- 23 -
Commissioner, 89 T.C. 1280, 1295 (1987); see also Toushin v.
Commissioner, T.C. Memo. 1999-171, affd. 223 F.3d 642 (7th Cir.
2000). The $31,667 recognized by Mr. Feinsmith as income for
1983 was mainly attributable to false invoices purchased in 1982.
The $52,320 recognized by Mr. Feinsmith as income for 1984 (by
way of the second amended return) was almost entirely
attributable to false invoices purchased in 1983. Given the fact
that the purchase of the false invoices by the corporations and
the conversion of the cash by the principals appears to us to
have occurred contemporaneously, that income, were it in fact
attributable to Mr. Feinsmith’s conversion of cash, as respondent
asserts, would have been properly recognized on Mr. Feinsmith’s
personal income tax returns for 1982 and 1983, respectively.
Moreover, Mr. Feinsmith recognized in income his portion of the
full amount of the false invoices which entered into the cost of
goods sold deductions. The Court of Appeals for the Second
Circuit stated that principals participating in the scheme
converted to their personal use only part of the false invoice
amounts.9
9 We also note that Mr. Feinsmith indicated explicitly in
his affidavits that his recognition of income from the scheme
rested on whether he was a Randy Hall shareholder, rather than on
whether he personally received cash from the scheme. As he
stated in his affidavits: “I did not receive any income as a
result of Randy Hall, Inc.’s false deductions for the fiscal year
ending January 31, 1981 because I was not a shareholder for any
portion of that year.”
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