Greg McIntosh and Sheila R. McIntosh - Page 4

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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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