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I. The Unreported Income
During 1990, and at all relevant times before and after that
year, the Paus operated a real estate development, management,
and brokerage business as sole proprietors doing business as
d.b.a. Sand Hill Property Co. (Sand Hill). Petitioner was
actively engaged in the real estate management and development
side of the business; Susanna was largely concerned with
commercial real estate purchases and sales. Susanna generally
dealt with major commercial properties, and most of her clients
hailed from Hong Kong and Japan. Despite separate roles in Sand
Hill, petitioners worked together and were aware of each other's
transactions.
Petitioner began working as a developer in 1979, having
earned a bachelor's degree in civil engineering from the
University of California at Berkeley in 1975 and a master's
degree in construction management from Stanford University in
1976. Susanna earned a bachelor's degree in business
administration and accounting from the University of California
at Berkeley in 1974.
A. The Stockton Street Property Transaction
In March of 1990, Susanna brokered the sale of real property
located at 39 Stockton Street in San Francisco, California (the
Stockton Street property). Meiyan Enterprises, Inc. (Meiyan),
sold the property to Sanrio, Inc. (Sanrio), a Japanese company,
for use as a retail outlet. The sale generated a broker's
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