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that amount, $59,584 was attributable to the sole proprietorship,
$27,300 was attributable to the rental real estate, $7,839 was
attributable to wages received by petitioner, and $650 was
attributable to interest income. During the subject year,
petitioners maintained five accounts with two banks, Home Savings
and Cal Fed.
Respondent examined petitioners’ 1998 Federal income tax
return. In connection therewith, respondent considered
petitioners’ bank statements and cash transaction reports.
Respondent determined from these statements and reports that
petitioners underreported the gross receipts of the billiard hall
sole proprietorship by $137,221.
Petitioners concede that they received $137,221, yet did not
disclose it on their 1998 return.3 They allege that this amount
represents the proceeds from a 1997 sale to petitioner’s brother
of a market petitioners owned in Mexico. According to
petitioners, they did not pay taxes in Mexico on the proceeds
from that sale because they sold the market at its cost and hence
presumably owed no taxes on the transaction. Petitioners claim
that they are now insulated by a Treaty between United States and
3 Petitioners conceded the $2,600 of the total deficiency
amount solely for the purpose of qualifying this case for small
tax case procedure and made an appropriate request in their
petition. Ultimately, however, this case was not tried as a
small tax case.
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