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D. Discussion
1. Petitioner’s Case
Petitioner called four witnesses, including himself, all of
whom testified consistently that, for many years (including the
years in question), petitioner had used Culnen & Hamilton as an
incorporated pocketbook, having the corporation make payments on
his behalf, which payments were posted to Culnen & Hamilton’s
books as loans to petitioner. Robert Levin, one of those four
witnesses, had been petitioner’s accountant for more than
20 years. He also did accounting work for Culnen & Hamilton. He
testified that, from time to time, petitioner would reduce the
balance of his Culnen & Hamilton loan account by liquidating
investments he had made and paying the proceeds to Culnen &
Hamilton. Mr. Levin explained the rationale for that procedure
as follows:
Culnen & Hamilton was an "S" corporation. There
was a lot of undistributed taxable income. He
[petitioner] wouldn’t take all the–-he’d pay taxes on
it, and, God knows, he paid a lot of taxes over the
years, but he felt the money that was left in Culnen &
Hamilton, because it was undistributed to him, that he
could spend and do what he wanted with.
So, rather than write a check to himself and write
a check to a third party, he would just–-if he wanted
to buy a company or whatever, he would just write it
out–-have Beatrice, the bookkeeper, write it out of
Culnen & Hamilton, charge it to his loan account, okay,
and that’s the way he did business for the 20 years
that I’ve been his accountant.
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