Thomas and Linda O'Connell - Page 5




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                    In my mind, it is inconceivable to make any money                 
               at tournament fishing * * *.  This is strictly a sport.                
               If a guy only fished one or two tournaments in a year                  
               and he won one of them, then he might end up in the                    
               black for that year * * *.  If you fish them a lot,                    
               though, it is really tough.                                            
          From 1983 through 1989, Renegade was used primarily for sport               
          fishing.  The yacht spent several months each year in and around            
          Cozumel, Mexico; several months each year in and around Cape Cod,           
          Massachusetts; and several months in and around The Bahamas.                
               Billfish received what was denominated as “management fees”            
          from various entities in which petitioner held an ownership                 
          interest.  During 1988, those entities made payments to Billfish            
          totaling $220,000.  Billfish, however, did not perform any                  
          management services for the entities controlled by petitioner,              
          and the fees were mischaracterized on the tax returns filed by              
          those entities.  Billfish reported the following gross income,              
          expenses, and income or loss on its Federal income tax returns              
          for the years indicated:                                                    
               Year     Gross Income      Expenses     Income(Loss)                   
               1982        $79,500        $140,892       ($61,391)                    
          1983        327,808         573,754       (245,946)                         
          1984        619,504         552,010         67,494                          
          1985        519,137         658,274       (139,137)                         
          1986        370,385         774,665       (404,280)                         
          1987        427,750         623,940       (196,190)                         
          1988        338,103         547,405       (209,302)                         
               In 1984, petitioner incorporated Texas Terrors Fishing Team,           
          Inc. (Texas Terrors), which was owned 100 percent by petitioner             
          and had elected S corporation status.  Petitioner and Texas                 





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