-42-
Respondent also determined that petitioners used funds for
unidentified and personal expenses of $8,264.64 from Dean Witter
account number 37733 and $2,736.23 from Schwab account number
3843. Petitioners, in their response to a proposed finding of
fact regarding Schwab account number 37733, claim that certain
charges from Budapest and Madrid that are reflected in the
proposed finding and on account statements are not personal
expenses. Petitioners state on brief that respondent was shown
petitioners' passports and that the passports did not reflect
travel to Budapest or Madrid. No such evidence was presented at
trial, nor was any other evidence presented concerning the actual
purpose of these expenditures. Respondent's determination that
petitioners failed to report the amounts paid as personal
expenditures will be sustained.
Unreported Income--Deeds in Lieu of Foreclosure
Respondent determined that petitioners failed to report
income received from their acceptance of Martis Landing and
Saddle Rock by deeds in lieu of foreclosure from the Woods.
Preliminarily, petitioners contend that respondent's proof
and argument on brief do not conform to the notice of deficiency
or the pleadings. Petitioners note that the statutory notice of
deficiency and answer refer to "debt extinguishment" as an
adjustment to income in the amount of $74,321. The notice of
deficiency explains this determination as "The amount of your
debt which was cancelled or forgiven is includable in income."
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