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After selling ALS in 1984, the primary activities and assets
in which petitioners invested and participated and that are at
issue in this case involve timber farming in Oregon, real
property in Tahiti, a Lear jet, a limited consulting business
based in southern California, and a computer and real estate
rental business based in southern California. Petitioners
incurred significant expenses associated with each of these
activities and businesses, and petitioners, on their books and
records and on their joint Federal income tax returns, treated
most of the expenses relating to these activities and businesses
as deductible expenses of a trade or business.
Apparently due to errors made by petitioners and to careless
income tax return preparation by petitioners' accountants and tax
return preparers, numerous errors and mistakes in classification
of the expenses relating to the above activities occurred on
petitioners' original books and records and on petitioners'
Federal income tax returns.
On audit, respondent made blanket determinations that
essentially all of petitioner's activities constituted personal,
nonbusiness, and not-for-profit activities. Respondent's blanket
determinations, combined with the errors that occurred on
petitioners' books and records and Federal income tax returns,
resulted in the disallowance of many of the expenses claimed on
petitioners' Federal income tax returns for the years in issue
and in respondent's determination of the substantial income tax
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