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Simco. Any assessment of Neal’s actions, therefore, begins with
his learning of John’s diversions in August 1992. Neal’s
participation in the decision to treat the diverted funds as
compensation and to file amended corporate returns on that basis
was not fraudulent, certainly not without a showing that Neal was
aware that claiming compensation deductions in these
circumstances was erroneous. Respondent has not produced such
evidence; rather, the evidence shows that Neal was acting on the
advice of Simco’s accountant. Cf. King’s Court Mobile Home Park,
Inc. v. Commissioner, 98 T.C. at 517 (“We have a strong suspicion
that * * * [the taxpayer] took the deduction knowing that there
was a substantial question as to the validity of that action.
But suspicion of fraud is not enough.”). While we do not doubt
that Neal’s actions in filing the amended corporate returns were
also influenced by the knowledge that the audit of Dix Scrap was
likely to produce IRS scrutiny of Simco, this motivation does not
change our conclusion. The amended returns, although claiming
erroneous deductions, substantially disclosed the diverted
income.9
9 In King’s Court Mobile Home Park, Inc. v. Commissioner, 98
T.C. 511 (1992), the taxpayer filed an original return that
failed to report certain income and then filed an amended return
that reported the income but claimed offsetting compensation
deductions, similar to the instant case. However, in King’s
Court Mobile Home Park, Inc., the amended return was filed within
the time required to file a return, so the amended return took
(continued...)
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