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Petitioners' daughter, Jill, resided at the Algonquin
residence from May of 1987 through June of 1988. Although the
record is not clear as to the extent of usage, it appears that
petitioners also periodically stayed at the residence subsequent
to its sale on December 19, 1986.
4. The Notice of Deficiency
Despite petitioners' agreement to extend the period of
limitations in their case until June 30, 1992, petitioners did
not receive a 30-day letter prior to the notice of deficiency.
Petitioners agreed to the extension in the hope of resolving the
case at the administrative level.
In the notice of deficiency, dated June 29, 1992, respondent
set forth one primary and three alternative positions for
determining deficiencies in petitioners' Federal income taxes and
additions to tax for negligence with respect to petitioners'
1986, 1988, 1989, and 1990 taxable years. Of relevance to the
present matter were respondent's determinations that: (1)
"Prohibited transactions" had occurred which resulted in the
termination of IRA's #1 and #2; and (2) the sale of the Algonquin
property to a trust in 1986 was a "sham" transaction which could
not be recognized for tax purposes.
a. "Prohibited Transactions"
Because the notice of deficiency failed to adequately
explain respondent's bases for determining deficiencies
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