Andrew E. Blanche, Jr., and Cynthia D. Blanche - Page 2

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          property, referred to hereafter as the Foxbriar property; (2)               
          whether petitioners are entitled to a casualty loss deduction               
          under section 165(a) for the year 1991 with respect to the                  
          Foxbriar property; and (3) whether, for 1991, petitioners are               
          entitled to a nonbusiness bad debt deduction under section 166(a)           
          in connection with the Foxbriar property.1                                  
               Some of the facts were stipulated, and those facts, with the           
          annexed exhibits, are so found and are incorporated herein by               
          reference.  At the time the petition was filed, petitioners'                
          legal residence was Cibolo, Texas.                                          
               Prior to the years at issue, William S. Hewitt and his wife,           
          Peggy L. Hewitt (the Hewitts), were owners of residential real              
          property known as the Foxbriar property, which was located at               
          Cibolo, Texas.  On May 20, 1990, petitioners entered into an                
          earnest money contract with the Hewitts for the purchase of the             
          Foxbriar property.  The earnest money contract contained a lease            
          option addendum (the lease option), pursuant to which petitioners           
          began occupying the Foxbriar property on June 25, 1990, as                  
               Under the lease option, petitioners were to pay to the                 
          Hewitts $1,000 per month for 1 year, commencing July 1, 1990, and           
          ending June 30, 1991.  Of each $1,000 monthly payment, $250 would           

               1    Unless otherwise indicated, all section references are            
          to the Internal Revenue Code in effect for the years at issue.              

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