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payable to petitioner, have the word “Draw” written in the space
for “Description”, and specify a check amount in round hundred-
dollar increments. Petitioner does not dispute that these and
similar checks totaled $10,640, $64,400, and $52,200 for 1988,
1990, and 1992, respectively. However, for December of 1990, no
copies of the checks drawn on Bicycle Sport’s account were made
available to respondent. Because the bank statements for
December showed two checks in even amounts similar to those
identified as draws, respondent concluded that these, too,
represented nondeductible draws of an additional $8,500.
Petitioner has offered no evidence establishing that the
amounts treated as draws should in fact be characterized as
deductible expenditures. Rather, petitioner’s testimony at trial
seems to indicate that these sums were in fact owner draws but
that petitioner holds a misguided interpretation of the income
tax consequences thereof. For instance, the discussion set forth
below illustrates petitioner’s apparent position.
MR. COHEN: I’m saying that some of those came--
some of that came from--as a draw on equity, which I’m
legally entitled to do as a nontaxable event. If I
have that money that I’ve put into the business, then
I’m allowed to take that back out and not declare that
as--that doesn’t have to necessarily be a taxable
event.
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