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from the �570,000 or that he was an owner of A.T.O. Respondent
had petitioner's statement before March 3, 1995.
On March 3, 1995, respondent sent a letter to petitioner in
which respondent proposed to include the $965,425 in petitioner's
1987 income and asked for a response in 15 days (15-day letter).
In the letter, respondent explained the proposed adjustments to
petitioner's 1987 income tax as follows:
In July 1987, Walter T. McGee (taxpayer) moved to
his residence in Asheville, North Carolina; having
resided the three previous years in Europe where he was
in the business of marketing time shares in various
resort areas. On form 2555, "Foreign Earned Income"
attached to his 1987 return, the taxpayer indicated
that he resided in England and was employed by T.S.
Holdings, Ltd. for the period 7/1/86 through 6/30/87.
During the years that the taxpayer resided in Europe,
he was the beneficial owner of several companies which
included, but were not limited to T.S. Holdings
Limited, A.T.O. Marketing Limited (ATO), and United
Timeshare Group (UTG). UTG was formed in May 1986
between H.E.I.L. Ltd. and T.S. Holdings Ltd. H.E.I.L.
Ltd. was represented by Jack Petchey and T.S. Holdings
was represented by the taxpayer, who also served as a
director of T.S. Holdings Ltd. which in turn was the
beneficial owner of ATO. The taxpayer was the
beneficial owner of ATO. At the time that UTG was
formed, one of its purposes was to consolidate the
timeshare marketing and sales interests of T.S.
Holdings Ltd. and the timeshare interests of H.E.I.L.
Ltd. into a single holding company to be known as UTG.
At the time of the formation of UTG, ATO owned a 50%
interest in a timeshare development called Club San
Antonio along with Kenning Atlantic Iberica (Kenning).
ATO and Kenning were not related to one another.
Sometime after the formation of UTG, taxpayer and
Kenning suffered irreconcilable differences which
resulted in the taxpayer filing a lawsuit against
Kenning. Kenning entered into a settlement with A.T.O.
Marketing Ltd. (ATO) on or about May 07, 1987 whereby
it purchased ATO's interest in Club San Antonio for the
settlement amount of 575,000 pounds sterling. At the
US exchange rate on that date, the amount would have
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