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(Neal) each owned 50 percent of Simco’s stock. Neal was
president of Simco, and John was vice president.
The issues in these cases revolve around the proceeds from
John’s sale of scrap metal. In August or September of 1989, John
began selling scrap metal that belonged to Simco and retaining
the proceeds from the sales. At the time, John had a problem
with alcohol abuse. The sales continued through the years in
issue. Neal did not become aware of the scrap metal sales until
August of 1992. The scrap metal sales proceeds were not reported
on either Simco’s or John’s tax returns for the years in issue as
originally filed. However, both Simco and John filed amended
returns for such years in September 1992, on which a substantial
portion of the proceeds was reported.
The Scrap Metal Sales
Prior to 1989, there were no sales of Simco scrap metal.
Although Simco generated scrap metal from its operations, the
scrap was treated as refuse because the company did not have the
space to sort and store it. In August or September of 1989, John
first arranged sales of Simco’s scrap metal. This was shortly
after Simco began using an additional building, which was known
as the Prospect building, giving John the ability to sort and
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