Eric B. Benson, et al. - Page 13

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          information returns.  Therefore, the rationale for treating the             
          returns of passthrough entities as adjuncts to an individual’s              
          returns is not present in the case of a subchapter C                        
          corporation’s income tax return.  Respondent was not required to            
          examine the returns of ERG, a subchapter C corporation, to                  
          determine whether the Bensons disclosed items of gross income.              
               B.   Disclosures on Returns Were Not Adequate to Apprise the           
                    Secretary of the Nature and Amount of Omitted Income              
                    1.   Royalties and Engineering Services                           
               The Bensons argue that the returns of NPI disclosed royalty            
          and engineering service payments from ERG that we previously                
          found to be constructive dividends to the Bensons.  Quoting                 
          Colony v. Commissioner, 357 U.S. 28 (1958), the Bensons argue               
          that respondent had “no ‘special disadvantage in detecting                  
          errors’” because these items were disclosed on the corporate                
          returns.  Respondent argues that the returns do not adequately              
          disclose the transfers and mischaracterized the transfers.                  
               A misleading disclosure on a return is insufficient to                 
          apprise the Commissioner of the nature and amount of an item for            
          purposes of section 6501(e)(1)(A)(ii).  Estate of Fry v.                    
          Commissioner, 88 T.C. 1020 (1987).  In our prior opinion, we                
               On or about March 10, 1990, Burton executed as                         
               president of both NPI and ERG, a document entitled                     
               “Agreement of Sale and Exclusive License” (exclusive                   
               license agreement).  The document had a retroactive                    
               effective date of July 1, 1987, and a 40-year term.                    

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