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expenses while in Europe. In our view, this evidence falls short
of establishing that the Zhadanovs used the diverted corporate
cash for personal purposes for several reasons. First, although
respondent implies and even argues that the $300,000 deposited in
the Swiss bank account represented unreported vial income,
respondent did not “gross up” the alleged unreported income (as
determined in the notice of deficiency) to include the $300,000.
If respondent’s position that the $300,000 consisted of
unreported vial income were correct, respondent certainly would
have grossed up his calculation of the diverted income from vial
sales to include the $300,000. Respondent did not do so.
Second, although the record establishes that the Zhadanovs cashed
$12,000 of money orders directly traceable to Vortex’s plastic
vial sales, the Zhadanovs did so on one of their 1992 trips to
Europe during which they explored extending Vortex’s
manufacturing operations and product lines overseas. The
business purpose of the Zhadanovs’ trips is established not only
by their testimony but by credible third party evidence
confirming the business nature of the trips. The Zhadanovs’ use
of part or all of the $12,000 during one of the business trips is
not convincing evidence of any intent to appropriate Vortex funds
for personal purposes.
The Zhadanovs sometimes held business meetings in their
home, and they used the safe in their home for corporate
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