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The broader inquiry of whether petitioners’ tax reporting
and other actions show an honest and consistent respect for the
transactions’ alleged substance likewise demands an answer
unfavorable to petitioners’ position. In addition to their own
return treatment, the returns of FIL, which was at all times
wholly owned and controlled by the individual petitioners and run
by B. Mayer Zeiler, never reported a dividend. Rather,
deductions were taken for the amounts transferred. FIL’s
financial statements similarly designate the payments “selling
expenses” and explain that the company paid shareholders “a
special commission”.
Moreover, those acting on FIL’s behalf apparently made
representations to Israeli authorities directly contrary to the
position advocated here. Documentation from Israel’s Ministry of
Finance reads: “The taxpayers contended that the payments were
for services rendered in form of management and consulting
services. The Israeli company reported the payments as such.
There was no question that management services have actually been
given.” The taxing authorities were convinced that “Flocktex did
not pay dividends to shareholders * * * but instead paid a
special commission.” Similarly, the IRS agent conducting
interviews with petitioners during the subsequent domestic audit,
whom we find credible, testified that when he inquired in January
of 1994 what the special commissions were for, Joseph Deitsch
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