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admitted JJH “repetitively and continuously, in the normal course
of its business, transfers money to account of Coastal Leasing;
it transfers money to the account of Char’s Country Accents;
transfers money to and from Joseph Craig House, the individual”.
We find no business purpose for this circular flow of funds.
In substance, there really was no JJH; there was only
petitioner. Petitioner recognized JJH once a year, at tax time,
and the fact that petitioner so recognized it and filed returns
on its behalf fails to legitimize its existence. As outlined
above, JJH was little more than a clearing account through which
petitioner moved funds, and the returns were the vehicle through
which petitioner improperly reported the flow of funds and
payment of personal expenses to avoid taxes. Petitioner did not
respect the separateness of JJH, nor do we. We disregard JJH for
tax purposes, and we hold that petitioner had unreported income
in the amount of $66,207 determined as follows:
Deposits to JJH’s account $176,547
Less: Transfers from CCA (9,400)
Less: Transfers from Coastal (22,335)
Total gross receipts 144,812
Less: Business expenses (47,105)
Taxable income 97,707
Less: Reported income (31,500)
Unreported income 166,207
1This figure is less than the unreported income figure of
$81,879 advanced by respondent on brief because of our finding
petitioner is entitled to additional business expenses.
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