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price for the yacht. Shortly after taking delivery, petitioner
paid $2,683 to install deck lights.
In 1992, petitioner advised his return preparer that the
purchase price of the yacht was $833,218.
On January 27, 1994, petitioner sold the Wrecking Krew to
Dream USA, Inc., for $950,000.4 At the time of sale, petitioner
incurred the following costs: $13,068 for lead ballast; $1,000
for lead ballast installation; $5,563 in architect’s fees; and a
sales commission of $51,000. The sum of the foregoing items,
plus the contract price paid to Marine Builders, Inc., and the
cost of the deck lights, equaled $870,021.
Petitioner reported on his 1994 return that his basis in the
Wrecking Krew (plus selling expenses) was $1,025,869. Adjusted
basis reported on the return, as a result of a claim of $100,740
in depreciation, was $925,129, resulting in a reported gain of
$24,871 on the sale of the vessel. Accepting petitioner’s
claimed depreciation, respondent nonetheless determined that
petitioner’s adjusted basis in the vessel at the time of sale had
been overstated by $156,848, resulting in a determination of
unreported gain in that amount. In the answer, respondent
4 By the time of the sale, petitioner had renamed the vessel
Sir Winston, the same name used for the two other vessels at
issue in this case. For simplicity, we shall refer to this
vessel as the Wrecking Krew.
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