Michael T. Carey and Leone R. Carey - Page 5

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               Petitioners currently live in a house in Bella Vista,                  
          California (the Bella Vista residence).  The Bella Vista                    
          residence is located on 54 acres of land.  Michael Blomquist,               
          trustee of Hidden Meadows Holding Trust, acquired title to the              
          Bella Vista residence in 1996.  Robert Hogue was the purported              
          trustee of Hidden Meadows Holding Trust at the end of 1997.                 
          Petitioner paid the property taxes on the Bella Vista residence             
          in April 1997 with funds from Sunshine’s bank account.                      
               4.   Petitioners’ 1997 Tax Return                                      
               Petitioners requested and received an extension of time to             
          August 15, 1998, to file their 1997 return.  Petitioners signed             
          their 1997 return on October 7, 1998, and respondent received it            
          on October 16, 1998.                                                        
               Petitioner received but did not report self-employment                 
          income of $1,221,680 in 1997.  Residential, Rancho, Sunshine, and           
          Home Health reported that amount as gross receipts on their 1997            
          returns.  Petitioners also received but did not report interest             
          income of $868 in 1997.  Instead, Residential, Rancho, and Home             
          Health reported that amount as interest on their 1997 returns.              
               Petitioners did not have or provide to respondent                      
          substantiation of car and truck, office, and mortgage interest              
          expenses they deducted on their 1997 return.                                









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