William E. and Karen L. Kivett - Page 4

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          characterized by respondent as a “pyramid” wherein participants             
          contributed money to petitioner that was deposited in                       
          petitioner’s bank account.  As additional participants made                 
          contributions to the club, the previous contributors would go up            
          one level and would move up again as further contributions were             
          made.  At some level, not indicated in the evidence, the                    
          participants at the top level received either all or part of the            
          most recent contributions made at the lowest level.  The record             
          does not show how much or what percentage of these contributions            
          went to petitioner for her services in conducting this activity.            
          Respondent was unable to obtain any books and records from                  
          petitioner, as she denied that such activity even existed.                  
          Respondent determined, however, that petitioner realized income             
          from this activity, and, since no income from such activity was             
          reported on petitioners’ joint income tax return for 2000,                  
          through a bank deposits analysis, respondent concluded that                 
          petitioner realized net income of $72,434 from this gifting club            
          during 2000.                                                                
               One of the witnesses at trial was a retired dentist who                
          participated in the activity during the year at issue.  He                  
          participated because he was having financial problems and                   
          believed he could realize money from this activity.  According to           
          his testimony, each entry in the club was $2,000, which could be            
          made by one investor or split among several investors to make up            

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Last modified: May 25, 2011