Luis Acle, Jr. - Page 17

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          petitioner had $7,745 less unreported income than the amount                
          determined in the notice of deficiency.3                                    
               B.  Business Expense                                                   
               Petitioner argues that respondent’s disallowance of the                
          $17,000 Schedule C deduction for “administrative Mexico” is in              
          error.  Petitioner stated at trial that the $17,000 represents the          
          “cost of doing business” in Mexico City.  In particular,                    
          petitioner asserts that he lost office equipment valued at “a               
          little over $10,000” in a burglary, and that he was forced to               
          scrap an automobile--because “the oil pump or something had gone            
          bad and the car was basically ruined”--for which he “took a little          
          over a $7,000 loss”.                                                        
               It is unclear from the record whether the office to which              
          petitioner refers in his testimony regarding this issue was the             
          office of NAFTA, petitioner’s Mexico City-based corporation.  A             
          corporation formed for legitimate business purposes is an entity            

          3We briefly address a factual issue that was not discussed                  
          by either party--the interrelationship between the rental                   
          activity issue and the unreported income issue.  In light of                
          petitioner’s burden of proof in this regard, see Rule 142(a), we            
          note that the record does not support a finding that any of the             
          amounts deposited into petitioner’s bank accounts were derived              
          from the rental activities.  We reach this conclusion based upon            
          the record as a whole, which establishes, inter alia, that the              
          property management companies rather than petitioner collected              
          the rents and paid the expenses therefrom; that petitioner held             
          only partial ownership interests in several of the properties;              
          that petitioner may have held bank accounts other than the two              
          named above; and that no deposits listed in the bank statements             
          have been identified as having been derived from the rental                 
          properties.                                                                 





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