John J. Reichel - Page 3

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               Petitioner's business generally consists of buying and                 
          developing raw land.  After purchasing a parcel of land,                    
          petitioner applies for and obtains zoning variances, grading                
          plans, street plans, water plans, sewer plans, storm drain plans,           
          site plans, architectural plans, environmental feasibility                  
          studies, and development and construction cost estimates.  He               
          then subdivides the land by having the city or county where the             
          land is located approve tentative tract maps, parcel maps, "ready           
          for recording" (but unrecorded) tract maps, and recorded tract              
          maps.  Once he has subdivided a parcel of land, he sells it to              
          homebuilders who build homes on it.                                         
               In 1991, petitioner bought an undeveloped 8-acre parcel in             
          San Bernardino County, California, for $357,423.  One year later,           
          he bought a 10-acre San Bernardino parcel for $1,002,000.  (We              
          shall refer to these properties hereafter as the San Bernardino             
          parcels.)  Petitioner bought the San Bernardino parcels intending           
          to develop them.  He has never undertaken any of the development            
          activities described above in connection with the San Bernardino            
          parcels because he believes economic conditions in San Bernardino           
          County are adverse.  He continues to hold the parcels for                   
               Petitioner paid $72,181 in real estate taxes on the San                
          Bernardino parcels in 1993.  He included these amounts in the               
          real estate taxes he deducted on his 1993 Schedule C.                       

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