James D. Schlicher - Page 8

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               When petitioner originally constructed his residence on the            
          Clayton property, he was considering building it in the upper               
          wooded area.  However, because that area needed extensive                   
          clearing, petitioner would not have been able to prepare the site           
          and build a house within the 2-year period required by law.                 
          Instead, petitioner built his residence above the plain on a                
          cleared plateau, which abutted the upper, steeply hilled section            
          of the Clayton property.                                                    
          Respondent determined a deficiency against petitioner for 1988 of           
          $98,917, and additions to tax under sections 6651(a) and 6654(a)            
          of $24,729 and $6,326, respectively.  These deficiencies were               
          based on respondent's determination that petitioner had capital             
          gains from the sale of his principal residence in Livermore,                
          California, because petitioner failed to establish how much of              
          the 51 acres of the new property, which he purchased in Clayton,            
          California, was used by him as his principal residence.5                    
          Petitioner asserts that he used only 7-� of the 51 acres of the             
          Clayton property for his horse boarding and breeding business,              
          that the remaining land was used as his principal residence, and            
          therefore that his investment therein qualifies for                         
          nonrecognition treatment under section 1034(a).                             

          5    In the notice of deficiency, respondent failed to allocate             
          any portion of the 51 acres of the Clayton property to                      
          petitioner's residence.  However, at trial, respondent concedes             
          that 1 acre out of the 51 acres was used by petitioner as his               
          principal residence.                                                        

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