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McDaniel, Ms. McDaniel, and Mr. McDaniel's father. Another
source for the funds in that account was a mutual fund that Mr.
McDaniel established for Holly McDaniel shortly after she was
born. Mr. McDaniel and Ms. McDaniel managed the account that was
established for Holly McDaniel. During 1994, whenever Holly
McDaniel needed funds, an amount of money would be transferred
from the account to her checking account.
Petitioners filed a joint tax return (return) for 1992
sometime after April 5, 1993. Second Street filed and issued to
Mr. McDaniel a Schedule K-1, Partner's Share of Income, Credits,
Deductions, Etc., for 1992, which reported that Mr. McDaniel had
a separately stated long-term capital gain of $48,193. Petition-
ers did not report that gain in their 1992 return. Instead,
petitioners included Form 8082, Notice of Inconsistent Treatment
or Amended Return (Form 8082), with their 1992 return. In that
form, petitioners reported that Second Street had incorrectly
reported Mr. McDaniel's negative capital account balance as a
long-term capital gain. Petitioners attached the following
explanation to the Form 8082 that they filed with their 1992
return:
During 1992, Robert S. McDaniel, Jr. and Second
Street Partnership agreed that Mr. McDaniel would no
longer be required to make additional capital contribu-
tions to the partnership in exchange for Mr. McDaniel
giving up his 25% interest in the partnership. Mr.
McDaniel remains contingently liable for partnership
liabilities, his share of which is reported on the 1992
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