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penalty under section 6663. Petitioners' reply denied receipt of
the $150,000.
The parties have since stipulated that petitioners omitted
only the following items of income from their Schedules C
attached to their 1990 return: (1) The consultation fee of
$150,000 paid to Susanna d.b.a. Sand Hill on March 20, 1990, by
Meiyan; and (2) the sum of $840,000 paid to petitioners on
October 30, 1990, by Sanrio. The parties agree that section
6662(a) applies to the deficiency attributable to the unreported
income to the extent that the Court concludes that section 6663
is inapplicable.
II. The Mortgage Interest Deduction
Until 1989, petitioners owned a condominium in San Mateo,
California, that they used as their primary residence. In 1989,
after their move, petitioners subsequently reclassified the
condominium as rental property. In that year, petitioners also
purchased a home in Hillsborough, California, for use as their
primary residence and they have since lived there at all times.
The purchase price of the residence was $1,780,000. Petitioners
have a mortgage on the Hillsborough residence, the original
principal amount of which was $1,330,000.
In 1990, petitioners claimed a home mortgage interest
deduction on Schedule A of $107,226. Despite having actually
paid a greater amount of mortgage interest, petitioners limited
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