Gold Bar, Incorporated - Page 11




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          petitioner’s books and his establishment of the method of                     
          accounting indicates that he had sufficient knowledge of how to               
          account for the income and expense of petitioner.  This is                    
          especially true given the fact that Mr. Golden calculated the                 
          gross receipts and expense items and simply provided Mr. Jackson,             
          petitioner’s return preparer, with the two amounts to be inserted             
          onto the returns.                                                             
               According to Mr. Golden’s own testimony, he was aware that               
          as a consequence of marking up items, petitioner was earning a                
          profit.  Yet he maintains that petitioner was simply a                        
          “passthrough” corporation and therefore he did not believe that               
          there was any taxable income.  Mr. Golden, however, knew that                 
          petitioner’s income was not being reported by some other                      
          individual or entity.4  We find it difficult to believe that Mr.              
          Golden could identify a corporation as a passthrough entity                   
          without knowing that the income and expense items would                       
          necessarily have to be passed through to someone or some other                
          entity who would report that income on a tax return.  Nothing in              




               4 Petitioner resisted attempts by respondent to determine                
          whether any of petitioner’s income was reported individually by               
          Mr. and Mrs. Golden.  Petitioner’s failure to produce any                     
          evidence supporting its allegation that it was a passthrough                  
          entity gives rise to the presumption that any evidence regarding              
          this passthrough theory, if produced, would be unfavorable.  See              
          Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158                    
          (1946), affd. 162 F.2d 513 (10th Cir. 1947).                                  





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