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these forms, convinces us that she was unaware of the details of
Red Wing’s corporate business.
iv. Unusual or Lavish Expenditures Inconsistent
With The Family’s Ordinary Standard of Living
In this case, a portion of the tax savings caused by the
incorrect interest paid deduction was used to purchase rental
property. Mr. McClelland gave Ms. McClelland a portion of the
after tax rental income, and she deposited it into her personal
account with Edward Jones. Ms. McClelland testified that the
rental income she received was to compensate her for past
services she had performed for Red Wing because Mr. McClelland
did not allow her to cash her paychecks from Red Wing, and he had
disposed of the paychecks issued to her. Mr. McClelland failed
to offer any evidence to the contrary. Moreover, the majority of
the funds in Ms. McClelland’s personal account were from gifts
and an inheritance she received from her father.
Ms. McClelland also testified credibly that her family lived
a fairly modest lifestyle, and the record contains no evidence
that petitioners changed their lifestyle as a result of the
incorrect deduction.
v. Conclusion
Taking all the facts and circumstances into consideration,
we hold that Ms. McClelland did not have actual knowledge of the
false interest deduction.
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