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option fee from their escrow account at Escrow Masters and
deposited it into California Federal account number 502396.
Petitioners did not report receipt of the $10,000 option fee on
their 1989, 1990, or 1991 return.
On December 1, 1989, the Woods executed a note in favor of
petitioners in the amount of $232,000. The terms of the note
were "On or before June 3, 1991", with interest from November 20,
1989, payable in interest only until June 3, 1991, with the
entire principal and accrued interest being due in full at that
time.
Although the option was to expire in June 1991, on March 7,
1991, the Woods decided not to exercise their option on
15 Hastings. At this time, Mrs. Wood entered into a rental
agreement with petitioners whereby she rented 15 Hastings for
$3,149.69 per month, plus the association fee and gardening
expenses. Petitioners reported the rent received from the Woods
on Schedule E of the 1990 and 1991 returns as rental income.
Clerical Fee
On August 12, 1991, petitioner received a $535 check drawn
on the account of Wood and Morimoto, P.C.
OPINION
Because the statutory notice of deficiency for 1988 was sent
on July 20, 1994, more than 3 years after the filing of the 1988
return, assessment of a deficiency for that year is barred unless
either section 6501(c)(1), dealing with false or fraudulent
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