- 26 -
amount of $13,850, and "Disallowed investment interest expense"
in the amount of zero. The Takaos reported "Deductible
investment interest" in the amount of $13,850 on Schedule A--
Itemized Deductions for 1991, purportedly based on imputed
interest on a loan from Hada.11
Throughout their association, Yoshinori was involved in
several financial dealings with Nakamura, and he trusted and
relied on Nakamura. Yoshinori delegated many of his financial
affairs to Nakamura. Nakamura is listed as a signatory on the
Takaos' business checking account. He prepared the Takaos' tax
returns for the years 1988 through 1991 as well as Toraya's tax
returns for the same years.
The Takaos' 1988 tax return was filed October 3, 1990.
Respondent granted the Takaos an extension to file their 1988 tax
return until October 15, 1989.
Facts Relating to Toraya
When it filed its petition, Toraya maintained its principal
place of business in San Francisco, California. Toraya was an
accrual basis taxpayer.
In 1985, Toraya began changing its restaurants' menus from
standard sitdown restaurant fare to sushi bar fare. However, the
restaurants did not maintain a straight sushi bar menu. At that
time, the sushi bar concept was known in Japan, but not common in
11 There is no evidence that any interest was in fact paid,
that it was declared by Hada, or whether it would have qualified
as investment interest.
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