James D. Schlicher - Page 4

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          Petitioner did not use any of the Livermore property for business           
          purposes.  In 1988, petitioner received gross receipts from his             
          horse boarding and breeding business of $28,188,4 and paid                  
          deductible business expenses of $47,752.  Petitioner owned some             
          personal horses that he rode for pleasure, which he kept on the 5           
          acres used as his Livermore residence.  Petitioner had a fence              
          around the 5 acres, corrals that were used to exercise his                  
          personal horses, and a barn used for boarding.  Petitioner did              
          not allow any of the boarded horses in the area where he kept his           
          personal horses.                                                            
               On July 18, 1988, petitioner sold the Livermore residence              
          and the 5 adjoining acres for $550,000.  He incurred $29,000 in             
          sale expenses.  Thus, the adjusted sales price was $521,000, and            
          petitioner's total adjusted basis was $102,000.  Therefore,                 
          petitioner realized a gain from the sale of $419,000.                       
               In December of 1988, petitioner purchased 51 acres of                  
          undeveloped land in Clayton, California (the Clayton Property),             
          for $380,000.  The property is comprised of an upper, steeply-              
          hilled wooded area and a plain.  The upper portion of the                   
          property, which is zoned for residential building has a better              
          view of the surrounding countryside and of Mount Diablo than does           
          the plain.  The plain, where petitioner's boarding facility is              
          located, consists of a 100-year flood zone.  This area is also a            
          Native American archaeological site; therefore, petitioner is               

          4    Petitioner's gross receipts from this activity are referred            
          to in the notice of deficiency as "Schedule F gross receipts."              

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