Don Ballantyne and Susanne C. Ballantyne - Page 3

          whether petitioners are entitled to deduct $122,605 in 1986 for             
          interest petitioner paid to Escondido Property Investment                   
          Corporation; and whether petitioners are liable for additions to            
          tax under sections 6653(a)(2) and 6653(a)(1)(B) for 1985 and 1986,          
          respectively, on the portion of the underpayment attributable to            
          the transfer of the Escondido property to Balmac.                           
               All section references are to the Internal Revenue Code for            
          the years in issue.  All Rule references are to the Tax Court Rules         
          of Practice and Procedure.                                                  
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.  The          
          stipulation of facts and the attached exhibits are incorporated             
          herein by this reference.                                                   
               Petitioners resided in San Diego, California, at the time they         
          filed their petition.                                                       
               Petitioner completed 2 years of college and thereafter went to         
          work for a company involved in real estate development. He remained         
          there for approximately 10 years before going out on his own when           
          he formed Balmac to engage in the development of real estate.               
               At all relevant times, (1) petitioner owned all of the stock           
          of Balmac, and (2) Balmac owned all of the stock of Westland                
          Holding Corp., which in turn owned all the stock of Westland Title          
          Co., Inc. (WTC).                                                            
               In 1978, petitioner purchased approximately 106 acres of               

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