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cash to Phillips in addition to writing the checks or that the
checks were endorsed back to petitioner and deposited in
petitioners’ personal bank account. All of the checks that were
endorsed back to petitioner were deducted as business expenses on
T.J. Construction’s Forms 1120S, U.S. Income Tax Return for an S
Corporation.
The nature of the cash transactions between petitioner and
Phillips was such that the actual amount of money paid to
Phillips could be verified only by petitioner and Phillips.
Petitioner kept track of the amounts owed to Phillips by T.J.
Construction, but he destroyed those records regularly. Phillips
did not keep records of the amounts he was owed, but rather
relied on petitioner to handle the paperwork with regard to the
Thyssen Steel projects.
From 1994 through 1998, Phillips paid his employees with a
combination of checks and cash. He did not withhold any taxes
and did not issue any Forms 1099 or Forms W-2, Wage and Tax
Statement, with regard to payments to his employees. With the
cash he received from petitioner, Phillips customarily made cash
payments to temporary workers, to subcontractors, to regular
employees as incentives and bonuses, and to suppliers.
In addition to substantial cash payments, petitioner made
three large wire transfers to Phillips Contracting totaling
$1,440,500 between 1996 and 1997. Petitioner treated these
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Last modified: November 10, 2007