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a substantial sum5 had been expended in connection with these
renovations.
On March 2, 1995, CWS distributed the Mystic Lake property
to the petitioner and Ms. Gutierrez (the distribution). Soon
thereafter, petitioner and Ms. Gutierrez obtained a $300,000
construction loan from Barnett Bank to fund the construction of
the castle residence that they intended to build on the property.
As of the close of 1995, the castle residence was substantially
completed.
Petitioner and Ms. Gutierrez filed a timely joint Federal
income tax return for each year in issue. Each return was
prepared by John D. Gaskins,6 a certified public accountant whose
license was later revoked because he was convicted of Federal
income tax evasion. Income of $64,400 is reported on
petitioner’s 1994 return, which income consists of $34,635 of
shareholder pro rata income from CWS, $29,546 of wages; and $219
of interest. Income of $33,461 is reported on petitioner’s 1995
return, which income consists of $18,259 of shareholder pro rata
5 The parties stipulated that the basis of the Mystic Lake
property had increased by $63,949 as of March 1995. As best as
can be determined from the record, the addition to the property’s
basis is attributable to the improvements made to the four
existing structures. Some of the expenditures now included in
the property’s basis apparently gave rise to deductions claimed
by CWS and disallowed by respondent.
6 Mr. Gaskins was also involved as a principal with
petitioner in various welding businesses.
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