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On their 1988 tax return, petitioners reported the sale of
Apricot as a sale of business property. They executed a
Form 2119, Sale of Your Home, with respect to 14 Siros. They
attached this form to their 1988 Federal tax return, thereby
claiming the right to defer under section 1034 a gain of $81,555
realized on sale of 14 Siros.
At the time that he prepared and filed petitioners' tax
return for 1988, petitioner was familiar with the requirements
for deferral of gain under section 1034. Petitioner knew that
petitioners did not qualify for deferral with respect to the gain
on the property at 14 Siros, but he nonetheless claimed the
deferral in order to defeat or avoid the taxes known to be owing
on the gain that they realized from sale of that property.
Malloy Property
On June 21, 1979, petitioner acquired an undivided one-half
interest in property at 8132 Malloy Drive, Huntington Beach,
California (Malloy). In July 1988, petitioners entered into an
agreement with Irvine Exchange Corporation (IEC) under which
petitioners were required to convey Malloy to IEC and IEC was to
act as an accommodator to petitioners for the exchange of then
unspecified property with then unknown third parties. That
exchange, however, was never completed with respect to Malloy.
Rather, on August 26, 1988, Malloy was sold to Anthony J. Vaccaro
for $209,000, of which $104,500 was for petitioners' interest in
Malloy.
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