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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.
Background
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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