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under section 1033;1 and (2) whether petitioners are liable for
an accuracy-related penalty pursuant to section 6662(a).
Petitioners contend that the $130,000 settlement payment was
for damage to petitioners’ home, was used for repairs, and
therefore should not be recognized as income in accord with the
section 1033(a) involuntary conversion rules. Respondent
counters that section 1033 is inapplicable because the gain
realized by petitioners was not the result of an involuntary
conversion.2
FINDINGS OF FACT
The stipulation of facts and the exhibits attached thereto
are incorporated herein by this reference.
Phillip and Carolyn Allen, petitioners, have resided, at all
pertinent times, in Orange, California. In 1987, the beginning
of what would become extensive damage in petitioners’ home
occurred. The first indication of the problem was that the
sliding glass doors would no longer close. Then the cupboard
doors were difficult to open. The kitchen cabinets started to
1 Unless otherwise stated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue.
2 Respondent also advanced arguments concerning sec. 104
because of petitioners’ references to that section in their
briefs. Petitioners’ reference to the income exclusion principle
of sec. 104 was merely by way of an analogy as a means to test
the nature of the payment in order to show compliance with a sec.
1033 requirement. For this reason, we address only the parties’
sec. 1033 arguments.
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