Ferydoun Ahadpour, A.K.A. F. Ahadpour, and Doris Ahadpour - Page 10

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          claim, petitioners and CDC decided to cancel escrow.  CDC agreed            
          to accept $650,000 to terminate its rights under the Agreement.             
          By letter dated February 4, 1992, Mr. Steinman informed Escrow              
          Holder that petitioners and CDC agreed to cancel the Phase II               
          escrow.  On February 14, 1992, petitioners and CDC signed a                 
          “Mutual Release” in which they agreed to terminate the sale of              
          Phase II and to release each other from any causes of action                
          relating to the Agreement.                                                  
               Pursuant to the terms of the Mutual Release, the parties               
          agreed that CDC would receive up to $650,000 from petitioners “as           
          consideration” for executing the Mutual Release:  $600,000 to be            
          paid at the signing of the Mutual Release and an “Additional                
          Amount” of $50,000 to be paid upon, inter alia, the return of               
          CDC’s work product on the Phase II project.  On May 28, 1992,               
          petitioners paid to CDC $42,500 of the Additional Amount.                   
          Petitioners retained $7,500 of the Additional Amount, which they            
          considered to be an offset of CDC’s share of the legal fees that            
          petitioners had incurred as a result of the State’s tidelands               
          easement claim.6                                                            
               On their 1992 tax return, petitioners did not claim a                  
          deduction for the $642,500 paid to CDC in 1992.  Petitioners also           

          6  The record contains a considerable amount of information                 
          pertaining to events that occurred between petitioners and the              
          State, and petitioners and First American, after the years at               
          issue.  We do not consider this information to be of any                    
          relevance to the years before the Court.                                    

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