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the year 2000. The return was signed on May 1, 2004. In the
section labeled “Income”, petitioner listed $208,095 of income on
line 7 Wages, salaries, tips, etc. and on line 17 an $854,722
loss from S corporations. Petitioner listed her total income on
line 22 and adjusted gross income on line 33 as zero.
Petitioner was required to file a Schedule E, Supplemental
Income and Loss, to describe the $854,722 loss. Schedule E
allows taxpayers to list the income or loss of their S
corporation. Petitioner’s attached Schedule E contains only
petitioner’s name, Social Security number, the Topaz Group,
Inc.’s (Topaz) name, an indication that Topaz is an S
corporation, Topaz’s employer identification number, and an
indication that all of petitioner’s investment was at risk.
Petitioner had the authority to request copies of Topaz’s
bank statements.
A document dated April 10, 1995, and entitled “Unanimous
Written Consent of the Board of Directors of Topaz Group, Inc.”,
shows 836,540 Topaz shares issued to petitioner and 12,500 issued
to David Wood. On Topaz’s 1996 Form 1120, U.S. Corporation
Income Tax Return, the Schedule K statement shows petitioner
holding 55 percent of Topaz’s stock. Topaz’s 1997 and 1998
Schedules K-1, Shareholder’s Share of Income, Deductions,
Credits, etc., show petitioner as 100-percent shareholder of
Topaz’s stock. Topaz’s 1999 and 2000 Schedules K-1 do not show
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