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$500,000 from their account and used this money to pay down the
mortgage on their residence in Huntington Beach.
On May 2, 1990, CDC exercised their right to extend escrow
and delivered the $200,000 Extension Payment to Escrow Holder.
The closing date was extended until September 1, 1990. Escrow
Holder released the $200,000 Extension Payment to petitioners by
delivering a check to petitioners’ attorney Mr. Jay Steinman (Mr.
Steinman). Also on May 2, 1990, petitioners deposited the
$200,000 into an account at Wells Fargo Bank held in the name
“Huntington Harbour Bay and Racquet Club Marina Acct”. The
balance in this account immediately before the deposit was
$35,214.02. On the same day, petitioners wrote a check from this
account for $200,000 to purchase a certificate of deposit.4
Petitioners did not report the $500,000 received in 1989 and
the $200,000 received in 1990 from Escrow Holder as income on
their 1989 or 1990 tax return or on any subsequent returns.
Public Trust Land Problem
In April 1990, local Huntington Beach residents sued CDC and
the City of Huntington Beach with respect to CDC’s planned
condominium development at the Huntington Harbour Bay Club Phase
I. The lawsuit challenged, inter alia, the legality of “land use
4 The record contains substantial additional evidence
tracing petitioners’ use of the funds received from the Escrow
Holder. We believe that material is irrelevant to the issue.
Suffice it to say that petitioners exercised dominion and control
over these funds without restriction.
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