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On the 1997 Form 1120S for petitioner’s solely owned
corporation, T.J. Construction, petitioners claimed cost of goods
sold in the amount of $7,857,791. All checks made payable to
Phillips or to Phillips Contracting were treated as cost of goods
sold, including $2,919,974 in checks that were issued to
Phillips, endorsed back to petitioner, and then deposited in
petitioners’ personal bank account. Respondent disallowed the
costs of good sold for these checks. Respondent concedes that
petitioner made cash advances of $1 million to Phillips in 1997
and may treat $1 million of the checks that were endorsed back to
petitioner as cost of goods sold. Petitioners assert that their
estimation of cash advanced to Phillips in 1997 is closer to
$2.5 million.
Petitioners have presented no credible evidence that more
than $1 million was advanced to Phillips. In 1997, petitioner
cashed or caused to be cashed checks totaling $1,976,000. This
amount is far less than the $2.5 million in cash that petitioners
claim was advanced to Phillips that year. Petitioner has
presented no credible substantiating documentation regarding the
amount of cash he claims to have advanced to Phillips. Rather,
he regularly destroyed the records he created to keep track of
such cash advances and the balances owed Phillips.
Additionally, the record shows that petitioners’ dealings in
cash extended beyond his transactions with Phillips. On several
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Last modified: November 10, 2007