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Petitioners have not shown that respondent’s determination is
without substance or that it would be appropriate to go behind
the notices of deficiency. Petitioners’ attempt to discredit
respondent’s agent appears to be a detour or distraction from
petitioners’ failure to present facts and/or law that would show
their entitlement to the claimed items.
On the basis of the foregoing, we hold that petitioners have
failed to show that they are entitled to deduct the expenses paid
by AJCS on behalf of the affiliates. Accordingly, we sustain
respondent’s determination that AJCS is not entitled to deduct
expenses of $2,261,555 that were expenses of the four newly
formed affiliates.
II. Did AJCS Erroneously Overstate Its Income?
Next, we consider petitioners’ contention that AJCS
overstated its income by $2,680,500. On brief and for the first
time in the course of the trial, petitioners raised an issue as
to whether AJCS’s 1993 income was overstated because the four
affiliates may have mistakenly reported the same income.10
Although petitioners included an allegation on this point in
their petitions, it was not addressed in the opening statement at
trial and, accordingly, was not tried by consent and was untimely
10 We must make assumptions because this matter was not
factually developed. We assume that petitioners’ argument is
based on their factual assumption that contract gross incomes
reported by AJCS for periods prior to transfer were also reported
by the affiliates.
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