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Viet Nguyen

Sleepy, Droopy and Goofy, CPAs

555 Sixth Street
Moscow, Idaho 83843

21 September 2016

Xaviera Hollup
1379 Paradise Blvd., Apartment 13450
Hayden Lake, Idaho 83835

Dear Ms. Hollup:

Upon your inquiry regarding your circumstance, on the behalf of Sleepy, Droopy and Goofy, CPAs, I write
this letter to first inform you all the facts that are involved in your case, secondly to state the relevant
tax issues that you might have to deal with and last to discuss the tax consequences of the stated facts.

In August 2012, you met Henry Hissinger at a party. At the time you met him, he was, and still is married
and has three children. After the party, you and Mr. Hissinger have developed an affectionate
relationship that leads to many other meetings that you two had afterwards. During the relationship,
Mr. Hissinger has provided you with a luxurious apartment in Hayden Lake, complete with expensive
furniture. The apartment is also the place at which you and Mr. Hissinger usually meet each other. In
addition to the apartment, as the time passed and your relationship continued, Mr. Hissinger also
provided you with a new car, specifically a corvette, new clothes, jewelry, furs, food and even cash.
After the interview with my partner, you have informed our firm that the total value of the property and
cash you have received from Mr. Hissing are worth more than $60,000 in the year 2014, $50,000 in the
year 2015 and about $38,000 for the current year 2016.
In March 2015, beside the relationship with Mr. Hissinger, you also met with other gentlemen friends at
the parties you visited. During the time in companionship with these gentlemen friends of your, you
never charged them, yet have accepted clothes, jewelry, food, cash from them. The property and cash
that you have received from the gentlemen friends during the remainder of 2014 worth over $25,000
and more than $30,000 in the year of 2015.
Starting February, 2016, when Henry Hissinger decided to divorce his wife, which will be finalized in
December 2016, you and Mr. Hissinger have agreed to live together in the apartment in Hayden Lake
that he provided to you. Furthermore, Mr. Hissinger also agreed to open a joint checking account into
which he will deposit $70,000 of his income in order to pay for normal household expenses and the
personal needs of both him and you. Lastly, he also deposits at least $3,000 per month into a separate
checking account belong solely to you.

1. The first question arises in this case is if the property and cash you have received from Henry
Hissinger from August 2012 to 2015 before his divorce are gift.
2. The second issue that you have to concern is if the money that Mr. Hissinger deposited in your
checking account, after you two decided to live together is gift
3. The last issue you want to concern is if the property and cash that you have received during the
time you were in companionship with them constitute gifts.

Under Section 102 (a) of the Internal Revenue Code, Gross income does not include the value of
property acquired by gift, bequest, devise, or inheritance. In other words, property acquired by gift,
bequest, devise or inheritance is not taxable. Therefore, its crucial for us to determine if these transfers
are gift or income. Section 102(a) of the Internal Revenue Code although exclude gift from gross income
yet it doesnt define gift. Subsequently, we need to use other sources to help us determine if the
transfer constitute gift, such as the court decision on other tax case. In Commissioner v. Duberstein, 363
U.S. 278 (1960), Mr. Justice Brennan delivered the opinion of the court that a gift in the statutory
sense, on the other hand, proceeds from a detached and disinterested generosity, out of affection,
respect, admiration, charity or like impulses. It means in order to determine if a transferred property is
a gift, the intent of the donor needs to originate from his/her generosity out of affection. I will apply this
standard in your circumstance to determine if the property you have received constitutes gift.

First, regarding the information that Mr. Hissinger, over the period of two year from 2014 to 2015 prior
to his divorce, has transferred to you a number of valuable property that worth more than $100,000
($60,000 in 2014 plus 50,000 in 2015), I will rely on Austin v. Commissioner, 49 T.C.M. 520 (1985) to
determine Mr. Hissingers intent in transferring these property. In the case, Austin and married man,
Lester A. Crancer conducted a relationship for 2 years until his death in 1973. During their relationship,
Austin receives $47,704 from Mr. Crancer consisting of an eight-room ranch style house, valued at
$28,500 and $19,200 in cash or check in 1972. In addition, she also received other checks and cash from
him totaling $9,214. The IRS contended that the property and cash that Austin had received during her
relationship with Mr. Crancer all constitute compensation for services rendered to Crancer which is
taxable under section 61(a)(1). However, the court argued that, In order to hold for [the IRS] we
would have to conclude that Crancer paid petitioner $47,704 for her 1972 services to him and $9,214 for
her 1973 services to him[] We would also have to conclude that these services [] the respondent set
so high a value. The court was implying that paying Austin that much money for less than two years of
companionship services would really over-value her services. In other words, a man paying a woman
nearly $60,000 for a companionship less than two years is irrational. Because the transaction is irrational
as the court assumed, the property must be gift. Similar to your circumstance, the property and cash
that worth more than $100,000 that were transferred to you in two year are definitely not
compensation for companionship services rendered, but gifts because based on the courts decision
on Austin v. Commissioner, it would be irrational to make a compensation that high of value for a
companionship services in two years, from 2014 to 2015.

Secondly, in looking at the intent of Mr. Hissinger in depositing $70,000 in the joint checking account
and $30,000 in a separate checking account solely belong to you, I will base my decision on United
States v. Harris, 942 F.2d 1125, 68 A.F.T.R.2d 91-5482, 91-2 USTC P 50,433, 33 Fed. R. Evid. Serv. 967
(1991). In United States v. Harris, David Kritzik, now decreased, was a wealthy widower who was in
company with many young women. Two of these young women were Leigh Ann Conley and Lynnette
Harris. During the relationship with Kritzik, Conley and Harris received a substantial amount of money
from Kritzik over the course of several years. The IRS claimed a deficiency in their tax returns that the
money received from Kritzik was compensation for services rendered and prosecuted them for willful
evading income tax obligation. The tax court agrees with the commissioners decision. However, the
United States Court of Appeals, Seventh Circuit, reversed the IRSs claim and argued that Conley, Harris
and Kritzik were in a long term relationship. And the motivations of the parties in such cases will always
be mixed. The relationship would not be long-term were it not for some respect or affection. Yet it may
be equally clear that the relationship would not continue were it not for financial support or payment.
In other words, the court was implying that couples in long term relationship have mixed intent.
Specifically, although they have affection toward each other, each side still wants financial support to
sustain their relationship. Applying this argument in this scenario of your, its obvious to see that Mr.
Hissinger really has affection toward you because you two have been in a long-term relationship for
almost 4 years. More importantly, to reinforce this relationship with you, he decided to divorce his wife.
About the amount of $3,000 deposited into your checking account every month by Mr. Hissinger, that
cant be considered compensation for housekeeping services that you have rendered. Instead, utilizing
the courts argument in U.S. v Harris, that amount would be considered financial support provided to
you by Mr. Hissinger to sustain the long-term relationship between you and Mr. Hissinger.

The last issue that I want clarify with you is the property that you received from the gentlemen friend
that you met at the parties you visited. I will apply the courts decision on Reis v. Commissioner, 33
T.C.M. 1333 (1974), T.C Memo. 1974-287 to determine the intent of these gentlemen friends of yours. In
Reis v. Commissioner, Reis, a nightclub singer, received $100,000 from a secret lover named, according
to her testimony, Clyde (Bing) Miller. The IRS claimed a deficiency in her tax return that she evaded her
income tax obligation by not reporting the property worth of $100,000 received from Mr. Miller to the
IRS. The tax court disagreed with the commissioner and argued that Reis didnt keep any necessary
documents of the transfer of property made by Mr. Miller and Mr. Miller was now where to be located
to testify for his intent. Because of this insufficient evidentiary issue, the court agreed with Reis claim
that the property worth of $100,000 she received from Mr. Miller was gift. Back to your scenario that
you have received property, such as jewelry, food, cash from your gentlemen friends when you are in
companionship with them. Similar to Reiss situation, you dont possess any documents of the transfer
of property that proves the intent of the gentlemen friends when they decide to transfer you property.
Furthermore, its nearly impossible to locate every single gentlemen friend of yours and get their
testimony so we could identify their intent when they make the transfer. As a result, I believe that its
highly likely that neither the tax court nor the IRS would have sufficient evidence to conclude that the
property is income. Thus, the property received from the gentlemen must be gift.

If you have any further question, please dont hesitate to contact me by phone


Viet Nguyen
Sleepy, Droopy and Goofy, CPAs
555 Sixth Street
Moscow, Idaho 83843
Phone: (650) 686-8001