- 3 -
disallowed only $44,759.09. Thus, at trial, respondent agreed
that petitioners are entitled to $69,085.91 in Schedule C
expenses (instead of the $63,013 allowed by respondent in the
notice of deficiency), which amount is in addition to expenses of
$4,026 allowed by respondent for repairs, travel, meals and
entertainment.
In the notice of deficiency, respondent determined that
petitioners had an unreported capital gain of $140,000 from the
sale of their New Jersey personal residence. In the stipulation
of facts, respondent conceded that petitioners did not have a
$140,000 capital gain from the sale of their personal residence
during 1990 because it was not sold until February 1991.
On Form 4797 attached to their Federal income tax return for
1990, petitioners reported the sale of business property and
reported a gain of $22,000. This reported gain was from the sale
of the portion of petitioners' New Jersey residence used for
business. Because their personal residence was not sold during
1990, this gain of $22,000 should not have been reported by them
in that year.
In Exhibit AL respondent proposed that no gain or loss
should be recognized by petitioners on the trade-in of a
Chevrolet Cavalier because they did not follow the rules under
section 1031 for like kind exchanges when they traded in the
Chevrolet Cavalier on the lease of a Chevrolet van. Respondent's
position was based on the fact that petitioners had advised
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