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sport. Yoshinori held the second highest kendo rank and was a
representative to the World Kendo Association in Japan. Because
of Yoshinori's frequent travel, the Takaos gave Nakamura a power
of attorney to write checks on their behalf. Nakamura had
handled the Takaos' financial affairs and prepared their tax
returns since 1965.
During the years in issue, the Takaos made bank deposits as
follows:
Year Amount
1988 $122,483
1989 75,421
1990 114,935
1991 109,094
Of the 1991 deposits, $48,194, $26,244, and $7,495 were deposited
into bank accounts in Japan. The parties have stipulated that
those deposits were rents received from an apartment building the
Takaos owned in Tokyo, Japan. Construction of the apartment
building was completed in 1991. The parties have stipulated
further that only $10,108 of the Japanese bank deposits is
taxable income, rather than the $81,933 determined in the notice
of deficiency. The rental deposits in the Japanese banks were
not reported on the Takaos' 1991 return, because Nakamura
believed that, since Japanese tax returns were filed, there was
no need to report the income on the U.S. returns because of the
foreign tax credit.
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