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petition in these cases. Petitioner corporation had its
principal place of business in San Antonio, Texas, during the
year in issue and when it filed the petition. Petitioner is (and
was in the year in issue) the president of petitioner
corporation.
Petitioner incorporated petitioner corporation in Texas on
November 1, 1977. Petitioner corporation uses the accrual method
of accounting. Petitioner corporation has primarily been
involved in the construction and sale of residential real estate
since it was formed.
B. Petitioner Corporation’s Sale of the Apartment Building to
Petitioner
On August 10, 1993, petitioner corporation sold petitioner a
four-unit apartment building (the apartment building) located at
7519 Windsor Oaks, San Antonio, Texas, for $105,465. Petitioner
corporation’s adjusted tax basis in the building was $105,465 on
the date of sale. The sale price of the apartment building
equaled its value on petitioner corporation’s books, computed as
follows:
Building costs $126,668
Land costs + 8,224
Less depreciation (29,427)
Net book value 105,465
Petitioner corporation built the apartment building in 1985.
It has two apartments with three bedrooms and two baths, and two
apartments with two bedrooms and one bath. Its exterior walls
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