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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