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5 acre parcel of land. For tax purposes, petitioners treated 25
percent of this property as used for business.
Petitioners planned to move to Missouri for semiretirement.
In this regard, petitioners entered into a contract to purchase a
campground in Missouri (the Missouri Property) in October 1990.
Petitioners paid an $11,000 earnest money deposit toward this
contract. Petitioners intended to use a portion of the Missouri
Property as a residence and to rent the other portions to
supplement their retirement income.
Thereafter, in November 1990, petitioners listed the
Thousand Palms Property for sale at a listing price of $650,000.
Given its uniqueness, petitioners hoped that an individual in the
construction business would be interested in their property.
Sometime in January 1991, petitioners were contacted by a married
couple, Mr. and Mrs. Norris (the Norrises). The Norrises
proposed a transaction to exchange properties with petitioners.
The Norrises owned a single-family home on a 1-acre lot in Palm
Springs, California (the Palm Springs House). The Palm Springs
House was listed at $529,000 and had been on the market for more
than 4 months.
Even though Palm Springs and Thousand Palms are neighboring
communities, their residential real estate markets are not
similar. Palm Springs homes are typically larger and much more
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Last modified: May 25, 2011