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In November and December 1989, petitioner received from one
Lee Weisel (Weisel) payments totaling $279,219 (the Weisel
payment). Petitioner did not include the Weisel payment as an
item of gross income in his 1989 Federal income tax return.
Petitioner’s omission of the Weisel payment from gross income is
the principal basis for respondent’s determination of a
deficiency. To understand petitioner’s reason for not reporting
the Weisel payment as an item of gross income, it is necessary to
understand something of petitioner’s business dealings during the
years prior to the payment.
Biomass One L.P.
Biomass One L.P. (Biomass) is a Delaware limited partnership
formed in 1984 to own and operate a woodwaste-fired, thermal
electric power and steam generating facility, which was to be
constructed in White City, Oregon (the cogeneration facility).
Biomass Operating Co., Inc. (Biomass Operating), is an
Oregon corporation. Petitioner and Weisel are two of three
shareholders of Biomass Operating. At various times between
December 31, 1984, and January 12, 1989, petitioner, Weisel, and
Biomass Operating were, alone or together, managing general
partners of Biomass.
Sometime in March 1984, Biomass entered into a contract for
the design and construction of the cogeneration facility (the
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