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to petitioner and deposited into the personal bank account of
petitioners. All of the checks that were made payable to
Phillips or to Phillips Contracting but endorsed back to
petitioner were treated as cost of goods sold on the Forms 1120S
of T.J. Construction for tax years 1996 through 1998.
From early 1996 through 1998, petitioner’s brother, George
Kosinski, performed substantial home improvements on petitioners’
personal residence and on the home in which petitioner’s mother
lived, which home was owned by petitioners. The work performed
by George Kosinski was billed by his company, Rougewood
Construction, to “Tim Kosinski” but was paid for by checks out of
T.J. Construction’s account. Until December 1997, invoices from
Rougewood Construction were addressed to petitioners’ personal
residence. Beginning in December 1997, the invoices were
addressed to petitioner at his business address. All of the
checks to Rougewood Construction, totaling nearly $141,000 from
1996 through 1998, were signed by petitioner, and none had any
notation indicating that they were for personal expenses.
Payments to Rougewood Construction for personal home improvement
expenses of petitioners were deducted as business expenses on the
Forms 1120S of T.J. Construction. Some of the personal home
improvement work for petitioners was performed by Star
Mechanical, a subcontractor of Rougewood Construction, and Star
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Last modified: November 10, 2007