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within the identification period, and we do not believe their
self-serving and uncorroborated testimony that, during the
identification period, they discussed these properties with each
other and decided to buy them.
Although they knew that they had not identified Pleasant
Hill or Skyland even verbally, petitioners misrepresented to the
IRS that they had in fact identified the replacement property and
reported the transaction as a section 1031 exchange. Petitioners
knew that they would owe a substantial amount of tax if they did
not timely identify replacement property. The law is clear with
respect to this issue. Petitioners fabricated timely
identification and obtained false documents to substantiate their
claim. Petitioners knew that the letters were false and that
their tax returns were false. The false letters, even if not
required for adequate identification, are evidence of fraud. See
Association Cable TV, Inc. v. Commissioner, T.C. Memo. 1995-596.
Petitioners' conduct presents clear and convincing evidence
of their intent to defraud. Accordingly, petitioners are liable
for a section 6663 fraud penalty for 1989.
To reflect the foregoing,
Decisions will be entered
under Rule 155 in docket No. 3832-
95 and for petitioners in docket
No. 7382-96.
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