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amount of those entries was the same as the amount shown on the
purported product usage document as the last entry under the
column headed “NET TOTAL (IN BOTTLES)”. (We shall refer to the
adjusting journal entries prepared by Mr. Miller on the basis of
the purported product usage document as the royalty adjusting
journal entries.) After having prepared the royalty adjusting
journal entries, Mr. Miller completed preparation of petitioner’s
Form 1120 for its taxable year ended January 31, 1994, based on
those entries and petitioner’s financial statements for the
fiscal year ended on the same date. Thereafter, but prior to
booking the royalty adjusting journal entries in petitioner’s
books and prior to filing petitioner’s return for the year at
issue, Mr. Miller confirmed with Mr. Braswell the correctness of
booking those entries. When Mr. Miller booked the royalty
adjusting journal entries in petitioner’s books, he included an
explanation in those entries that he was making them “per AGB”,
i.e., per A. Glenn Braswell.
Petitioner claimed, inter alia, a royalty expense deduction
in the amount of $1,158,084 in the Form 1120 that it filed for
the year at issue.
In the notice of deficiency (notice) issued to petitioner
for the year at issue, respondent determined that petitioner
erroneously deducted $1,158,084 as a royalty expense and in-
creased petitioner’s income for that year by that amount.
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