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On April 10, 2003, petitioners filed their 2002 joint return
and reported a salary from an “Overseas Employer” of $75,000 and
a Schedule F loss of $22,875, with a tax liability of $2,501.
Petitioner’s Schedule A for 2002 reported a real estate tax
deduction of $9,545. The 2002 return did not claim a deduction
for interest paid.
B. Respondent’s Examination
In late 2003, the Japanese taxing authorities, as part of an
information exchange, informed respondent that petitioner, a U.S.
citizen, and TPPL were involved in a business transaction in
which TPPL received over $5 million in 2000. The Japanese taxing
authorities also disclosed documents which stated that petitioner
was the CEO and chairman of TPPL and that he resided at the
Rivercliff property. While investigating petitioner, Revenue
Agents Steve Rans and Christopher Beach discovered the Rivercliff
property was titled in the Talmages’ names and that SSI was
involved in a large construction project on the property.
On January 22, 2004, Agent Rans mailed a letter to
petitioner asking whether he held an ownership interest in TPPL
or NCPL. The letter referred to documents in which petitioner
identified himself as the chairman, the chairman and CEO, and the
managing partner and chairman of TPPL. The letter also requested
that petitioner disclose the source of funding for the
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Last modified: March 27, 2008