Lucian T. Baldwin, III - Page 22




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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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