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Petitioner reported all three sales on the 1988 return using the
installment method of accounting.
In 1989, petitioner sold the notes referred to in the
preceding two paragraphs (the Holland Spring notes) to Herland
Finance, Ltd. (Herland), receiving “approximately” $2.5 million
in cash. At the time of that sale, petitioner’s total basis in
the Holland Spring notes was $2,724,451.
OPINION
I. Introduction
Section 1 of the Code imposes an income tax on the income of
every individual who is a citizen or resident of the United
States and, to the extent provided in sections 871(b) or 877(b),
on the income of a nonresident alien. In pertinent part, section
897(a) provides that gain or loss of a nonresident alien
individual from the disposition of a U.S. real property interest
shall be taken into account under section 871(b)(1). The parties
agree that, for 1987 and 1988, petitioner was a resident of the
United States and that, for 1989, he was a nonresident-alien
individual. Respondent determined a deficiency in petitioner’s
1989 Federal income tax on the basis that petitioner had failed
to report total capital gain income of $17,248,184 arising from
the disposition in 1989 of the 1987 Ampel notes to Floridama and
Holland Spring notes to Herland. Respondent determined, at least
with respect to the disposition of the 1987 Ampel notes, that
petitioner’s gain arose “from the sale of United States real
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