Midwest Stainless, Inc. and Robert A. and Mary J. Lechner - Page 10

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            failing to report taxable income of the sole proprietorship for                            
            prior years, the parties took pains to agree and to assure the                             
            Court that there was nothing improper in Mr. Lechner’s taking the                          
            receipts and paying the associated expenses.  We accept their                              
            assurances and impute no wrongdoing to Mr. Lechner, who appears                            
            merely to have been following the advice of his accountant, Mr.                            
            Noble, at all times relevant to these proceedings.                                         
                  What Mr. Lechner and Stainless did to “make it right”,                               
            apparently on the assumption that the only proper way to handle                            
            the incorporation was for Stainless to take over the receivables                           
            and payables arising from the sole proprietorship’s work in                                
            progress, was to set up a corporate receivable from Mr. Lechner                            
            in the amount of the receipts and to reduce that receivable when                           
            Mr. Lechner paid the associated expenses.  The amount of the                               
            receivable, reflected in the progress payments taken by Mr.                                
            Lechner, and its reduction by the associated expenses that he                              
            paid, were reported by Stainless as corporate income and                                   

            4 Inasmuch as both the sole proprietorship and the                                         
            corporation used the cash method of accounting, this treatment                             
            appears to have been proper and consistent with the way the                                
            incorporation of a cash basis business can be handled under secs.                          
            351, 357(c), and 358(d).  See Hempt Bros., Inc. v. United States,                          
            490 F.2d 1172 (3d Cir. 1974); Rev. Rul. 80-198, 1980-2 C.B. 113;                           
            see also Focht v. Commissioner, 68 T.C. 223 (1977); Rev. Rul. 80-                          
            199, 1980-2 C.B. 122.  Notwithstanding that the sole                                       
            proprietorship earned the receipts and incurred the liabilities                            

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