Shizuo George Kurata - Page 9

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                  Adjustment to taxable income in issue     91,352                                    
            Now that we have determined the adjustments to petitioner's gross                         
            and taxable income that are in issue as a result of the sale of                           
            the five units, we must decide whether those adjustments are                              
                  Petitioner asserts that the five units, along with 80 other                         
            similar properties, which were part of a 300-unit condominium                             
            complex located in Mukilteo, Washington (the Mukilteo complex),                           
            were damaged beyond repair as a result of soil erosion caused by                          
            drainage diffusion and saturated soil.  A homeowner's association                         
            representing the interests of the condominium owners, including                           
            petitioner, retained a law firm that initiated legal proceedings                          
            against Great Bank, which, according to petitioner, acquired the                          
            bank that had sold the properties to the condominium owners.                              
            After negotiations, the homeowner's association entered into a                            
            group settlement agreement with Great Bank on January 15, 1989.                           
            Pursuant to that agreement, petitioner transferred the five units                         
            to Great Bank in exchange for cash and debt forgiveness.                                  
            Petitioner claims that the five units were destroyed beyond                               
            repair and, as a result of the interlocking ownership structure                           
            of the Mukilteo condominium properties, “the group settlement was                         
            the only practical recourse available to the individual owners”.                          
            On that basis, petitioner claims that the five units were                                 
            involuntarily converted.  Petitioner contends that he applied the                         

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