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Obispo, California (Prado Road property).5 The Prado Road
property was zoned for light industrial construction, and
petitioner subsequently developed that property into five
commercial service units. Each unit consisted of commercial
office space and had metal rollup doors, which contained areas
for light industrial work. Petitioner moved Brassworks to this
location and leased the remaining units to other tenants. After
developing the Prado Road property, petitioner managed and
maintained the property by hiring contractors, locating tenants,
entering into lease agreements with tenants, collecting rent
payments, and paying property taxes. In 1993 and 1994, the
Gouveias earned $41,400 and $57,560 respectively, in gross rental
receipts from the Prado Road property.
II. Pago Trust
A. Formation
In approximately 1992 or 1993, petitioner explored the
possibility of creating trusts and sought advice from a company
called Independent Trust Consultants.6 Petitioner also spoke
with his tax return preparer, John Gragg, about forming trusts,
5In approximately 1981 or 1982, the Gouveias made their
first real estate investment, but they later sold the property
for a loss. Around 1990, the Gouveias invested in another parcel
of real estate, which they leased with an option to buy and
eventually sold for a small profit.
6The record is silent as to the advice the company provided
or its role, if any, in assisting petitioner with forming the
trusts at issue.
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Last modified: May 25, 2011