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October 1996, petitioner was a firefighter. In December 1996
petitioner worked "at Saint Elizabeth's in Red Bluff".
Petitioner told the examiner that he was also in the
business of building and selling houses. Before 1994 petitioners
had not been involved in building houses. It was determined that
petitioners did not have a contractor's license and performed no
contracting work personally; they worked through subcontractors.
Petitioners maintained no set of books and failed to provide an
accounting of the expenses associated with their home-building
activity. Petitioner, however, did present some folders
containing receipts and canceled checks related to the building
of a house on Montana Avenue in Shasta Lake, California, and to
the construction of a house on Vallecito Street in Shasta Lake,
California. Among the items in the folders was a canceled check
in the amount of $11,104.67 payable to the "US Bank".
In 1994, petitioners, in a part sale and part gift
transaction, acquired land located at 4511 Vallecito Street in
Shasta Lake, California (Vallecito property), from Sheila
McIntosh's parents. They had a house built on the property that
they sold in 1996. Petitioners reported on Schedule C the income
and expenses from the Vallecito property. They acquired another
piece of property, the "Oasis Road" property, from "a
grandmother" on which they built a house they intended to sell
but had not sold at the time of the income tax examination.
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