- 6 -
loan). Mr. Assaad signed a deed of trust in favor of First
National, which secures 9 Isabella as collateral for the First
National loan.6 On or about April 17, 1990, First National lent
Mr. Assaad an additional $100,000 (additional First National
loan). Mr. Assaad signed a deed of trust in favor of First
National, which secures 9 Isabella as collateral for this loan.7
At some point, California Federal Savings and Loan Association
(California Federal) lent money to petitioners to repay the loans
from First National, and for other purposes.8 On October 31,
1990, California Federal recorded a deed of trust and assignment
of rents that petitioners executed in favor of California Federal
and against the real estate at 9 Isabella. A statement from
California Federal to petitioners, dated March 9, 1992, states
that the total interest paid on a certain loan no. 10743062 for
1991 was $113,812.35. At some point in 1992, the house at 9
Isabella was sold for $1,250,000.9
Petitioners filed joint Federal income tax returns for their
1992, 1996, and 1997 taxable years. They attached a Schedule C,
6The construction trust deed cites a note of $875,000, which
contains a variable interest rate.
7The deed of trust cites a note of $100,000, which contains
a variable interest rate.
8Petitioners received $120,802.70 cash back on this
refinancing transaction.
9Petitioners were paid $131,514.95 of the proceeds from the
sale of 9 Isabella.
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