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Granot Loma and the aircraft. Specifically, Mr. DiMaggio
estimated that 90 percent of the amounts billed in 1990 and 75
percent in 1991 and 1992 by LFI and BAC were attributable to
petitioner’s personal use of Granot Loma and the aircraft.
The Audit and Notices of Deficiency
In April 1990, Mr. DiMaggio was first contacted about the
audit of petitioners’ returns. In September 1990, Jean Witek,
the revenue agent assigned to audit petitioners’ returns, sent
the initial audit letter to petitioners.
In 1991, during the pendency of petitioners’ divorce case,
counsel for Mr. and Mrs. Baldwin argued in court about which
party owned BAC (the ownership dispute). Mr. DiMaggio claimed
that Ms. Witek observed these arguments and subsequently referred
to the ownership dispute in conversations with him.11
The audit eventually was completed without any change to
BAC’s S corporation status. During the appeals process, Mr.
DiMaggio never mentioned the ownership dispute, nor did he raise
any issues concerning the validity of BAC’s S election with any
of respondent’s Appeals officers or other agents. The protest
documents filed by Mr. DiMaggio represented, indirectly, that BAC
was a valid S corporation; i.e., he maintained that petitioners
were entitled to deduct BAC’s passthrough losses.
11According to Mr. DiMaggio, he and Ms. Witek agreed to
defer consideration of the ownership dispute until the end of the
audit. Unfortunately, Ms. Witek was unable to complete the audit
because of illness.
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