Bruce and Judy Bailey - Page 2

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          1997 and (2) whether petitioners materially participated in the             
          operation of their Lake Arrowhead property during 1996 and 1997.            
               Unless otherwise indicated, all section references are to              
          the Internal Revenue Code in effect for the years in issue, and             
          all Rule references are to the Tax Court Rules of Practice and              
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated, and the stipulated             
          facts are incorporated in our findings by this reference.                   
               Petitioners resided in La Jolla, California, at the time               
          they filed their petition.  Petitioners filed joint individual              
          income tax returns for 1996 and 1997.                                       
               Petitioners are both attorneys admitted to practice in                 
          California.  Petitioner is an employee of Judy R. Bailey, a                 
          professional corporation, and practices in San Diego, California.           
               During 1996 and 1997, petitioners owned the following real             
          estate properties, all of which were located in California:                 
          (1) A condominium located at Arapaho Way, Indian Wells (Indian              
          Wells condominium); (2) a unit in a planned unit development                
          located at Arapaho Drive, Indian Wells (Indian Wells unit);                 
          (3) two four-plex buildings located at Elderwood Court, Riverside           
          (Elderwood properties); and (4) a single-family house located at            
          Caribou Drive, Lake Arrowhead (Lake Arrowhead property).                    
          Petitioners filed an election, with their income tax return in              

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