-38-
There is no evidence that the Mercedes was ever treated as the
property of the Schedule C business. All of the indications are
that the Mercedes was the personal car of petitioners. Thus, we
conclude that the transaction occurred outside the Schedule C
business. Petitioner testified that he paid "about $20,000" for
the Mercedes when he purchased it in 1985. His testimony in this
respect is not incredible and is not contradicted. Thus, the
amount petitioner received in payment for the Mercedes was not in
excess of the cost of the Mercedes; therefore, petitioners have
no gain from the sale of their car to Kortava and have not failed
to report income related to the sale of the Mercedes.
Saddle Rock and Martis Landing
Petitioners claim that their investment in Saddle Rock and
Martis Landing was $188,000, consisting, in part, of the
following:
Loan to Lee Wood $80,000
Loan to Lee Wood 50,000
Payment to Topa 28,529
Payment to Mission Viejo National Bank 20,000
Delinquent taxes 8,203
Respondent contends that petitioners did not have an investment
in these properties because these amounts were paid with funds
received from Kortava.
Petitioners claim that $188,000 received from Coastline
represents a payment for their interest in Saddle Rock and Martis
Landing. We must decide whether Coastline ever owned the
properties.
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