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exclusively for IFS. In 1992, petitioner reported income of
$20,000 from his consulting activities, and from 1993 through
1995, he reported no income from consulting activities.
In or about 1977, petitioner became acquainted with Richard
Magness, a licensed framing contractor. Petitioner hired Mr.
Magness to perform framing work on two spec houses3 petitioner
was building, one in Sherman Oaks and one in Los Angeles.
Petitioner also hired Mr. Magness to perform framing work for the
construction of petitioners’ own residence.
In 1991, Mr. Magness requested a $200,000 advance from
petitioner to be used to construct two spec houses on lots Mr.
Magness purchased in 1987-–one at 6016 Corbin Avenue and one at
6020 Corbin Avenue (hereinafter collectively referred to as the
Corbin project or Corbin properties). Mr. Magness already had
borrowed substantial funds from commercial lenders for the
purchase of the lots and construction of the residences and had
given those lenders first and second deeds of trust on the Corbin
properties. Mr. Magness knew petitioner possessed a real estate
license and had built and sold spec houses for a profit in the
past. Mr. Magness had never built a spec house of his own.
Petitioner estimated that, upon completion, the Corbin properties
3A spec house is a house constructed by a builder to the
builder's specifications with the intention of selling it at a
profit upon completion. Since l977 petitioner has built at least
six spec houses, each of which was sold at a profit. Mr. Magness
worked as a framer on at least four of petitioner’s spec houses.
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