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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
correct.
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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