James C. Blanning, Jr. - Page 5

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          whether petitioner had received income from criminal activity and           
          whether the amount of that income reached the threshold for the             
          filing of a Colorado income tax return.  The State of Colorado              
          provided respondent with records that, in the State’s judgment,             
          reflected income to petitioner.                                             
               Respondent asked petitioner, who was then incarcerated, for            
          records of his business activities, and petitioner was unable to            
          produce any records other than those respondent received from the           
          State of Colorado.  Petitioner advised that his records had been            
          discarded while he was incarcerated.  Respondent did not allow              
          any deductions in connection with respondent’s determination of             
          petitioner’s business activity.                                             
               Petitioner failed to file Federal income tax returns for               
          1992 and 1993 as of the time respondent began the audit of                  
          petitioner’s income activities.  Petitioner did not provide                 
          records of income or expenses to respondent in connection with              
          the examination of his 1992 and 1993 tax years.  In the notice of           
          deficiency, respondent allowed petitioner standard deductions of            
          $3,600 and $3,700 for 1992 and 1993, respectively.                          
                                       OPINION                                        
               During 1992 and 1993, petitioner was engaged in illicit                
          property transactions.  The transactions generally involved real            
          property of corporations, unrelated in any way to petitioner,               
          that were delinquent in their obligations to the State of                   






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