Bruce and Judy Bailey - Page 4

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               Petitioner had a commission agreement with Shirley Baughan             
          and Associates to handle the rental of the Indian Wells                     
          condominium.  The Indian Wells condominium was rented to a tenant           
          from January 1 through 31, 1997, and to another tenant from                 
          February through December 1997.  The residential lease agreement            
          directed the tenants to remit their rent to Shirley Baughan’s               
          address.  Shirley Baughan and Associates collected the rent                 
          payments, paid itself the agreed commission, reimbursed itself              
          for expenses and repairs related to the rental property, and                
          issued a check for the remaining amount to petitioners.  Some of            
          the expenses paid by Shirley Baughan and Associates were for                
          shower parts, a water hose, a dryer vent hose, labor, the water             
          bill, and keys.  Petitioners deducted the commission expense that           
          they paid to Shirley Baughan and Associates in the amount of                
          $1,367 on Schedule E, Supplemental Income and Loss, of their 1997           
          joint income tax return.                                                    
               Petitioners reported the rents received and expenses from              
          the Indian Wells properties on Schedule E of their 1997 joint               
          income tax return as follows:                                               
                                 Indian Wells Indian Wells                            
                                 Condominium  Unit            Total                   
                Rents received     $13,805       $10,900   $24,705                    
                Less:  Expenses     29,255        10,487   39,742                     
                Income/(Loss)      (15,450)          413   (15,037)                   

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Last modified: May 25, 2011