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The Management Agreement
Sometime in the later part of 1981, Teresa and Parker
entered into an agreement whereby Teresa appointed Parker "as
manager and consultant investor, to manage and control" the
$2 million notes (the management agreement). Parker initiated
the management agreement at the time of his divorce from Betty.
He was concerned that Betty would convince the daughters to sell
the $2 million notes for inadequate sums. Parker never exercised
any authority under the management agreement.
The Daughters' 1981 Tax Returns
Teresa made a return of income for 1981 on U.S. Individual
Income Tax Return, Form 1040 (Teresa's 1981 return). Attached to
Teresa's 1981 return is Form 6252, Computation of Installment
Sale Income (Form 6252). Form 6252 reported the installment sale
of certain real property. The description of that real property
is identical with the description of the Northgate Forest
property, as described in the assignment agreement. That real
property is reported to have been acquired on January 26, 1980,
and to have been sold on March 4, 1981. The stated selling price
is reported to be $2 million, to be paid 4 years after March 4,
1981, with no interest.
Tracy did not file a tax return for 1981.
Suit and Settlement
In 1985, when the $2 million notes and certain other notes
described in the related agreement were not paid by the makers
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