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amounts as cost of goods sold for the relevant years. However,
petitioner also treated these amounts as cash advances or loans
to Phillips, and he made out to Phillips from T.J. Construction’s
account, and had Phillips endorse back to him, checks equal to
the total of the wire transfers, which checks petitioner then
deposited into petitioners’ personal bank account, even though
petitioner had not advanced his own funds with regard to the wire
transfers. Both the amounts transferred by wire transfer and the
checks made payable to Phillips that were endorsed back to
petitioner were treated as cost of goods sold during the
preparation of petitioners’ and T.J. Construction’s tax returns,
resulting in the full amounts of the wire transfers being so
treated twice.
In late December 1998, Phillips needed a personal loan of
$101,000. Petitioner advanced funds to Phillips out of his
personal accounts, but he then had Phillips endorse checks out of
T.J. Construction’s account back to him, which checks were then
deposited in petitioners’ personal bank account. The checks made
payable to Phillips and endorsed back to petitioner were then
treated as cost of goods sold on T.J. Construction’s return for
1998.
Petitioners regularly kept hundreds of thousands of dollars
in cash in their home safe and safe-deposit boxes, as well as at
petitioner’s dentistry office.
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Last modified: November 10, 2007