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Taxman occasionally accepted equipment from one of its
clients, Site on Sound Car and Home Electronics (Site on Sound),
in lieu of payment on Site on Sound’s balance due. In May 1991,
petitioner received a home stereo system as partial payment of
Site on Sound’s balance due. The stereo was valued at $509.
Petitioner gave the home stereo system to his girlfriend, Melodie
Lane. He did not report the $509 as income on his personal tax
return for 1991. Ms. Lane worked in an office of Taxman Express,
a subsidiary of WFIC, for 1 month in early 1992. Taxman Express
was a business opened by petitioner in 1991 in order to prepare
and e-file tax returns for walk-in customers. Ms. Lane was never
employed by Taxman.
C. 1992
On October 1, 1990, petitioner formed Western Realty
Partners, L.P.-I (WRP). WFIC was the general partner of WRP and
held a greater-than-95-percent interest in WRP. On October 5,
1990, Valis R. Garceau, a client of petitioner’s and Taxman’s,
gave petitioner $10,000 to purchase rental real estate on her
behalf. Petitioner deposited the $10,000 in WFIC’s trust
account. On the same day, $10,000 was withdrawn from WFIC’s
trust account by check payable to WRP. A memo on the check read
“V. Garceau CD”. Petitioner does not dispute that the check was
used to purchase a $10,000 CD. On May 6, 1991, WRP liquidated
the CD and deposited the funds, $10,418.89, into a new money
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