Mark D. Pridgen and Kay D. Pridgen - Page 33




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             which suggests that such amount is not includable in                     
             Beaufort Leaf's gross income in 1991.  In passing, we                    
             note that petitioners do not claim that such amount is a                 
             deductible expense in 1991.                                              
                  Second, we do not credit the testimony of each                      
             petitioner suggesting that he did not know of or approve                 
             Beaufort Leaf's participation in the scheme.  Both                       
             petitioners owned or had a financial interest in tobacco                 
             warehouses and were actively engaged in the tobacco                      
             business.  They are knowledgeable and sophisticated members              
             of the relatively small community of persons who engage in               
             that business.  We do not believe that Mr. Roberts'                      
             activities in furtherance of the scheme that petitioners                 
             describe as widespread, could have escaped the attention                 
             of both petitioners.  Indeed, we note that some of the                   
             unreported sales were made at the warehouses in which                    
             petitioners had an interest.  Furthermore, we do not                     
             accept the testimony of each petitioner that he agreed                   
             to finance the operation of Beaufort Leaf by cosigning a                 
             note for $300,000 and he took no action to supervise those               
             operations by reviewing the partnership's Forms MQ-79 or                 
             taking any other action.                                                 








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