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We are persuaded that respondent's positions on the above
issues were reasonable. Respondent's positions were based on
petitioners' failure to fully substantiate or account for the
respective items. Further, the issues were settled within a
reasonable time after petitioners gave sufficient information to
respondent. See Harrison v. Commissioner, 854 F.2d 263, 265 (7th
Cir. 1988), affg. T.C. Memo. 1987-52; Wickert v. Commissioner,
842 F.2d 1005 (8th Cir. 1988), affg. T.C. Memo. 1986-277; Ashburn
v. United States, 740 F.2d 843 (11th Cir. 1984); McDaniel v.
Commissioner, supra.
Reasonable Basis in Law
According to petitioners, respondent unreasonably determined
that car and truck, insurance, office, and utilities expenses
totaling $2,008.06 incurred in 1995 were not deductible expenses
but instead must be capitalized into the cost of the Vallecito
property sold in 1996. Petitioners appear to argue that
respondent's position was legally infirm, although their argument
seems to be inconsistent with the "informal agreement" they urge
for the treatment of similar 1994 expenses as capital
expenditures.
Although petitioners did not maintain a set of books and
failed to provide an accounting of the expenses associated with
their home-building activity, they reported a reduction of
$77,462 of Schedule C gross receipts for "cost of goods sold" in
connection with their home-building activity for 1996. Because
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