Margaret Hancock - Page 10

          her husband.  The Mark Hancock Corp. developed several                       
          subdivisions during the 1980's and 1990's.                                   
               In February 1986, Hancock Enterprises deeded two lots in the            
          Playa del Sur subdivision to petitioner, which she immediately               
          sold to Mark Hancock.  He paid $104,270 for the two lots.  The               
          Mark Hancock Corp. built houses on those lots at a date not                  
          specified in the record.                                                     
               2.   Greg Hancock Corp.                                                 
               Greg Hancock Corp. developed subdivisions with about 80 lots            
          in 1986, 220 lots in 1987, and about 68 lots in 1988.                        
          F.   Petitioner's Tax Returns                                                
               Hancock Enterprises treated the 48 lots it held when it was             
          liquidated as inventory on its books.                                        
               Petitioner reported the amounts realized from the sale of               
          lots in 1987 as gross receipts on a Schedule C attached to the               
          trust's 1987 tax return.  She treated her adjusted basis as the              
          cost of goods sold and deducted several other expenses.                      
               Petitioner reported sales of lots as sales of inventory on              
          the Schedules C attached to her returns for 1989 to 1996.  She               
          reported the amounts she realized from those sales as gross                  
          receipts and her adjusted basis as cost of goods sold, and she               
          deducted several other expenses.                                             
               Petitioner reported on Schedules C for 1987 and 1989-96 that            
          she was in the real estate development business.                             

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