-4-
For convenience, we present a general background section and
combine our findings of fact with our opinion under each separate
issue heading.
General Background
A. Petitioners
Petitioners are married and filed joint Federal income tax
returns (Form 1040) for 1989, 1990, and 1991 with the Internal
Revenue Service Center in Atlanta.
During the years at issue, petitioner was a realtor, a real
estate developer, and an investor in real estate. He owned and
operated several companies that built townhouses and expensive
homes, and he engaged in other real estate development
activities. Petitioner attended 2 years of law school but did
not pass the bar exam.
Mrs. Jones is a mother and a homemaker. At the time of
trial, petitioners had two children, a daughter and a son, 21
years and 8 years of age, respectively. During the years at
issue, Mrs. Jones received $3,000 each month from petitioner
which she used to pay for utilities and food.
Mrs. Jones has long suffered from Raynaud's disease. As a
result of this disease, she had surgery on her feet in 1988 and
again in 1991. During the 1988 surgery, Mrs. Jones contracted a
staph infection that complicated her medical condition and eluded
detection until 1991.
Petitioners separated temporarily in September of 1991 and
reunited in May of the following year. During the separation,
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