ct. App. 1987); Investors
Title Ins. Co. v. Herzig, 350 S.E.2d 160 (N.C. Ct. App.
1986), revd. on other grounds 360 S.E.2d 786 (N.C. 1987);
see also Reed Coal Co. v. Fain, 89 S.E. 29 (N.C. 1916).
Petitioners assert that Beaufort Leaf's oral partnership
agreement did not authorize Mr. Roberts to engage in such
illegal activities. Thus, petitioners argue that the
income realized is not includable in Beaufort Leaf's gross
receipts.
In further support of this argument, petitioners
assert that neither Beaufort Leaf nor petitioners knew of
or received any economic benefit from Mr. Roberts' illegal
sales of tobacco, and, therefore, only Mr. Roberts is
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