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his interest in the property to Patricia in October 1987 for a
stated consideration of $5,000. The Mobleys transferred title to
Frank by warranty deed on March 20, 1989.
On audit, respondent increased the gain from the sale of
that lot to $23,978 and determined that the gain was a short-term
gain. The notice of deficiency indicates that the adjustment was
made because of a change in verified basis and holding period.
In the source and application of funds analysis for Frank and
Katherine for 1989, respondent treats the $23,978 as a source of
funds.
II. Facts Relating to Issues Involving Transferee Liability
A. Larry
By notice dated April 4, 1997, respondent determined
transferee liability against Larry relating to the deficiencies,
additions to tax, and penalties that respondent determined Frank
and Katherine owed for the years in issue. Previously, by letter
dated July 26, 1996, respondent had determined that Frank and
Katherine had transferred the following assets to Larry upon
which transferee liability attached:
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