Bernard William Hvidding and Faleasiu E. Hvidding - Page 5

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          Purchase Components which gave petitioner the following three               
          options at the end of the initial term of the SEP:  (1) Extend              
          the term for an additional 61 months at a cost of $1 per month;             
          (2) purchase the solar water heating system at its current price;           
          or (3) have HEH remove the system.  On a date not stated in the             
          record, petitioner extended the term for 61 months.                         
          E.   Petitioners’ 1996 Return                                               
               Petitioners claimed an energy credit of $536 (10 percent of            
          $5,355)1 on Form 3468, Investment Credit, attached to their 1996            
          Federal income tax return.  Petitioners attached to their return            
          a Schedule K-1, Beneficiary’s Share of Income, Deductions,                  
          Credits, etc., issued to petitioner by HEH.  The Schedule K-1               
          indicates that HEH allocated $535 to petitioner as an energy                
          credit, but it does not indicate that HEH allocated any income to           
          petitioner for 1996.                                                        
          F.   The Notice of Deficiency                                               
               On March 21, 2000, respondent issued a notice of deficiency            
          to petitioners in which respondent determined that petitioners              
          were not entitled to an energy tax credit because:  (a) The                 
          energy leasing contract was in substance the purchase by                    
          petitioner of solar equipment, and (b) petitioner received no               
          income as a beneficiary of the HEH trust in 1996 and thus was not           

               1  The exhibits show that HEH agreed to pay Mercury Solar              
          $5,325.  The $30 difference between $5,355 and $5,325 is not                
          explained in the record.                                                    





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