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During the years in issue, petitioner had three employees,
Mr. and Mrs. Valente and Jo Ann Michaels, who was the corporate
secretary and bookkeeper. As bookkeeper, Ms. Michaels deposited
receipts, prepared checks, reconciled bank statements and
maintained the books of account, including the general ledger and
the cash receipts and disbursement journals. Petitioner’s place
of business was in the Valentes’ residence.
Petitioner’s business during 1995 and 1996 included the
ownership of land and buildings leased to Green Valley Ford,
under which the lessee paid the expenses associated with the
property. Petitioner was also engaged in the business of leasing
automobiles and the purchase and sale of real property.
Petitioner had approximately 10 automobile leases during the
years in question, all of which had been entered into prior to
1995. Petitioner’s assets included land and a building in El
Cerrito, and mortgages receivable in excess of $2.5 million,
secured by real property located on Airport Boulevard, South San
Francisco. Petitioner had sold this property, on the installment
basis, on January 19, 1995.
Mr. Valente was qualified to be involved in any aspect of
the automobile business, including petitioner’s activities of
leasing realty to an automobile dealer and leasing automobiles.
Mr. Valente was, in general, successful and experienced in
business operations. For the 12-year period 1985 through 1996,
his highest annual wages exeeded $1 million, and his average
wages for that period exceeded one-half million dollars. After
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