- 13 -
In light of this holding, it is unnecessary to consider
respondent’s argument that the San Jose property was used as
petitioners’ personal residence during 1992 and therefore gave
rise only to nondeductible personal expenses.
The Milpitas Property
Background
In January 1994, petitioners were interested in purchasing a
house that was under construction in a development in Milpitas,
California. They participated in a “camp-out” organized by a
group of prospective buyers to hold their place in line before
the scheduled opening of the builder's sales office on January
29, 1994. On March 11, 1994, petitioners paid a $350 fee to a
financing company for an appraisal of the Milpitas home and for a
personal credit investigation.
Petitioners previously had declared bankruptcy and could not
qualify for a loan. The loan officer suggested petitioners have
another person obtain the loan to purchase the property.
12(...continued)
mortgage interest deductions petitioners had already claimed with
respect to this property. As another example, petitioners listed
the San Jose property on their chapter 7 bankruptcy petition as a
“second home” and listed the nature of the debtor’s interest in
the property as “brother living in house”. The copy of the
bankruptcy petition that respondent received from petitioners in
response to a discovery request had been altered to remove the
words “second home” and “brother living in house”. The
cumulative weight of these irregularities severely strains
petitioners’ credibility. In determining whether a taxpayer has
adequately substantiated deductions, "The credibility of the
taxpayer is a crucial factor." Norgaard v. Commissioner, 939
F.2d 874, 878 (9th Cir. 1991), affg. in part and revg. in part
T.C. Memo. 1989-390.
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