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in prior years in order to cover the home improvement expenses.
Although the capital contributions made by petitioner in prior
years were not included in the income of T.J. Construction,
petitioners argue that they should have been included and then
the later deductions should be allowed. In support of their
argument, petitioners cite Lemler v. Commissioner, T.C. Memo.
1980-507, where this Court held that payments made to a
corporation in reimbursement by the owner of the corporation
should be included in the corporation’s income. Because we are
not persuaded by the evidence petitioners have presented in
support of their allegation that prior contributions were made to
T.J. Construction as reimbursements in advance, we need not reach
the question of whether such reimbursements should be included in
the corporation’s income. We hold that the disbursements from
T.J. Construction to pay for improvements on the personal home of
petitioners and on the home occupied by petitioner’s mother are
not cost of goods sold and create additional flowthrough income
to petitioners in 1997.
Fraud Penalty
The penalty in the case of fraud is a civil sanction
provided primarily as a safeguard for the protection of the
revenue and to reimburse the Government for the heavy expense of
investigation and the loss resulting from the taxpayer’s fraud.
Helvering v. Mitchell, 303 U.S. 391, 401 (1938); Sadler v.
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