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was focused on royalties as a possible deduction from ERG to * *
* NPI and we put the amount in there when it probably should have
been better labeled services * * * so we deducted the amount as
royalties when perhaps a better label even then would have been
engineering services.” According to Bradac’s testimony, there
was no real formula to allocate royalties to the years at issue.
The Court asked and Bradac answered as follows:
Q: How were the specific amounts arrived at for
the individual years?
A: We would–-we initially, one based it on the
profits of ERG. And when I say that, we anticipated
that ERG would still be profitable during the period.
So we estimated their profits in the range of fifty to
seventy-five thousand dollars. And calculated the
royalties that were necessary to bring the income down
to that level.
Additionally, Bradac testified that he suggested the concept of
constructive receipt as a basis to allocate payments to tax years
prior to receipt. Bradac, Toibin, and Burton discussed the
characterization of other ERG payments to NPI as “engineering
services”. Finally, Bradac testified that Burton did not order
him to make any particular entry that appeared on the returns and
that he made discretionary decisions with respect to classifying
income and expense.
Given this record, we are unable to sustain respondent’s
determination of fraud.
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