G.B. Data Systems, Inc. - Page 18




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          entries.12  On the record before us, we find that petitioner has              
          failed to establish that it provided correct information to Mr.               
          Miller when Ms. Wu gave him the purported product usage document.             
          See Ma-Tran Corp. v. Commissioner, 70 T.C. at 173.                            
               On the instant record, we also reject petitioner’s conten-               
          tion that respondent’s determination under section 6662(a) is                 
          wrong because “there is substantial authority for the deduction               
          of the Royalty Expense”.  On that record, we find that all of the             
          authorities on which petitioner relies to support its position                
          regarding the claimed royalty expense deduction are distinguish-              
          able from the instant case.  Consequently, petitioner’s reliance              
          on those authorities is misplaced.                                            


               12Mr. Miller testified, and we found as a fact, that he                  
          confirmed with Mr. Braswell the correctness of booking the                    
          royalty adjusting journal entries.  On the record before us, we               
          find that Mr. Miller’s confirming with Mr. Braswell the correct-              
          ness of booking those entries is not equivalent to Mr. Miller’s               
          undertaking due diligence with respect to those entries such that             
          Mr. Miller assured himself of the correctness of those entries.               
          We note in this connection that Mr. Revel testified, and we found             
          as facts, the following:  Shortly after the Vita-CMC agreement                
          was executed, Mr. Revel concluded that Mr. Braswell was not the               
          type of individual who involved himself in the bookkeeping and                
          accounting operations of the Braswell companies.  Consequently,               
          whenever Mr. Revel had any questions under the Vita-CMC agreement             
          about the royalty payments made to CMC thereunder, he addressed               
          those questions to the employees working in the bookkeeping,                  
          sales, and/or accounting departments of those Braswell companies              
          who compiled the figures needed to determine the royalties due                
          CMC under that agreement.  On the record before us, we find that              
          petitioner has not shown that Mr. Braswell, whom petitioner did               
          not call as a witness at trial, was in a position to confirm the              
          correctness of booking the royalty adjusting journal entries                  
          other than by expressing his personal opinion to Mr. Miller that              
          those entries were correct.                                                   





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