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category. There was no record of the lemon farming activity in
any of the trust records, but detailed records of petitioners’
investment and rental activities were included in the trust
records. Losses from the lemon farming activity were deducted on
a trust return for at least 1999 and 2000, however.
On audit, the revenue agent informed petitioners that the
trusts would be collapsed. Petitioners decided to hire a CPA to
prepare pro forma returns so petitioners would be better prepared
to settle with respondent. The pro forma returns aggregated the
amounts reported on the trust returns and the amounts reported on
individual returns for the years at issue. Petitioners and the
revenue agent were unable, however, to resolve the lemon farming
activity issues.
During the course of the audit, respondent’s revenue agent
asked to tour the property. Petitioners would not permit the
revenue agent to tour the property and would not answer questions
about their farming activity. Respondent issued a summons to
petitioners to permit the revenue agent to tour petitioners’
property. When the revenue agent was finally permitted to visit
the property, she noted that the trees did not look healthy and
that some were dead. She also noted that the trees on the
property across from petitioners’ property, on the other hand,
were healthy and thriving. The revenue agent also noticed that
petitioners were storing yard items in the ripening room and the
warehouse storage held several classic cars in various stages of
repair.
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Last modified: May 25, 2011