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II. Petitioners Did Not Receive Income From Tamarisk and
Fountainhead
Respondent determined that petitioners failed to include
$168,868 of interest in their 1998 income. The notice of
deficiency issued to petitioners does not identify the sources of
the interest. The explanation of items states that interest
income reported on Form 1099-INT was not reported on petitioners’
return. The explanation also states that interest on bank
deposits, coupons payable on bonds, loans, etc., is taxed to a
cash basis taxpayer when credited or due. On brief, respondent
asserts that $29,481 of interest from Fountainhead reported by
the OMK Company Trust and $139,326 shown as interest on the
November 19, 1998, Tamarisk statement but not reported on any
return should be included in petitioners’ income.11 Respondent
contends that those amounts represent “accessions to wealth,
clearly realized, and over which the taxpayers have complete
dominion”. We disagree.
Not only were petitioners misled by the principals and
agents of NTS with respect to the legal effect and benefits of
establishing the OMK trusts; they were defrauded by Little,
Fritts, and Rouse with respect to the investments in Fountainhead
and the Tamarisk loan program, a.k.a, “cash for titles”. The
11The record is silent with respect to the remaining $61 of
interest reported on the return of the OMK Family Trust that
respondent determined in the notice of deficiency is taxable to
petitioners.
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