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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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