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and take care of their daughter. They purchased $15,000 worth of
furniture for their home in 1996. They kept at any given time an
average of two to three vehicles, typically leased, which
included a BMW 740, a Toyota Four Runner, a Porsche, and a Honda
NSX. They also owned a jet ski. The family generally ate out
several times per week and took vacations, particularly ski
vacations, two to three times per year. Both spouses bought
expensive clothing and owned watches and jewelry which were kept
in bank safe deposit boxes. Petitioner primarily used a credit
card for his purchases and then gave the receipts to Mrs.
Ishizaki. Bill payment and family finances were then handled by
Mrs. Ishizaki. The couple also maintained a joint checking
account.
On February 6, 1997, respondent commenced an examination of
Privilege House. The taxable year under consideration was 1995,
and the examination was begun on the basis of two checks obtained
by the Internal Revenue Service from a check-cashing business.
Revenue Agent Mayra Encarnacion performed the examination and in
connection therewith conducted an interview on June 2, 1997, with
Mrs. Ishizaki and Jane Kim, the accountant for Privilege House
and for the Ishizakis personally. Ms. Encarnacion asked at the
interview whether all corporate checks were deposited to the
Privilege House account and was initially told that they were.
Subsequently, however, when Ms. Encarnacion raised the
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