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petitioners personally developed the bookkeeping system and
maintained the books and records relating to their various
activities, and they claim that only inadvertently were expenses
not properly allocated by petitioners to the proper activity.
For example, on petitioners’ original returns for the years
in issue, petitioner’s Roll Royce and a condominium in Park City,
Utah, both of which were personal assets not used in any of
petitioners’ businesses, were incorrectly allocated to a business
activity and depreciation was claimed thereon.
Petitioners’ and their accountants’ casualness -- in making
allocations on both their original and their proposed revised tax
returns between petitioners’ alleged business, investment, and
personal activities -- is illustrated by the allocation of costs
associated with an umbrella liability insurance policy relating
to petitioners’ Orange, California, residence.
Q. [by petitioners’ lawyer] I just handed you another
document entitled "Allocation of Umbrella Liability
Insurance," which has been entered into evidence as Joint
Exhibit 103-CY. Are you also familiar with this document?
A. [by petitioners’ accountant] Yes, I am.
Q. And did you prepare it?
A. Yes, I did.
Q. Would you please describe it to the Court?
A. This is a document that I prepared entitled
"Allocation of Umbrella Liability Deductions Claimed on
Revised Returns." It simply allocates the umbrella
liability portion of their insurance which is a component of
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