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Respondent did not include petitioners' personal living
expenses in the net worth calculation on which the notice of
deficiency was based. During the years in issue, petitioners
gave gifts and support to Suil Peacock and his family, had a
live-in maid, took trips to Florida, and gambled. Respondent did
not include those expenses in the net worth calculation.
In the net worth calculation, respondent took into account
the fact that $4,000 was stolen from petitioners in 1983.
Petitioners did not deduct a theft loss on their 1983 tax return.
2. Petitioners' Pre-1983 Use of Banks and Other Financial
History
Petitioners borrowed $28,000 in 1977 and $13,630 in 1978
from the North Pacific Bank in Tacoma, Washington. Petitioners
submitted a statement of joint financial condition with their
1978 loan application. After adjustment to show actual cost and
accumulated depreciation and to correct for minor errors, it
states that petitioners had a net worth of about $70,640 on April
7, 1978. Petitioners did not state that they had a cash hoard on
either the application they submitted for their 1977 loan or
their statement of joint financial condition. In 1978,
petitioners reported $410 of interest income from Great Northwest
Savings and Loans and North Pacific Bank, and $4,237 of interest
expense on loans from First Interstate Bank of Washington (home
mortgage), Great Northwest Savings and Loans, Rainier Bank, and
North Pacific Bank. On April 7, 1978, petitioners owed several
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