Daniel L. Reeves - Page 4

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          service on May 28, 1996.4  The Oregon State Marine Board listed             
          VVI as the owner and petitioner as the coowner.5                            
               The new houseboat was approximately 43 feet long and 28 feet           
          wide.  It had one floor with three rooms including a living area,           
          a photo studio, and office space, and an open air deck on top               
          which included an outdoor cafe.  Adjacent to the new houseboat              
          was the floating garage where petitioner’s boat and jet skis and            
          VVI’s tables and chairs were stored.  The garage was covered and            
          securely locked.                                                            
               Petitioner and VVI shared the costs of the floating                    
          structures’ construction.  Petitioner paid $80,717 in 1995 and              
          VVI paid a total of $185,327:  $95,046 in FYE June 30, 1995, and            
          $90,281 in FYE June 30, 1996.  Petitioner was not reimbursed.               
          VVI capitalized the $185,327 and planned to depreciate the costs            
          over a 39-year period.  VVI reported these expenditures on its              
          Forms 4562, Depreciation and Amortization, as leasehold                     
          improvements involving nonresidential real property.                        
               VVI and UMI used the floating structures for promotional               
          events, meetings, and advertising photo shoots.  Petitioner used            
          the floating structures for personal purposes approximately 10              

               4 VVI’s Form 4562, Depreciation and Amortization, reported             
          the property was placed into service on May 28, 1996.                       
               5 Petitioner claimed that only VVI owned the floating                  
          structures and he was listed as a coowner because the State                 
          required an individual contact.                                             

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