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During 1996, petitioners were audited by one of respondent's
agents. The auditor requested information from petitioners with
respect to the sale of their Mequon residence. On September 16,
1996, petitioners provided Form 2119 and Form 4797, Sales of
Business Property, to the Internal Revenue Service auditor assigned
to their case. However, petitioners did not execute either form.
Notice of Deficiency
In the notice of deficiency, respondent determined that the
capital gain petitioners received from the sale of their Mequon
residence was includable in their 1993 income. Respondent
calculated petitioners' capital gain in the following manner:
Personal Business
Total 83% 17%
Sale price $270,000 $224,100 $45,900
Add: Depreciation allowed 4,913 --- 4,913
Less: Adjusted basis in (213,582) (177,273) (36,309)
property
Selling expenses (21,191) (17,588) (3,603)
Capital gain on sale of property 40,140 = 29,239 + 10,901
OPINION
Issue 1. Gain From Sale of Home
The first issue is whether petitioners must include as income
the capital gain realized from the sale of their Mequon residence
in 1993. Respondent maintains that because petitioners failed to
satisfy the requirements of section 1034, they should have reported
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