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proprietorship known as Greenville Insurance Agency (GIA). Mrs.
Keith established the business in 1983 on the advice of her
father, J.D. Latzak, as a vehicle to create potential tax
savings. GIA was formed primarily to sell insurance, to purchase
real estate for resale or rent, and to broker mortgages. Since
its genesis, GIA has been run by Mr. Latzak who, because of large
judgment creditors, could not conduct business or hold assets in
his name. Although neither of the Keiths possesses an insurance
license or has experience in real estate transactions, Mr. Latzak
is a licensed insurance agent and an experienced broker. We
previously addressed the treatment of insurance commissions and
mortgage placement fees earned incident to GIA’s operations for
years 1984 through 1988 in Latzak v. Commissioner, T.C. Memo.
1994-416. We now focus on the reporting of income attributable
to the company’s sales of real property.
GIA’s Real Estate Transactions
During the years at issue, GIA was in the business of
selling, financing, and renting residential real property. The
sales were effected by means of contracts for deed. The record
reflects 18 such contracts entered into between 1989 and 1995, 12
of which were executed in the 1993 to 1995 period presently
before the Court. The following is representative of these
agreements:
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