Before Mr. DiMichele began serving his prison term,
he gave approximately $40,000 to petitioner. Since
Mr. DiMichele's release from prison, he has lived with
petitioner. Petitioner filed a Complaint in Divorce on
April 29, 1994, but no further action has been taken,
and petitioner and Mr. DiMichele continue to live
together in the house located at 2010 South 15th Street.
Respondent issued two notices of deficiency to
petitioners, one for 1985 and one for 1986. The principal
adjustment made by respondent to the DiMicheles' 1985
income tax return was to increase the gross income reported
on the return by $720,000, the amount respondent determined
that Mr. DiMichele had received from the sale of drugs
during 1985, and to allow a deduction of $180,000 for the
cost of drugs sold during the year. For the year 1986,
respondent made two adjustments. Respondent increased the
DiMicheles' gross income by $34,000, the amount of the
long-term capital gain realized from the sale of the
properties located at 506, 508, and 510 Fitzwater Street,
and increased petitioners' gross income by $31,748, the
amount of unreported bank deposits during the year.
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