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the discussion that follows. Petitioners bear the burden of
proof on all questions of fact. Rule 142(a).
I. Background
Petitioners resided in Seattle, Washington, when the
petition in this case was filed.
Petitioner is a lawyer specializing in corporate and
international trade law with emphasis in tax planning and complex
corporate transactions. Petitioner received an LL.M. (with
emphasis in taxation) from New York University School of Law.
Petitioners are calendar year taxpayers.
II. Interest Payments Credited to Aldergrove's Bank Account
A. Introduction
1. Aldergrove
Aldergrove Investments Co. (Aldergrove), was a partnership
between Grove Management Ltd. (GML), see infra sec. II.A.2., and
petitioner. Aldergrove's principal place of business was on
Anguilla (an island of the British West Indies). Aldergrove did
not file a U.S. Partnership Return of Income for 1991.
Petitioners did not report any income from Aldergrove for 1991.
Pursuant to the Aldergrove partnership agreement, effective
July 1, 1984, partnership interests and capital contributions
were as follows:
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