2
within the meaning of section 183, and, if so, whether petitioner
can substantiate claimed business expenses; and (2) whether
petitioner is liable for an accuracy-related penalty.
Some of the facts have been stipulated and are so found.
The stipulation of facts and attached exhibits are incorporated
by this reference. Petitioner resided in Stateline, Nevada, at
the time the petition was filed in this case.
During the past 20 years, petitioner purports to have been
an accountant, a principal in an architectural firm, a real
estate investor, a taxi driver, a bank auditor, and a salesperson
of water purifiers. During 1991, petitioner drove a taxi for
Whittlesea Cabs, ran a water purifier franchise, and operated a
real estate investment firm under the name of NSA. Petitioner
conducted both the water purifier business and NSA from his one-
bedroom apartment at the Desert Club in Nevada.
Petitioner's water purifier franchise was based on a
"pyramid" incentive system, whereby participants earn income
through direct sales and through the recruitment of additional
franchisors. The primary objective is to recruit additional
salespersons, with the sale of individual units used as one
method of recruitment. Petitioner was unable to sell any of the
water purifiers and, after giving several away, disposed of
several units at a garage sale held in November 1991. He did not
include the aggregate proceeds from the garage sale ($30-$40) in
his gross income for the taxable year at issue.
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