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By 1994, Angelo owned 77.86 percent of Stockton/Elsie, and
petitioner owned the remaining 22.14-percent interest.
Angelo attempted to sell Stockton/Elsie in 1985; the sale,
however, did not occur because the prospective purchaser learned
that Stockton/Elsie would need to be cleaned up due to
contamination. In 1987 and 1988, Angelo received reports which
confirmed contamination in Stockton/Elsie’s soil and groundwater.
On March 17, 1992, Angelo filed a lawsuit against several oil
companies, including Phillips Petroleum, former owners and
tenants, and insurance companies alleging that they were
responsible for the cleanup costs. In 1993, the California
Regional Water Quality Control Board issued a cleanup and
abatement order on Stockton/Elsie to certain past and present
owners, including Angelo. Petitioner deducted his share (i.e.,
22.14 percent) of these toxic cleanup expenses on his 1993 and
1994 tax returns, and respondent allowed these expenses. Angelo
advanced these expenses to petitioner. By 1995, petitioner had
not paid these amounts back to Angelo.
On August 1, 1995, due to his health problems, financial
problems, and fear of potential lawsuits regarding the
contamination of Stockton/Elsie, petitioner deeded his entire
interest in this property to Angelo. This deed was recorded on
January 21, 2000. The deed indicated that there was no value to
Stockton/Elsie.
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Last modified: May 25, 2011