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petitioner did not deduct any expenses incurred by Crocus, nor
did petitioner deduct the lease payments for use of the Expocentr
pavilion or any other pavilion located in the former Soviet
Union.
Petitioner and Crocus did not file Forms 1065, U.S.
Partnership Return of Income, for any taxable years ending on or
before July 31, 1996. Crocus was not required to file and did
not file U.S. corporation income tax returns for the 1994, 1995,
and 1996 taxable years.
Procedural Background
On February 8, 2000, respondent issued a notice of
deficiency to petitioner for the taxable years ended July 31,
1995 and July 31, 1996. Respondent’s primary determination
germane to the issues in this case was that petitioner’s gross
income for the 7-month period ended July 31, 1995 and for the
fiscal year ended July 31, 1996, should be increased to include
the 75 percent of gross receipts that had been paid to or
received by ECI from petitioner and exhibitors in foreign trade
shows in accordance with Articles 3.2 and 4.1 of the royalty
agreement. The petition and answer were timely filed.
On January 2, 2001, respondent filed his first request for
admissions and attached exhibits; on January 31, 2001, petitioner
filed its first request for admissions. Responses to the
respective first requests for admissions were filed by petitioner
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