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evidence, reflects that their basis in the property would have
originally been more than $1.75 million. Therefore, we hold that
petitioners’ basis, as determined by respondent, was understated.
Accordingly, we hold that petitioners’ basis in the Crestwood
property was $2 million. Cohan v. Commissioner, 39 F.2d 540 (2d
Cir. 1930). Accordingly, petitioners must recognize $525,000 of
gain on the transfer of the property to Prudential Bancorp.
E. Unreported Income
1. Salaries
Petitioners have stipulated that they failed to report
salaries and self-employment income in varying amounts for 1986
and 1989. Those amounts will be considered in the Rule 155
computation.
Petitioners reported $42,000 of income subject to Social
Security on Schedule SE of their 1986 Federal income tax return.
Respondent contends that Mrs. Bowden omitted $18,000 in
compensation from PWIC in the 8-month period ending December 31,
1986. Petitioners contend that the $18,000 was, in fact,
included in the $42,000 already reported on the aforementioned
Schedule SE. From the record in this case, we have no reason to
doubt petitioners’ testimony that the $18,000 amount was already
included in the total of $42,000 that respondent determined
should be reported. Accordingly, the $18,000 is deemed to be
part of the $42,000 already reported by petitioners.
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