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record those amounts in its books and records as dividends or, in
the alternative, as compensation to Mr. Duncan.
During 1990 and 1991, respectively, Mr. Duncan made payments
or other transfers to or on behalf of petitioner of amounts
totaling $100,900 and at least $58,780. Those respective amounts
represent petitioner’s nontaxable receipts from Mr. Duncan for
such years.
At a time not disclosed by the record before September 1992,
respondent commenced an examination of petitioner with respect to
its taxable years 1990 and 1991.
At a time not disclosed by the record, petitioner filed
Federal income tax (tax) returns for its taxable years 1990 (1990
return) and 1991 (1991 return). In such returns, petitioner
reported gross receipts of $454,034 and $453,451, respectively.
When petitioner filed its 1990 return and 1991 return, petitioner
through Mr. Duncan knew and understood that each such return
understated petitioner’s income for each such year. To illus-
trate, in its 1990 return and/or 1991 return, petitioner did not
report as income the following: (1) The forgone interest on Mr.
Duncan’s outstanding loan balance with petitioner for 1990 and
1991; (2) petitioner’s 1990 amount realized; and (3) petitioner’s
1991 check amount. In addition, petitioner claimed a deduction
of $9,610 in its 1990 return for “outside services”. However, we
found above that petitioner paid the $9,610 claimed for “outside
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