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decorative rock has grown steadily, and petitioner continues to
generate substantial income from the sale of decorative rock.
G. Financing of Mining Activities
Petitioner financed most of his mining activity with
royalties from Zila, the sale of Zila stock, and the exercise of
stock options in 1993. Since 1980, no outside investor has
supplied capital for any of petitioner’s mining activities.
Petitioner sold shares of Zila stock when he needed money and
borrowed money secured by his Zila stock.
IV. Petitioner’s Tax Returns
A. Mining Activities
On petitioner’s Federal income tax returns for tax years
through 1997, petitioner treated all of his mining activities as
a single Schedule C activity doing business as Jetco Mining.19
For the years 1980 through 1988, petitioner had no income from
mining activities. During the years from 1989 through 1999,
petitioner reported, either directly on a Schedule C or
indirectly through JEI, gross revenues and expenses from his
mining activities as follows:
19JEI initially made an election to be treated for tax
purposes as a “pass-through” S corporation but did not file any
tax returns until 1998. Respondent does not assert that any
expenses claimed by petitioner with respect to the taxable years
at issue are disallowable because of the failure of JEI to file
Federal income tax returns.
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