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Background
For the taxable year 1978, petitioners timely filed a joint
Federal income tax return, Form 1040, showing total income of
$57,560. On March 26, 1980, petitioners filed an amended 1978
Federal income tax return, Form 1040X, showing an additional
$38,334.50 received as the gross sale price for an interest in an
oil and gas partnership. After other adjustments, petitioners'
income increased by $11,914 therefrom.
On October 29, 1984, respondent issued a notice of
deficiency to petitioners, which recharacterized the $38,334.50
as ordinary income. Respondent claims that the $38,334.50 is
actually the sum of a $15,000 finder's fee petitioner received
for assisting a constituent in procuring a construction loan and
a $23,334.50 fee for assisting the same constituent in procuring
a liquor license. Respondent also asserted an addition to tax
for fraud.
Petitioner
From January 1975 through January 1979, petitioner was the
Governor of the State of Tennessee. Prior to being elected
Governor, he served as a member of the Tennessee legislature and
the U.S. House of Representatives. For the taxable year in
issue, petitioner was married to Betty Blanton (Mrs. Blanton).
Sometime after July 1984, petitioner and Mrs. Blanton were
divorced.
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